JUDGEMENT
J. Kathuria, Accountant Member -
(1.)1 to 22 [These paras are not reproduced here as they involved minor issues.] ITA No. 146711989. 23. This is an assessee's appeal arising out of CIT (Appeals), New Delhi's order dated 20-2-1989 and relates to assessment year 1985-86. 24. Brief facts of the case may first be noted. The assessee had originally claimed deduction of Rs. 7,32,286, Under Section 80HHC which was-allowed by the ITO to the extent of Rs. 1,04,876. The assessee preferred an appeal and, on this point, the learned CIT (Appeals) vide his order dated 24-10-1988 restored the matter to the ITO's file and asked him to verify the assessee's claim and allow it in accordance with law. The assessing officer, vide his order dated 12-12-1986 passed in pursuance of the aforesaid order of the CIT (A) allowed the deduction under Section 80HHC at Rs. 2,48,128 as against the original figure of Rs. 1,04,876. The assessing officer did not allow deduction under Section 80HHC in respect of the turnover effected from the unit in Kandla Free Trade Zone. The assessee filed an appeal and the CIT (Appeals), vide his impugned order, upheld the action of the assessing officer in this regard. The assessee has come up in appeal to the Tribunal against the said order of the CIT (Appeals). 25. Shri Aggarwal, the learned counsel for the assessee, submitted that the Department's reliance on the provisions of Section 80AB for interpreting Section 80HHC was misconceived. It was submitted that the plain language of Section 80AB of the Act made it clear that it was not applicable to all the sections mentioned in Part C of Chapter VI-A of the Income-tax Act. The argument was that if Section 80AB was applicable to all sections contained in the aforesaid Chapter, then the words "in respect of any income of the nature specified in that section, which is included in the gross total income of the assessee" would become superfluous. It was further submitted that, vide sections 80HH, 80HHA, 80HHB, 80T, 80JJ, 80K, SOL, 80M and 80-Oreferred to the gross total income of an assessee "including any profits and gains," there was no such reference to these words in Section 80HHC. It was also submitted that from assessment year 1986-87 and onwards, Section 80HHC(3) itself had specified the manner in which the income derived from exports was to be determined. It was submitted that Section 10A provided for a complete tax exemption in respect of the profits and gains derived from Industrial Undertaking set up in any free trade zone for a period of 5 initial assessment years. Where the Legislature did not want to allow further deduction to such industrial undertaking, those sections were mentioned hi Sub-section (4) of Section 10A. It was pointed out that, while sections 80 HH, 80 HHA, 80-I and 80J were specifically mentioned in Sub-section (4) of Section 10A, there was no reference to Section 80HHC. The intention of the Legislature was clear that even whether complete tax holiday was granted m respect of industrial undertakings in free trade zones, the concession or deduction available to the assessees under Section 80HHC was not affected. It was, therefore, submitted that the assessee was entitled to deduction under Section 80HHC even in respect of the export turnover from its unit in the Kandla Free Trade Zone. 26. The learned Departmental Representative, on the other hand, submitted that Section 80HHC could not be mentioned in Section 10A(4) because the section itself came on the statute book by the Finance Act, 1983 w.e.f. 1-4-83. According to him, since Section 80AB had also been inserted w.e.f. 1-4-1981, on which date Section 10A was brought on the statute book, there was no need to amend Section 10A(4) later when Section 80HHC was inserted. He vehemently argued that the income from the industrial undertaking located in Kandla Free Trade Zone was fully exempt and it, therefore, did not enter the computation of gross total income of the assessee. Once it did not enter the computation of the gross total income, there was, no question of allowing any deduction under Section 80 HHC, in respect of assessee's export turnover from Kandla Free Trade Zone. He strongly supported the orders of the authorities below. 27. We have carefully considered the rival submissions. The short question to be decided is, whether the assessee's export turnover from Kandla Free Trade Zone is to be taken into consideration for the purposes of Section 80HHC or not. Section 10A was inserted by the Finance Act, 1981 w.e.f. 1-4-1981. This section granted tax holiday in respect of profits and gains derived from industrial undertaking set up in any free trade zone for a period of 5 initial assessment years, Section 80AB was inserted by the Finance (No. 2) Act, 1980 w.e.f. 1-4-1981. The Finance (No.2) Bill 1980 as passed by the Parliament, received the assent of the President on 21-8-80. Section 10A formed part of the Finance Bill 1981, which as passed by the Parliament, received the assent of the President on 12-5-1981. Though both the sections, namely Section 80AB and Section 10A were to take effect from 1-4-1981, Section 80AB became a part of the statute as early as 21-8-80. If the argument of the learned Departmental Representative to the effect that, after the insertion of Section 80AB, it became unnecessary to amend Section 10A were to be accepted, then the reference to sections 80HH, 80HHA, 80-1 and 80J in Section 10A(4)(m) would become superfluous and it is settled law that no surplusage can be attributed to Legislature. It is also significant to note that, after the insertion of Section 80HHC w.e.f. 1-4-1983, no corresponding amendment was made in Section 10A(4)(�7). This supports the view canvassed on behalf of the assessee that deduction under Section 80HHC could still be made even in respect of an industrial undertaking which was covered by Section 10A of the Income-tax Act. 28. We also find substantial merit in the submission of the learned counsel for the assessee that Section 80HHC was cast in a different mould from the other sections, like Section 80HH, 80HHA, 80HHB, 80-1,80J, 80K, SOL, 80M, 80-O etc. In all these sections income of a specified nature is deductible. Section 80HHC, however, does not refer to the inclusion of any income from the industrial undertaking in the gross total income of the assessee, but refers to the deduction being allowed on the basis of turnover while computing the total income of the assessee. It is also significant to note that sections 80AA and 80AB were brought on the statute book with a view to overcoming the difficulties created by the Supreme Court decision in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243. The intention of the Legislature was to allow deduction on the net amount of dividends and not the gross amount. This intention was made clear by the insertion of Section 80AA. Though, the case of Cloth Traders (P.) Ltd. (supra) was concerned with Section 80M, it was considered prudent by the Legislature to provide that, for the purpose of calculating the deductions specified in sections 80HH to 80TT, the net income as computed in accordance with the provisions of the Income-tax Act (before making any deduction under Chapter VI A) was alone to be regarded as the income which is received by the assessee and which is included in his gross total income. Accordingly, the deductions specified in the aforesaid sections were to be calculated with reference to the net income as computed in accordance with the provisions of the Act and not with reference to the gross amount of such income, subject however to the other requirements of the respective sections. This position has been amply explained and clarified in the Explanatory Notes contained in Circular No. 281 dated 22-9-80 dealing with the provisions as contained in Finance (No. 2) Act, 1980. 29. There is one more aspect of the matter Section 80HHC does not make any distinction between the export turnover from the Free Trade Zone and from other areas. The revenue may feel that once the entire income of the industrial undertaking is exempt under Section 10A a further deduction under Section 80HHC in respect of the same turnover may give an unintended advantage to the assessee. In actual practice however it may not be so. If the undertaking incurs a loss, then the advantage or benefit under Section 10A may be illusory. Why should the assessee be denied deduction allowable under Section 80HHC? This is particularly so when the gross total income, in any case, has to be a positive figure before any deduction under Chapter VI A can be allowed. 30. We are of the considered view that deduction under Section 80HHC cannot be denied simply because the income of the industrial undertaking is exempt under Section 10A. But even if two reasonable constructions of the relevant provisions are possible, that construction which favours the assessee, must be adopted - CIT V. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). 31. Having regard to the position discussed above, we hold that deduction under Section 80HHC cannot be denied to the assessee simply because he has enjoyed tax holiday under Section 10A of the Income-tax Act. In the instant case, we hold that the assessee was entitled to deduction under Section 80HHC even in respect of its export turnover from the Kandla Free Trade Zone and the Revenue was not right in restricting the assessee's claim by holding that the turnover effected from Kandla Free Trade Zone was to be excluded for the purposes of Section 80HHC. We, therefore, direct the assessing officer to allow the claim of the assessee in the light of the above discussion. 32. The appeal is allowed. 33. In the result, ITA No. 2439/88 is allowed, ITA No. 1678/89 is partly allowed, ITA No. 7071/88 is allowed protanto and ITA No. 1467/89 is allowed.