B.A. Balasubramaniam Bros. and Co. vs Commissioner of Income Tax

The question referred to us at the instance of the assessee which is a firm and which is engaged in the export of hides and skins and which

question concerns the assessment year 1983-84, is as to whether the Tribunal was right in holding that the firm constituted by a deed dated

December 11, 1981, was a new assessee and therefore not entitled to the relief u/s 80HHC of the Income Tax Act, 1961 ?

The undisputed facts are that under a document dated April 1, 1972, six persons entered into a partnership to carry on business in hides and

skins and tanning materials. One of the six died in the year 1981, and after his demise an agreement for dissolution was entered into by the

surviving partners with the widow of the deceased partner in which it was recorded, inter alia, that the firm constituted under the partnership deed

dated April 1, 1972, shall stand dissolved from September 30, 1981, that the credit balance standing in the name of the deceased partner shall be

treated as a loan advanced to the company comprising of the surviving partners, and that the-five surviving partners were authorised to continue the

business under the same name and style of Balasubramaniam Bros, and Co., Pernambut, North Arcot District as its headquarters and No. 11,

Muthu Gramani Street, Periamet, Madras 3, as branch office by themselves. Thereafter, the five surviving partners entered into a deed of

partnership on December 11, 1981, in which it was once again stated that the object of the partnership is to carry on business in raw hides and

skins and tanning materials, as also manufacturing all goods in hides and skins and that the name of the firm constituted is B. A. Balasubramaniam

Bros, and Co. In respect of the export turnover of that firm the assessee claimed benefit u/s 80HHC of the Income Tax Act. That claim was

negatived by the authorities. It is argued before the Tribunal that the firm constituted under the deed dated December 11, 1981, was different from

the one that had been constituted under the deed dated April 1, 1972, and that although these partners could have continued to carry on business

as the firm constituted under the document dated April 1, 1972, even after the demise of one of the partners as under the terms of that deed death

of a partner did not result in dissolution in view of the fact that they had chosen to execute an agreement of dissolution and thereafter had executed

a deed of partnership, of the firm by name B. A. Balasubramaniam Bros, and Co., it became a new firm and they could not claim the benefit that

might have accrued to the dissolved firm of the same name, even though the dissolution was only for the purpose of crystallising the share of the

deceased in the assets of the old firm, and the amount so determined continued to be available to the new firm and was used in the business of the

new firm.

It was submitted by counsel for the assessee that the Tribunal has misled itself in rejecting the claim made u/s 80HHC of the Income Tax Act

which enables the assessee to deduct certain amount from its export turnover.

Before considering the arguments advanced before us, the provisions of Section 80HHC of the Income Tax Act may first be referred to.

It reads as under :

Deduction in respect of export turnover--(1) Where the assessee, being an Indian company or a person (other than a company), who is resident

in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies, there

shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, the following

deductions, namely :--

(a) a deduction of an amount equal to one per cent. of the export turnover of such goods or merchandise during the previous year ; and

(b) a deduction of an amount equal to five per cent. of the amount by which the export turnover of such goods or merchandise during the previous

year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year.

This provision enables the assessee who exports the qualifying goods, to deduct the amount specified in Sub-clauses (a) and (b). The purpose

of Section 80HHC of the Income Tax Act obviously is to encourage exports. The exporter is entitled to a deduction of an amount equal to one per

cent. of the export turnover. Clause (b) of Section 80HHC(1) of the Income Tax Act, provides that in cases where export had been carried in an

earlier year, the assessee would be entitled to an amount equal to 5 per cent. of the amount by which the export turnover of the qualifying goods

during the previous year, exceeded the export turnover of such goods during the immediately preceding year. Section 80HHC is primarily

concerned with the business of export and Section 80HHC(1)(b) of the Income Tax Act is intended to reward the achievement of a higher export

turnover, the benefit of the section being given to the assessee in its assessment. The substance of the matter therefore is the continuance of the

export business and the increase in export of the qualifying goods.

Counsel submitted that in this case the same firm, B. A. Balasubra-maniam Bros and Co., had been engaged in export in the year 1972 and the

partners of that firm continued the same business though under a different deed dated December 11, 1981, but the execution of the later document

did not make any material change in the export business that was being carried on, and even under the agreement of dissolution they have exclusive

right to carry on the business. Counsel submitted that the object of Section 80HHC of the Income Tax Act is best served by a construction that

would enable the assessee to claim the benefit of the export effected by the business carried on by the assessee and it is the continuity of the

business that is the material factor for consideration. Counsel in this context relied on the decisions of this and other High Courts wherein it has

been held that a successor in business is entitled to the benefit of writing off the debts incurred by the predecessors in business and that such

deduction would be claimed by the successor in business u/s 36 of the Income Tax Act.

Counsel relied on the decision of this court in Additional Commissioner of Income Tax Vs. S. Rm. Pl. Subramania Chettiar, ; the decision of the

Andhra Pradesh High Court in Commissioner of Income Tax Vs. T. Veerabhadra Rao, K. Koteswara Rao and Co., , the decision of the

Allahabad High Court in T.N. Shah (P.) Ltd. Vs. Additional Commissioner of Income Tax, and Anr. decision of this court in E.A.V.

Krishnamurthy and Son Vs. Commissioner of Income Tax, . Counsel also relied on the decision of the Bombay High Court in Commissioner of

Income Tax Vs. Tyresoles Concessionaries Pvt. Ltd, , wherein it was held that the amalgamated company was entitled to the benefit of Section

80-I of the Income Tax Act. A decision of the Full Bench of the Allahabad High Court in Vishwanath Seth Vs. Commissioner of Income Tax, ,

was relied on for the proposition that a reconstituted firm even after such reconstitution is liable to be assessed in respect of the business carried on

by the firm before reconstitution took place.

Learned counsel for the Revenue relied on the decision of the apex court in Commissioner of Income Tax, Orissa and Others Vs. N.C.

Budharaja and Company and Others, , wherein it was observed that the principle of adopting a liberal interpretation which advances the purpose

and object of beneficent provisions cannot be carried to the extent of doing violence to the plain and simple language used in the enactment.

Section 80HHC is intended to encourage exports, as already noted. If the exports effected in the year previous to the assessment year are

higher by 5 per cent. when compared to the exports of the immediately preceding year, the assessee would be entitled to the benefit of Section

80HHC(1)(b) of the Act. When the export turnover of the firm which was dissolved with effect from September 30, 1981, and the business of

which was continued to be carried on by the reconstituted firm with effect from October 10, 1981, the reconstituted firm comprising the same set

of partners except the partner who was dead, we must go by the reality and not the mere format of the documents. So looked at, the words

immediately preceding years"" in Section 80HHC(1)(b) are capable of being regarded as referring to the immediately preceding year in relation to

the business that was carried on if the business was in the export of qualifying goods. In this case if the deed of agreement of dissolution had not

been executed, and the new partnership deed also had not been executed, it would have made no difference as the very same persons, as the

surviving partners could have continued the business in the same firm name without dissolving the firm. In these circumstances, they cannot be

regarded as disentitled from enjoying the benefit which had been conferred by a beneficial provision, Section 80HHC of the Income Tax Act.

The Tribunal therefore was in error in holding that the assessee is not entitled to the benefits claimed. We answer the question referred to us in

favour of the assessee and against the Revenue. In the circumstances, there will be no order as to costs.