Ita/349/2010 Of M/S/Kanam Latex Industries Pvt.ltd v. Asst.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 26 DAY OF JULY 2021 / 4TH SRAVANA, 1943 ITA NO. 347 OF 2010 AGAINST THE ORDER IN ITA 11/Coch/2007 AND CROSS-OBJECTIONNO.16/Coch/2008 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/RESPONDENT: M/S.KANAM LATEX INDUSTRIES PVT.LTD.KOTTAYAM (PA.NO.AABCK 0056E). BY ADVS.SRI.KURYAN THOMAS SRI.E.K.NANDAKUMARSRI.P.BENNY THOMAS RESPONDENT/APPELLANT: *ASST.COMMISSIONER OF INCOME TAX,CIRCLE-1, KOTTAYAM. *(DELETED)COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, LAL BAHADUR SASTRI ROAD, KOTTAYAM- 686001. (CAUSE TITLE OF THE RESPONDENT IS DELETED ANDSUBSTITUTED AS PER ORDER DATED 10.03.2011 INI.A.NO.529 OF 2011 IN ITA.NO.347 OF 2010) BY ADV SRI.JOSE JOSEPH, SC FOR INCOME TAX I.T.A. Nos.347, 349, 354, 368/2010 -:2:- THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON26.07.2021, ALONG WITH ITA NOS.349/2010, 354/2010 AND368/2010, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: I.T.A. Nos.347, 349, 354, 368/2010 -:3:- IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 26 DAY OF JULY 2021 / 4TH SRAVANA, 1943 ITA NO. 349 OF 2010 AGAINST THE ORDER IN ITA 12/Coch/2007 AND CROSS OBJECTIONNO.17/Coch/2008 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAMAPPELLANT/RESPONDENT: M/S.KANAM LATEX INDUSTRIES PVT.LTD.,KOTTAYAM, (PA NO.AABCK 0056E). BY ADVS.SRI.KURYAN THOMAS SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI RESPONDENT/APPELLANT: *ASST.COMMISSIONER OF INCOME TAX,CIRCLE-1, KOTTAYAM. *(DELETED) COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, LAL BAHADUR SASTRI ROAD, KOTTAYAM- 686001. (CAUSE TITLE OF THE RESPONDENT IS DELETED ANDSUBSTITUTED AS PER ORDER DATED 10.03.2011 INI.A.NO.530 OF 2011 IN ITA.NO.349 OF 2010) BY ADV SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON26.07.2021, ALONG WITH ITA.347/2010 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:4:- IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 26 DAY OF JULY 2021 / 4TH SRAVANA, 1943 ITA NO. 354 OF 2010 AGAINST THE ORDER IN ITA NO.442/Coch/2008 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S.KANAM LATEX INDUSTRIES PVT.LTD.,KOTTAYAM (PA NO.AABCK 0056E). BY ADVS.SRI.KURYAN THOMAS SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI RESPONDENT/RESPONDENT: *ASST.COMMISSIONER OF INCOME TAX,CIRCLE-1, KOTTAYAM. *(DELETED) COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, LAL BAHADUR SASTRI ROAD, KOTTAYAM- 686001. (CAUSE TITLE OF THE RESPONDENT IS DELETED ANDSUBSTITUTED AS PER ORDER DATED 10.03.2011 INI.A.NO.535 OF 2011 IN ITA.NO.354 OF 2010) BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON26.07.2021, ALONG WITH ITA.347/2010 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:5:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 26 DAY OF JULY 2021 / 4TH SRAVANA, 1943 ITA NO. 368 OF 2010 AGAINST THE ORDER IN ITA 902/Coch/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S.KANAM LATEX INDUSTRIES PVT.LTD.,KOTTAYAM. (PA NO.AABCK 0056E). BY ADVS.SRI.KURYAN THOMAS SRI.E.K.NANDAKUMARSRI.P.BENNY THOMAS SRI.K.JOHN MATHAI RESPONDENT/RESPONDENT: BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON26.07.2021, ALONG WITH ITA.347/2010 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -:5:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 26 DAY OF JULY 2021 / 4TH SRAVANA, 1943 ITA NO. 368 OF 2010 AGAINST THE ORDER IN ITA 902/Coch/2008 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S.KANAM LATEX INDUSTRIES PVT.LTD.,KOTTAYAM. (PA NO.AABCK 0056E). BY ADVS.SRI.KURYAN THOMAS SRI.E.K.NANDAKUMARSRI.P.BENNY THOMAS SRI.K.JOHN MATHAI RESPONDENT/RESPONDENT: *ASST.COMMISSIONER OF INCOME TAX,CIRCLE-1, KOTTAYAM. *(DELETED) COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, LAL BAHADUR SASTRI ROAD, KOTTAYAM- 686001. (CAUSE TITLE OF THE RESPONDENT IS DELETED ANDSUBSTITUTED AS PER ORDER DATED 10.03.2011 INI.A.NO.536 OF 2011 IN ITA.NO.368 OF 2010) BY ADV SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON26.07.2021, ALONG WITH ITA.347/2010 AND CONNECTED CASES,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. Nos.347, 349, 354, 368/2010 -:6:- JUDGMENT [I.T.A. Nos.347, 349, 354 & 368 of 2010] Dated this the 26[th] day of July, 2021 Bechu Kurian Thomas, J. These four appeals relate to the assessment years 2000-01, 2002-03, 2003-04 and 2004-05. The questions of law raised in allthe four appeals are identical in nature, except for the appeal arisingfrom assessment year 2003-04. 2. Since the questions raised in the appeals are elaborately worded, we deem it fit to re-frame the questions as follows: (i) Whether the computation of deduction under section80HHC of the Income Tax Act is to be effected afterreducing the amount allowed under section 80-IBand section 80-IA of the Act?80HHC of the Income Tax Act is to be effected afterreducing the amount allowed under section 80-IBand section 80-IA of the Act? (ii) Whether computation of deduction under section80HHC of the Income Tax Act is to be doneindependently without restricting the quantum byreference to the provisions of section 80-IB orsection 80-IA of the Act?80HHC of the Income Tax Act is to be doneindependently without restricting the quantum byreference to the provisions of section 80-IB orsection 80-IA of the Act? (iii) Whether the activity of packing and sterilization ofgloves purchased or produced by the appellant innon-sterilized form from the market would amount toa process of manufacture for the purpose of section80-IB of the Income Tax Act?gloves purchased or produced by the appellant innon-sterilized form from the market would amount toa process of manufacture for the purpose of section80-IB of the Income Tax Act? 3. The first two questions arise in all the four years while the I.T.A. Nos.347, 349, 354, 368/2010 -:7:- third question arises only for the year 2003-04. The circumstancesarising in the assessment year 2000-01 are considered as the leadcase. I.T.A. No.347 of 2010(arising from AY 2000-01) 4. The assessee is a company engaged in the manufacture and trading of latex gloves. In the revised return filed for theassessment year 2000-01, it declared a total income ofRs.1,63,74,320/-. After the assessing officer issued notice forreopening of the assessment under section 148 of the Income TaxAct, 1961 ('the Act' for brevity), though the assessee initially objectedto the same, after the objections were rejected, a return was filedclaiming deduction under Chapter VI-A of the Act as follows: (i) Deduction under section 80HHC:Rs.1,16,29,181/-(ii) Deduction under section 80-IB:Rs.1,05,77,345/-(iii) Deduction under section 80JJAA:Rs.2,02,730/- I.T.A. No.347 of 2010(arising from AY 2000-01) 4. The assessee is a company engaged in the manufacture and trading of latex gloves. In the revised return filed for theassessment year 2000-01, it declared a total income ofRs.1,63,74,320/-. After the assessing officer issued notice forreopening of the assessment under section 148 of the Income TaxAct, 1961 ('the Act' for brevity), though the assessee initially objectedto the same, after the objections were rejected, a return was filedclaiming deduction under Chapter VI-A of the Act as follows: (i) Deduction under section 80HHC:Rs.1,16,29,181/-(ii) Deduction under section 80-IB:Rs.1,05,77,345/-(iii) Deduction under section 80JJAA:Rs.2,02,730/- 5. The assessing officer disagreed with the manner ofcomputation of deductions and held that simultaneous deductionscannot be made in respect of the three sections under Chapter VI-Ain view of section 80-IB(13) read with section 80-IA(9) of the Act. Itwas found by the assessing officer that the claim under section I.T.A. Nos.347, 349, 354, 368/2010 80HHC was eligible only to the extent it exceeded the deductionunder section 80-IB of the Act. The assessing officer granted theentire deduction claimed under section 80-IB and after computing thededuction allowable under section 80HHC, to be Rs.1,15,70,866/-,reduced the deduction of Rs.1,05,77,345/- allowed under section 80-IB and thus allowed a deduction of Rs.9,93,521/- under section80HHC. It was also factually found that no deduction under section80JJAA was allowable in view of the statutory provisions. 6. On appeal filed by the assessee, the CIT (Appeals) held thatthe deduction under section 80HHC ought to be allowed only afterreducing the amount allowed under section 80-IB from the eligiblebusiness profits. It was also held that the total deduction underChapter VI-A could not exceed the gross total income in view ofsection 80A(2) of the Act. 7. Appeals were preferred by the department to the Appellate Tribunal, while cross-objections were preferred by the assessee.The Tribunal, by the order impugned, rejected all the appeals,thereby confirming the order of the First Appellate Authority. TheTribunal noticed that the computation directed by the CIT (Appeals)was more in conformity with the provisions of the Act. The assessee -:9:- is thus before this Court. 8. We heard Adv.Kuryan Thomas, learned counsel on behalf ofthe appellant and Adv.Jose Joseph, learned Senior Standing Counselfor the department. 9. Adv. Kuryan Thomas, after inviting our attention to thedecision reported in Olam Exports (India) Ltd. v. Commissioner ofIncome Tax [(2011) 332 ITR 40 (Ker)] submitted that, though thisCourt had held the simultaneous deduction of section 80HHC andsection 80-IB as impermissible, the Supreme Court had referred thevery same question to a Larger Bench for consideration. Referring tothe decision reported in Assistant Commissioner of Income Tax, Bangalore v. Micro Labs Limited [(2015) 17 SCC 96], it wassubmitted that since the matter has been placed for considerationbefore the Larger Bench of the Supreme Court for an authoritativedecision, the consideration of these appeals may be deferred. 10. The learned counsel further submitted, on behalf of theassessee, that, the intention of section 80-IA(9) was clear that thedeductions are to be granted cumulatively. According to the learnedcounsel, the statute does not incorporate any prohibition in the grantof simultaneous deduction and on the other hand, the very intention I.T.A. Nos.347, 349, 354, 368/2010 behind providing different heads of deductions under the sameChapter was to give maximum benefit to the assessee. It wastherefore submitted that since the decision in Olam Exports (India)Ltd. v. Commissioner of Income Tax (supra) case was wronglydecided, the same may require reconsideration. 10. The learned counsel further submitted, on behalf of theassessee, that, the intention of section 80-IA(9) was clear that thedeductions are to be granted cumulatively. According to the learnedcounsel, the statute does not incorporate any prohibition in the grantof simultaneous deduction and on the other hand, the very intention I.T.A. Nos.347, 349, 354, 368/2010 behind providing different heads of deductions under the sameChapter was to give maximum benefit to the assessee. It wastherefore submitted that since the decision in Olam Exports (India)Ltd. v. Commissioner of Income Tax (supra) case was wronglydecided, the same may require reconsideration. 11. Adv.Jose Joseph, learned Standing Counsel, on the otherhand submitted that, this Court is bound by the decision in OlamExports (India) Ltd. v. Commissioner of Income Tax (supra) andhence there was no requirement to defer the consideration of theseappeals. He further submitted that these appeals have been pendingconsideration before this Court for the last more than 11 years andhence, it was not in the interest of all, to defer it further. 12. On merits, the learned Standing Counsel contended that the language of section 80HHC, 80-IA and 80-IB were clear that, ifthe assessee claims and is granted any deduction under section 80- IA or 80-IB, further deduction to the extent allowed under thosesections cannot be granted under section 80HHC. 13. We have considered the rival contentions. Having regardto the fact that these appeals have been pending for the last11 years and this Court had considered similar questions of law I.T.A. Nos.347, 349, 354, 368/2010 raised in these appeals earlier, we are of the view that there is no necessity to defer consideration of these appeals. Accordingly, we proceed to consider these appeals on merits. 14. For a better understanding of section 80-IA(9) as it stood in the year 2000 is extracted as below: “S.80-IA(9)- Where any amount of profits and gains of theundertaking or of an enterprise in the case of an assesseeis claimed and allowed under this section for anyassessment year, deduction to the extent of such profitsand gains shall not be allowed under any other provisionsof this Chapter under the heading “C.- Deduction inrespect of certain incomes” and shall in no case exceedthe profits and gains of such eligible business ofundertaking or enterprise as the case may be.” 15. From a reading of the above-extracted provision, it can be understood that if an assessee is allowed a deduction under section80-IA of the Act on the ground of it being an eligible businessundertaking, it cannot be allowed a further deduction of the entireprofits and gains claimed under the provisions of section 80HHCalso. The provisions are explicit that if any deduction is claimed andallowed under section 80-IA as an eligible business, then theassessee cannot claim deduction to that extent of such profits andgainscoming under other heads of deduction of Chapter VI-A of theAct. Section 80HHC which relates to deductions in respect of the I.T.A. Nos.347, 349, 354, 368/2010 -:12:- profits and gains from export business falls under the heading “C” ofChapter VI-A. There is no ambiguity in section 80-IA(9) of the Act.We are of the opinion that the intention of the legislature is clear thatthere cannot be a simultaneous deduction under section 80-IA andunder section 80HHC. The profits and gains allowed as deductionsunder section 80-IA have to be excluded while computing thededuction under section 80HHC. 16. In fact this Court had, as pointed out by both counsel, I.T.A. Nos.347, 349, 354, 368/2010 -:12:- profits and gains from export business falls under the heading “C” ofChapter VI-A. There is no ambiguity in section 80-IA(9) of the Act.We are of the opinion that the intention of the legislature is clear thatthere cannot be a simultaneous deduction under section 80-IA andunder section 80HHC. The profits and gains allowed as deductionsunder section 80-IA have to be excluded while computing thededuction under section 80HHC. 16. In fact this Court had, as pointed out by both counsel, already held, succinctly, in Olam Exports (India) Ltd. v.Commissioner of Income Tax (supra) that “by virtue of specificexclusion of section 80-IB(13) of the Act the assessee is not entitledto simultaneous deduction of both. In other words, while computingthe deduction under section 80HHC, deduction granted under section80-IB cannot be reckoned or has to be excluded.” We find no reasonto depart from the aforesaid finding of this Court nor do we find anycause for reconsideration. 17. The learned counsel for the appellant by referring to thedecision in Commissioner of Income Tax, Thiruvananthapuram v.K.Ravindranathan Nair [(2007) 15 SCC 1] contended that thedecision in Olam Exports (India) Ltd. v. Commissioner of Income I.T.A. Nos.347, 349, 354, 368/2010 -:13:- Tax (supra)has not laid down the correct proposition of law. InK.Raveendranathan Nair’s case (supra)the issue that arose forconsideration was for the years 1993-94 and as observed in thatcase, the provisions of section 80HHC is no longer a complete codeby itself after the subsequent amendments and restrictions. TheSupreme Court was considering the computation of export incentiveunder section 80HHC(3) and the question, in that case, was whetherthe processing charges can be included in the total turnover whilearriving at the export profits. 18. In the circumstances, we hold that the deduction undersection 80HHC of the Act and the deduction under section 80-IB are not simultaneous. The deduction granted under section 80-IB has tobe excluded while computing the deduction claimed under section80HHC. The Tribunal was correct in its conclusion and the first twoquestions are answered in favour of the revenue. This appeal,therefore, stands dismissed. I.T.A. No.368 of 2010 (arising from AY 2002-03) 19. This appeal arises from the assessment year 2002-03.Questions 1 and 2 mentioned at the beginning of this judgment arisefor consideration in this appeal. As we have already answered the I.T.A. Nos.347, 349, 354, 368/2010 -:14:- same in favour of the revenue, this appeal stands dismissed. I.T.A. No.349 of 2010 (arising from AY 2003-04) 20. All the three questions of law mentioned at the beginning ofthis judgment arise for consideration for the assessment year 2003-04 also. Since we have already found the first two questions of lawin favour of the revenue, we proceed to consider the third question. 21. The assessee claimed that after non-sterilised gloves arepurchased from the outside markets, the assessee subject the glovesto a process of sterilisation and packing. Assessee claimed thesterilization and packing as a manufacture for the purpose of section80-IB of the Act. The Tribunal rejected the claim and held that therewas no manufacture in the activity carried out by the assessee. It isin such circumstances that the third question raised in this appealarises for consideration. 22. Non-sterilised gloves are purchased by the assessee and the same is subjected to sterilisation to make it more hygienic. Itmust be appreciated that the gloves have already beenmanufactured and processed. On a factual consideration, theTribunal found that the process of sterilisation carried out by theassessee does not create or bring into being a new product so as to I.T.A. Nos.347, 349, 354, 368/2010 -:15:- 22. Non-sterilised gloves are purchased by the assessee and the same is subjected to sterilisation to make it more hygienic. Itmust be appreciated that the gloves have already beenmanufactured and processed. On a factual consideration, theTribunal found that the process of sterilisation carried out by theassessee does not create or bring into being a new product so as to I.T.A. Nos.347, 349, 354, 368/2010 -:15:- make it a ‘manufacture’. The Tribunal had, as a final fact-findingauthority, found the process adopted by the assessee as one notcoming within the purview of manufacture. We are of the view thatthe said finding needs no interference and hence the third questionraised in these appeals is found against the assessee. This appealtherefore fails and is dismissed. I.T.A. No.354 of 2010(arising from AY 2004-05) 23. This appeal arises from the assessment year 2004-05.Questions 1 and 2 mentioned at the beginning of this judgment arisefor consideration in this appeal. Since we have already answeredthose questions in favour of the revenue, this appeal also standsdismissed. Conclusion In view of the discussions mentioned above, all these appealsare dismissed. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE I.T.A. Nos.347, 349, 354, 368/2010 -:16:- APPENDIX OF ITA 347/2010 I.T.A. Nos.347, 349, 354, 368/2010 -:17:- APPENDIX OF ITA 349/2010 PETITIONER'S/S' ANNEXUREANNEXURE AA TRUE COPY OF THE ASSESSMENT ORDERDATED 23.02.2006.ANNEXURE BTRUE COPY OF THE ORDER OF THECOMMISSIONER OF INCOME TAX (APPEALS)DATED 16.10.2006.ANNEXURE CTRUE COPY OF THE ORDER OF THE INCOME TAXAPPELLATE TRIBUNAL, DATED 13.05.2010. I.T.A. Nos.347, 349, 354, 368/2010 -:18:- APPENDIX OF ITA 354/2010 PETITIONER'S/S' ANNEXURE I.T.A. Nos.347, 349, 354, 368/2010 -:19:- APPENDIX OF ITA 368/2010 PETITIONER'S/S' ANNEXURE ANNEXURE AA TRUE COPY OF THE ASSESSMENT ORDERDATED 26.12.2007. ANNEXURE BTRUE COPY OF THE ORDER OF THECOMMISSIONER OF INCOME TAX (APPEALS)DATED 30.08.2008. ANNEXURE CTRUE COPY OF THE ORDER OF THE INCOME TAXAPPELLATE TRIBUNAL DATED 31.05.2010.