Mithy Granite (P) Ltd. And Others v. The Income-Tax Officer And Others

5. 204 ITR 550 - Muddeereswara Mining Industries & Stonecraft Industries v. Commissioner of Income Tax (do) 5 6. 20 ITR 572 - Commissioner Of Income-Tax, West Bengal v. Isthmian Steamship Lines (do) 5 7. 60 ITR 572 - Karimtharuvi Tea Estate Limited v. State of Kerala (do) 5 8. 120 ITR 921 - Reliance Jute and Industries Ltd. v. Commissioner of Income-Tax, West Bengal (do) 5 9. 24 ITR 506 - Sir Kikabhai Premchand v. Commissioner of Incometax (Central), Bombay (do) 5 10. 262 ITR 417 - Commissioner Of Income-Tax v. Pooshya Exports P. Ltd. (do) 5 11. (1888) 13 App. Cas 657 - (do) 8 12. (1971) 2 SCC 88 : AIR 1971 SC 1569 - State of Mysore v. Swamy Satyanand Saraswati (Deed) By His L.Rs (do) 8

Sri K.R Prasad, Advocate for Appellant

Sri G. Sarangan, Senior Advocate with Sri S. Parthasarathy, Advocate and Sri V.K Raghavan, Advocate for Applicant

Sri M.V Sheshachala, Advocate for Applicant

Sri M.V Sheshachala, Advocate for Respondent

Sri G. Sarangan, Senior Advocate with Sri S. Parthasarathy, Advocate and Sri V.K Raghavan, Advocate for Respondent.

JUDGMENT

Vishwanatha Shetty, J.:—

Since in all these matters, a common question is urged, all these matters are taken up together and disposed of by this common order.

2. I.T.A No. 31 of 2001 is an appeal filed under Section 260A of the Income Tax Act (hereinafter referred to as ‘the Act’) challenging the correctness of the order dated 22nd September 2000 made in I.T.A No. 1582.Bang/92 by the Income Tax Appellate Tribunal, Bangalore Bench (hereinafter referred to as ‘the Tribunal’). The assessment year which is the subject matter of dispute in the said appeal relates to the year 1989-1990. In I.T.R.C Nos. 23 and 24 of 1997, the Tribunal pursuant to the order made by this Court calling for reference referred the two questions to this Court as arising out of an order dated 1st December 1995 made in I.T.A No. 958.Bang/1989 for the assessment year 1984-1985. They, are as follows:

“1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that granite would fall under the category of ‘mineral’ in the context of sub-clause (b)(ii) of sub-section 2 of Section 80 HHC?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the extraction of granite was a manufacturing activity and, therefore, the assessee was entitled to investment allowance u/s 32A on the plant and machinery held by it in its operations?”

When the said I.T.R.C Nos. 23 and 24 of 1997 came up for consideration before the Division Bench of this Court, the Division Bench of this Court by its order dated 6th January 2000 answered the second question referred to above against the revenue and in favour of the assessee. However, in the light of the decision of this Court rendered in C.I.T v. Mysore Minerals Limited . 202 ITR 461. it is felt that the first question referred to above is required to be considered by a larger Bench and accordingly directed the said cases to be placed before the Hon'ble the Chief Justice for constituting a larger Bench.

In I.T.R.C Nos. 15 and 16 of 1997, pursuant to the order made by this Court seeking for reference, the Tribunal has referred two questions for consideration to this Court as arising out of an order dated 30th January 1996 made in I.T.A Nos. 584 & 585.Bang/90. However, the first question referred to this Court is similar to the first question referred to this Court in I.T.R.C Nos. 23 and 24 of 1997 The second question referred to this Court reads as follows:

“2. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the Board Circular No. 729, dated 1.11.1995 would come into effect only for the assessment year 1995-1996 and later and not for the earlier assessment years?”

The Division Bench of this Court which had referred the first question referred to in I.T.R.C Nos. 23 and 24 of 1997 to a larger Bench, felt that the questions raised in I.T.R.C No. 15 and 16 of 1997 also should be referred to a larger Bench and therefore, directed the matter to be placed before the Hon'ble the Chief Justice for constituting a larger Bench. Subsequently, since the questions raised in I.T.A No. 31 of 2001 are similar to the questions raised in I.T.R.C Nos. 15 and 16 of 1997 referred to above, the same was also directed to be placed before the Full Bench by the Hon'ble the Chief Justice. It is thus all these matters are placed before us for our consideration.

3. We have heard Sri K.R Prasad, learned Counsel for the appellant in ITA. No. 31 of 2001 and Sri Sarangan, learned Senior Counsel appearing for Sri Parthasarathy for the assessee in I.T.R.C Nos. 15 and 16 of 1997 and 23 and 24 of 1997 and Sri Sheshachala, learned Counsel for the Revenue.

4. Sri Prasad and Sri Sarangan challenging the correctness of the impugned order made two submissions. Firstly, they submitted that the conclusion reached by the Tribunal that the benefit of sub-section (1) of Section 80HHC of the Act would not be available to the assessees in view of the provisions contained in sub-section 2(b)(ii) of Section 80HHC as the goods exported by the assessees were minerals is totally erroneous in law. According to the learned Counsel, since the goods they have exported are cut and polished minerals, the same ceased to be a ‘mineral’ within the meaning of Section 80HHC (2)(b)(ii) of the Act. In support of their submission they referred to us the Circular dated 22nd May 1984 issued by the Central Board of Direct Taxes (hereinafter referred to as the ‘CBDT’), wherein the CBDT had clarified that the export of cut and polished diamonds cannot be construed as ‘mineral’ to deprive the benefit granted under sub-section (1) of Section 80HHC. They also pointed out that the Division Bench of this Court in the case of Commissioner of Income Tax v. Mysore Minerals Limited . 250 ITR 728. relying upon the said Board Circular dated 22nd May 1984 has taken the view that the export of cut and polished granites would be qualified for deduction under Section 80HHC of the Act. It is also their submission that the circular of the Board being binding on the parties under the Act, it is not permissible for the authorities to take a plea contrary to the Circular issued by the Board. They pointed out that the observation made by the Supreme Court in the case of Stonecraft Enterprises v. Commissioner Of Income Tax . 237 ITR 131. would clearly indicate that if granite is cut and polished it would be outside the purview of ‘mineral’. Secondly, they submitted that the amendment made to Section 80HHC (2)(b) by means of Finance Act No. 2 of 1991 which came into force with effect from 1st April 1991 clarifies the position that granites which are cut and polished cannot be treated as minerals to deny the benefit extended under sub-section (1) of Section 80HHC of the Act. In other words, it is their submission that though an amendment was made to Section 80HHC by means of Act No. 2 of 1991, it must be held that the amendment was made not for the first time to extend the benefit for export of cut and polished granites, but it should be held as reiterating the position which was already found in Section 80HHC (2)(b)(ii) of the Act. They further pointed out that the decision rendered by this Court in the case of Commissioner of Income Tax v. God Granites . 240 ITR 343. cannot have any application to the case of the assessees in these matters as the Division Bench of this Court in the said decision has not properly appreciated the decision of the Supreme Court in the case of Stonecraft Enterprises (supra). In this Connection, they referred to us the observation made by the Supreme Court in the case of Stonecraft (supra) at page 133 wherein the Supreme Court has observed as follows:

“It is the contention of learned Counsel for the assessee that while granite is a mineral in the general sense, it is not a mineral for purposes of Section 80HHC and that, therefore, the deduction provided for therein is available to the assessee. Our attention has been drawn to the provision as it read before the appropriate year and thereafter. Our attention has also been drawn to a Circular issued in the context of the later provision. This Circular, issued by the Central Board of Direct Taxes, is dated November 1, 1995, and records the Board's opinion that while granite alone can be considered as a mineral, any process applied to granite would deprive the quality of rough minerals from the dimensional blocks of granite, which was a value added marketable commodity; therefore, the profits derived from the export of granite dimensional blocks would be eligible for deduction under Section 80HHC of the Act. As we have already noted, there is nothing on record to indicate that what the assessee exports is such value added granite so that, even assuming that the said Circular is explanatory and can, therefore, relate back to the year in question, the assessee cannot derive any assistance therefrom.”

It is their submission that the observation of the Supreme Court would clearly indicate that if granite is cut and polished, it will be outside the purview of ‘mineral’.

5. However, Sri Sheshachala, learned Counsel appearing for the Department while strongly countering the submissions of Sri Prasad and Sri Sarangan, firstly, pointed out that since the very contention having been considered and reported by this Court in the case of Muddeereswara Mining Industries & Stonecraft Enterprises v. Commissioner of Income Tax . 204 ITR 550. which is affirmed by the Supreme Court in the case of Stonecraft (supra), the questions raised in these proceedings are required to be answered against the assessees and in favour of the revenue. It is his submission that the observation made by this Court in the case of Muddeereswara (supra) and also by the Supreme Court in the case of Stonecraft (supra) would clearly indicate that the argument now advanced by the learned Counsel for the assessees is fully covered against them. It is his next submission that the assessees are hot entitled to derive any benefit on the basis of the subsequent amendment made to Section 80HHC 2(b)(ii) of the Act by means of Act No. 2 of 1991. According to the learned Counsel, it is for the first time the Parliament amended the law and granted certain benefits in respect of those persons who export cut and polished minerals; and for the purpose of taxing statute, the statute has to be understood with reference to each year of assessment. In support of this contention he referred to us the decisions of the Supreme Court in the case of Commissioner of Income-Tax, West Bengal v. Isthmian Steamship Lines . 20 ITR 572., in the case of Karimtharuvi Tea Estate Limited v. State of Kerala . 60 ITR 572., in the case of Reliance Jute and Industries Ltd. v. Commissioner of Income-Tax, West Bengal . 120 ITR 921., and in the case of Sir Kikabhai Premchand v. Commissioner of Incometax (Central), Bombay . 24 ITR 506.. It is also his submission that the assessees cannot derive any assistance from the Circular dated 22nd May 1984 which has only clarified with regard to diamonds which are imported into the country and thereafter cut and polished and exported outside the country. According to the learned Counsel, there is substantial difference in cutting and polishing of diamonds and cutting and polishing if any, of the granite blocks. It is his submission that cutting of granite blocks is compulsory when granite blocks are removed from mother earth which is not the case in the case of diamond and therefore, the circular issued in respect of diamond cannot be made applicable so far as granite is concerned. He also submitted that the decision of this Court in the case of Mysore Minerals Ltd. (supra), reported in 250 ITR 728 relied upon by the learned Counsel for the assessees to the extent it extends the benefit of the Circular to the export of granite, does not lay down the correct law. In this connection, he also relied upon the decision of the Madras High Court in the case of Commissioner Of Income-Tax v. Pooshya Exports P. Ltd. . 262 ITR 417. and referred to us page 425 of the judgment wherein the Division Bench has expressed its disability to agree with the view expressed by this Court. It is also pointed out by him that the assessees are not entitled to rely upon the Circular dated 1st November 1995 issued by the CBDT in support of their claim; and also the judgment of God Granites (supra). It is pointed out that this Court in the case of God Granites (supra) has only taken the view that the benefit of the Circular dated 1st November 1995 would be available for the assessment years 1991-1992 onwards; and similar view is also taken by the Madras High Court in the case of Pooshya Exports P. Ltd. (supra).

6. We have given our careful consideration to the contentions thoughtfully advanced by the learned Counsel appearing for the assessees which was with equal wisdom countered by the counsel for the Revenue.

7. Now, we will proceed to consider the first contention advanced on behalf of the assessees that cut and polished granites are not minerals. However, before we do that, we think that it is useful to refer to Section 80HHC (2)(b)(ii) of the Act prior to the amendment and subsequent to the amendment which reads as follows:

Section 80 HHC 2(b) prior to amendment Section 80HHC 2(b)(ii) after amendment (2)(b) This section does not apply to the following goods or merchandise namely- (2)(b) This Section does not apply to the following goods or merchandise namely,- (a) mineral oil; and (i) mineral oil; and (b) minerals and ores. (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule).

8. The assessees in all these matters claim deduction under sub-section (1) of Section 80HHC of the Act in respect of the profits earned on account of export of granite in the course of their business. The said provision states that where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which the section applies, there shall, in accordance with and subject to the provisions of the section, be allowed in computing the total income of the assessee, a deduction of the (profits) derived by the assessee from the export of such goods or merchandise. However, the sub-section 2(b)(ii) is in the nature of an exception to sub-section (1) of Section 80HHC which allows deductions in respect of the profits earned by way of business carried on by export of goods out of the country. However, before the amendment made to sub-section 2(b) of Section 80HHC provided that the benefit of Section 80HHC would not be available: (i) in respect of mineral oil (ii) minerals and ores. The Act does not define what is meant by ‘mineral’. It is only subsequent to the amendment made to sub-section (2)(b) of Section 80HHC of the Act, while minerals and ores are not entitled for the benefit of sub-section (1) of Section 80HHC of the Act in respect of processed minerals and ores specified in the Twelfth Schedule, the benefit of sub-section (1) of Section 80HHC is made available. Under these circumstances, we will have to understand ‘mineral’ as it is understood in commercial practice and must be given a natural meaning. Section 3(a) of the Mines and Minerals (Development & Regulation) Act, 1957 defines ‘minerals’ as follows:

“3.(a) “minerals” include all minerals except mineral oils.”

In the case of Muddeereswara Mining Industries Ltd. (supra), the Division Bench of this Court has at page 564 observed that a mineral is a chemical composition and compound occurring in nature and having a definite chemical composition and properties. The Chambers 21st Century Dictionary defines “mineral” as follows:

Chambers 21st Century Dictionaiy

“mineral noun 1 technical a naturally occurring substance that is inorganic, usually crystalline, and has characteristic physical and chemical properties by which it may be identified. 2 Loosely any substance obtained by mining, including fossil fuels (eg. Coal, natural gas or petroleum) although they are organic. 3 any inorganic substance, ie one that is neither animal nor vegetable. 4 adj. belonging or relating to the nature of a mineral; containing minerals.”

The Law Lexicon defines:

“Mineral. Any thing that grows in mines, and contain metals. (Tomlins Law Die)

The term “minerals” includes all such bodies of mineral substances, lying together in seams, beds, or strata as are commonly worked for profit and have a value independent of the surface of the land, whether extracted from a mine or a quarry or even occurring as an outcrop. (I.R 1933 Nag. 179 = 143 IC 586 = 29 NLR 148)

Minerals include granite, clay, limestone, freestone and the stone used. (15 MLT 277 = 23 IC 144)

Brick-Earth or Clay is a mineral. Kaddebnal v. State of Bihar; AIR 1965 Pat 491, 499. (Constitution of India Art. 265, SCh. 7, List 1 item 54)

The word ‘mineral’ includes salt no matter that in certain cases it is not produced out of the mines but by natural processes or surface workings. The word ‘mineral’ cannot necessarily be restricted to something which is dug out of a mine or pit or from inside the bowels of the earth. Bhoorchand v. State of Rajasthan, AIR 1957 Raj 213, 216. (Marwar Land Revenue Act 1949, S 231)

Mineral-any substance that is neither animal nor vegetable. In narrow sense, no more than precious metals like gold and silver. It is also meant substances obtained from underneath the surface of the earth by digging or quarrying. Brick earth is a mineral. Banersi Das Chandha and Bros. v. Lt. Governor, Delhi Administration, (1978) 4 SCC 11 : AIR 1978 SC 1587, 1588 [Mines and Minerals (Regulations and Development) Act, (1957), Sec. 3(e)]

As earth, clay and brick earth, all fall in the category of minerals, earth extracted from the plots of lands and used for the manufacture of bricks is also mineral, Chandeswar Prasad Singh v. Sub-Division L.R Officer, AIR 1986 Cal 1, 15.”

Lord Macnaghten in the House of Lords case reported has stated as follows:

“Now the word “minerals” undoubtedly may have a wider meaning than the word “mines”. In its widest signification it probably means every inorganic substance forming part of the crust of the earth other than the layer of soil which sustains vegetable life …… Be that as it may, it has been laid down that the word ‘minerals’ when used in a legal document or in an Act of Parliament must be understood in its widest signification, unless there be something in the context or in the nature of the case to control its meaning.”

The Division Bench of this Court in the case of Muddeereshwara (supra) at page 562 has observed as follows:

“There is one common quality that runs through this class of goods excluded from the main beneficial provision. These goods, now, have the common characteristic of being natural inorganic substances forming part of the soil; these excluded goods indicate that they form the natural wealth of the country; these ‘goods’ are not the produce of any productive activity, but are extracted or obtained from “mother earth.”

Further, in the case of State of Mysore v. Swamy Satyanand Saraswati (Decd) by his L.Rs . 1971 2 SCC 88, the Supreme Court took the view that granite is also a “mineral”. At paragraph 13 of the said judgment, the Supreme Court also observed as follows:

“13…..It is not in our view possible to hold otherwise than that granite is a mineral. According to Halsburv's Laws of England:

“There is no general definition of the word “mineral”. The word is susceptible of expansion or limitation in meaning according to the intention with which it is used;….

It is a question of fact whether in a particular case a substance is a mineral or not…

The test of what is a mineral is what, at the date of the instrument in question, the word meant in the vernacular of the mining world, the commercial world, and among landowners, and in case of conflict this meaning must prevail over the purely scientific meaning.” (See Vol. 26 3rd edition, Art. 674 page 320).

In Article 675 at p. 322 the learned authors summarise the case law on the subject as to whether particular substances are minerals or not. Reference is there made to the case of Attorney General v. Welsh Granite Co. (1885) 1 Law TR 549 where granite was held to be included under the reservation of “minerals” in the Enclosure Act which reserved all mines, minerals, ores, coal, limestone, and state to the Crown.

According to Lord Coleridge the word “minerals” was large enough to include granite.”

9. In our view, their is no merit in the submission of Sri Prasad that the observation made by this Court in the case of Muddeereswara Mining Industries Ltd., (supra) that the goods which are part of the natural wealth of the country obtained directly from the earth alone should be understood as minerals and if they are cut and polished, they cease to be minerals as they are not the goods directly obtained from the earth. The language used in the said judgment “that the goods directly obtained from the earth” must be understood as an observation made in the background negativing the claim of the assessees in that decision. Therefore, from what is stated above, it is clear that the term “mineral” is given a very wide meaning. In the absence of a provision in the Act which imposes a restricted meaning to the word “mineral” providing that such of those minerals which undergoes cutting or polishing is not a “mineral”, we find it difficult to accept the submission of Sri Prasad that minerals extracted from earth, if they are cut and polished, cease to be minerals. In the case of Muddeereswara (supra), the Division Bench of this Court did not consider the question whether granite when cut and polished, would lose its characteristic as a mineral. At page 562 of the judgment this Court has observed as follows:

“Therefore, the question is whether the broad meaning available to the term “mineral” should be ignored in preference to a narrower meaning, if any. Contextually, there is nothing to indicate that Parliament intended to confine the term “mineral” to a limited class of goods; in fact, the present scheme of sub-section (2)(b) indicates that the goods which are directly obtained from the earth and which are considered as the natural wealth of the country are not eligible for the beneficial treatment under sub-section (1) of Section 80HHC. If this is the proper approach, then, even the doctrine of noscitur a sociis is satisfied and it is unnecessary to narrow down the scope of the term a “mineral”.

The above observation clearly indicates that a broader meaning to the word “mineral” is required to be given by the Courts and there is no justification to impose a restricted meaning. We are in respectful agreement with the said view expressed by this Court. If the intention of the Parliament was to exclude the cut and polished granite from the rigour of sub-section 2(b)(ii) of the Act, nothing would have been easier to state so in the provision itself. Admittedly, that has not been done. On the contrary, by means of an amendment made to the Section by means of Finance Act No. 2 of 1991, the minerals which are cut and polished are excluded from the purview of sub-section 2(b)(ii) of Section 80HHC of the Act. Therefore, from the plain reading of the word “mineral” prior to the amendment made in the year 1991, we are of the view that even if the cutting or polishing of granite is made, the assessee would not be entitled for the benefit provided under Section 80HHC of the Act The view we have taken above gets support from the decision of this Court in the case of Muddeereswara Mining Ltd. (supra) and also of the Supreme Court in the case of Stonecraft (supra). We are also unable to accede to the submission of the learned Counsel for the appellants that the amendment made to Section 80HHC (2)(b)(ii) with effect from 1st April 1991 should be understood as one which is clarificatory in nature explaining the word “mineral” employed in Section (2)(b)(ii) of the Act prior to the amendment. It is no doubt true, that it is permissible for the Court to take into account the subsequent amendment made to an Act to understand a provision in an Act prior to the amendment made, when the language employed in a provision in an enactment is either not clear or ambiguous or it cannot be given proper meaning or when the meaning given to such a provision leads to absurdity. But it is also well settled that when the language given in a provision of law is clear and unambiguous; the interpretation to be placed to such a provision does not lead to any absurdity, it is not permissible for the Court to take into account the subsequent amendment made to such a provision while interpreting such a provision. Therefore, when sub-section 2(b)(ii) of Section 80HHC of the Act is clear and unambiguous, we are of the view that on the basis of subsequent amendment made to sub-section 2(b)(ii) of Section 80HHC by means of Finance Act No. 2 of 1991, it is not permissible to take the view that cut and polished minerals are excluded from the purview of minerals under sub-section 2(b)(ii) of the Act. As rightly pointed out by Sri Sheshachala the cardinal principle of a taxing law is that the law that is required to be applied is that in force during the assessment year, unless otherwise provided expressly or by necessary implication. This is clear from the observation made by the Supreme Court in the case of Reliance Jute & Industries Ltd. (supra). At page 923 it has observed as follows:

“The assessee claims a vested right under Section 24(2)(iii), as it stood before its amendment in 1957, to have the unabsorbed loss of 1950-1951 carried forward from year to year until the loss is completely absorbed. The claim is based on a misconception of the fundamental basis underlying every income-tax assessment. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication: CIT v. Isthmian Steamship Lines (1951) 29 ITR 572 (SC) and Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966) 60 ITR 262 (SC). On that principle, it is abundantly clear that when an assessment for the assessment year 1960-1961 is to be made and Section 24(2) is invoked, it is Section 24(2) as in force in that assessment year which has to be applied. That is the Provision as amended by the Finance (No. 2) Act, 1957. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The assessment for one assessment year cannot, in the absence of a contrary provision, be affected by the law in force in another assessment year. A right claimed by an assessee under the law in force in a Particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year. Therefore, inasmuch as the provisions of Section 24(2), as amended in 1957, govern the assessment for the assessment year 1960-1961, the High Court is right in affirming that the unabsorbed loss of Rs. 15,50,189 of the assessment year 1950-1951 cannot be carried forward for more than eight years, and consequently, cannot be set off against the business income of the assessment year 1960-1961.”

(emphasis supplied)

10. At this stage, it is necessary to refer to the submission of the learned Counsel for the appellant relying upon Circular dated 22nd May 1984 issued by the CBDT with regard to diamond. In our view, the counsel for the appellants cannot take any assistance from the said Circular to support their contentions that the moment the mineral/granite is removed from the earth and they are cut and polished, it ceases to be a “mineral” and therefore, the Act cannot be made applicable to take away the benefit given under sub-section 2(b)(ii) of the Act The said Circular was issued in the backdrop of the import of the diamonds to the country and export of the same after cutting and polishing it outside the country. It cannot be seriously disputed that there would be substantial change when a diamond is cut and polished and exported as a finished product. The same thing cannot be said in the case of granite or mineral blocks which is removed from mother earth. When a mineral like granite is removed from the earth, it has to be cut and removed as a block. Merely, polishing here and there, unless the entire characteristic of the mineral transforms itself and results in a finished product, it would not lose its characteristic as a “mineral”. For example, if a statue is carved out of a mineral block or some carving, of some importance or value is produced out of the mineral, it may cease to be a “mineral”, as the finished product is different from its original character as a mineral. Further, the Circular issued under Section 19 of the Act, is no doubt binding on the department. However, the Circular dated 22nd May 1984 issued by the CBDT relied upon by the learned Counsel for the assessees is in respect of diamond, cannot be made binding to consider cut and polished granite ceases to be a mineral. The clarification given in the said Circular cannot have any application so far as granite is concerned, as the nature of the goods i.e, granite and diamond are distinct and different. It is true as contended by the learned Counsel for the assessees in the case of Mysore Minerals Ltd. (supra) this Court relying upon the Circular dated 22nd May 1984 took the view that the granites which are cut and polished are entitled for the benefit of Section 80HHC of the Act. In the said decision at page 730 it is observed as follows:

We proceed to answer the reframed question as follows:

“The assessee had claimed deduction under Section 80HHC on the processed articles of granite like slabs, monuments, tiles, etc., only. The finished products are clearly distinguishable from the raw materials. In the Board circular dated May 22, 1984, it has been held that the export of cut and polished granites would be qualified for the relief of deductions under Section 80HHC of the Act. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to classify the exports into exports of cut and polished items and to allow the relief under Section 80HHC of the Act, accordingly. The assessee had been denied deduction on the export of raw granites. The assessee had been denied deduction on the export of raw granites. The circular of the Board is binding on the authorities under the act and they cannot take a plea contrary to the circular issued by the Board.”

With respect, we find it difficult to subscribe to the view expressed by this Court in the said decision. In the said decision, this Court proceeded on the basis the Circular applies to granite also. This Court did not notice that the Circular was issued in respect of diamonds. In this connection, it is useful to extract the relevant portion of the Circular dated 22nd May 1985 which reads as hereunder:

“Section 80HHC has been inserted in the Income-tax Act, 1961, by the Finance Act, 1983, and the deduction under this provision is admissible in relation to assessment year 1983-1984 and subsequent years. The tax concession is, however, not admissible in relation to export of, inter aha, minerals and ores.

2. The Board has received a large number of references on whether the export of cut and polished diamonds and gem stones will qualify for deduction under Section 80HHC. The Board are advised of the following features in the export of cut and polished diamonds and gem stones:

(i) No export of raw diamonds is permitted under the import and export regulations.

(ii) Export from India takes place of cut and polished diamonds.

(iii) Raw diamonds imported from abroad after being cut and polished are exported in the processed form and this will be supported by documents scrutinised and certified by the Customs Department.

(iv) Import of rough diamonds is allowed as replenishment against the actual exports of cut and polished diamonds, after the actual exports take place, not necessarily in the previous year.

v) Import of rough diamonds is allowed as replenishment on the basis of licences issued by the Joint Chief Controller of Imports and Exports, on the basis of the requisite documents produced by the exporters.

Rough diamonds are also allowed to be imported on the basis of Import licence issued by the licensing authorities for which the importer has to execute a bond with the Government of India for re-export after cutting and polishing within a prescribed time for a value worked out on a given formula. Detailed procedure in this regard is explained in the Import-Export policy.

3. In view of the position brought by the above features, the export of cut and polished diamonds and gem stones will not amount to export of “minerals and ores” and hence will qualify for relief under Section 80HHC of the Income-tax Act, 1961.”

[Source: circular letter F. No. 178/206/83-IT (A-1) dated 22nd May 1984.]

Therefore, it is clear that this Court took the view that the Circular issued is binding on the department and extended the benefit to cut and polished granite also on the assumption that the Circular was issued in respect of cut and polished granites. The Madras High Court in the case of Pooshya Exports P. Ltd. (supra) relied upon by Sri Sheshachala, has differed from the view taken by this Court and the said view supports the view we have taken above. Further, it is also relevant to point out that if the Parliament has understood that cut and polished minerals including granite was entitled for the benefit of Section 80HHC even prior to the amendment of sub-section 2(b)(ii) of the Act by means of Finance Act No. 2 of 1991, it is reasonable to infer that the Parliament would have made the amendment retrospective in operation. Admittedly, the same has not been done. Therefore, the only way to understand the amendment made to Section 80HHC (2)(b)(ii) is to understand that it is only from the date of coming into force of the said provision, cut and polished granite would be entitled for the benefit of Section 80HHC of the Act while all other types of granites are not entitled for the benefit of the said provision. No doubt, Sri Sheshachala has seriously urged that in the instant case, the claim made by the assessees that the granite exported by them is cut and polished is without any basis and they have failed to produce any material in support of their claim and there is no conclusive finding recorded in support of their claim either by the Tribunal or by the first Appellate Authority or the Assessing Authority that what was exported was cut and polished granite and therefore, we should on merits also negative the claim of the assessees. However, we find it is unnecessary for us to advert to this contention, since on the question referred to above we have taken the view in favour of the Revenue and against the assessee.

11. So far as the second question is concerned, as noticed by us earlier, the Division Bench has already answered the said question.

12. In terms stated above, the questions referred to this Court in ITRC Nos. 15 and 16 of 1997 and ITRC Nos. 23 and 24 of 1997 are answered in favour of the revenue and against the assessee. In the light of our above conclusion, ITA No. 31 of 2001 is liable to be rejected. Accordingly, it is rejected. However, no order is made as to costs.