Tax Appeal v. M. Salgaoncar & Brother

IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 21 OF 2011 V. M. Salgaoncar & Brother Private Limited, SalgaocarHouse, Off Francisco LuisGomes Road, Vasco-Da-Gama, Goa, 403 802. ... Appellant V e r s u s Commissioner of Income Tax having office at AayakarBhavan, Patto Plaza, Panaji,Goa 403 001. ... Respondent Mr. A. F. Diniz and Mr. Ryan Menezes, Advocates for the Appellant. Ms. Amira Razaq, Standing Counsel for the Respondent. Coram :-M. S. SONAK & C. V. BHADANG, JJ. Date :22nd November, 2019. JUDGMENT(Per M. S. Sonak, J.) 1. Heard Mr. A. F. Diniz, learned Counsel for the appellantand Ms. Amira Razaq, learned Standing Counsel for theDepartment. 2. This appeal was admitted on 26.09.2011 on the following substantial questions of law : i) Whether on the facts and in law, the Tribunal wasright in upholding the exercise of jurisdiction by theAssessing Officer under Section 147 of the Act ? ii) Whether on the facts and in law, the Tribunal wasright in upholding the action of the Assessing officerof deducting 90% of the income from truck hirecharges, barge hire charges, ore processing receipts,trans-shipper loader charges, machinery hire chargesand launch hire charges while computing the "profitsof the business" in accordance with Clause (baa) ofthe Explanation below Section 80HHC ? iii) Whether on the facts and in law, the Tribunal wasright in not following its earlier Order dated February26, 2010 in the Appellant's own case for the earlierAssessment year i.e. 1997-1998, where the Tribunalhad upheld the Appellant's claim that no part of theincome from truck hire charges, barge hire charges,ore processing receipts, trans-shipper loader chargesand machinery hire charges was to be reduced while computing the profits of the business for the purposeof deduction under Section 80HHC of the Act ? iv) Whether the Tribunal was right in law in holdingthat Clause (baa) of the Explanation below Section80HHC, requires 90 % of the gross receipts insteadof net receipts when the only controversy before itwas the manner of computation of net receipts? v) Whether the Tribunal was right in law in holdingthat Clause (baa) of the Explanation below Section80HHC, requires 90% of the gross receipts instead ofnet receipts, which resulted into enhancing theincome of the Appellant ? vi) Whether on the facts and in law, the Tribunal wasright in not permitting adding losses from export oftrading goods in respect of disclaimed turnover to theprofit eligible for deduction under Section 80HHCof the Act? 3.Mr. Diniz, learned Counsel for the appellant, at the very outset states that he has instructions not to press the substantial question at (i) above. He also states that the question at (iii)above really does not arise in this matter and, therefore, he has instructions not to press the same as well. Accordingly, there isno necessity to advert the questions at (i) and (iii) above. 4.Mr. Diniz, learned Counsel submits that the substantialquestion of law at (ii), (iv) and (v) can be taken up forconsideration together. He points out that the issues which arisefrom these questions are no longer res integra. He refers to thedecision of the Hon'ble Apex Court in ACG Associated Capsules(P) Ltd. vs. Commissioner of Income Tax, 2012 18 Taxman.com137(SC). He submits that in this case, the Hon'ble Apex Courthas held that the deductions had to be made not on gross rent orgross basis but only on net rent, net interest or net basis. Hesubmits that cognisance was taken on this position in CIT vs.Sesa Goa Ltd. Tax Appeal No.81 of 2006 decided on 07.05.2015.On this basis, Mr. Diniz submits that though this Court mayhave to hold that deduction as referred to in substantial questionof law at (ii) above, may be permissible, the same will have to bemade on net basis and not on gross basis. 5.Mr. Diniz, learned Counsel for the appellant, then submitsthat the substantial question of at law at (vi) above stands fullyanswered in favour of the appellant and against the revenue by thedecision of this Court dated 27.03.2012 in the case of TheCommissioner of Income Tax vs. V. M. Salgaonkar & BrothersLtd. & anr. in Income Tax Appeal Nos.5, 6 and 7 of 2002. 6.Ms. Razaq, the learned Standing Counsel for therespondent defends the impugned order in the present case on thebasis of the reasoning reflecting therein and submits that thisappeal may be dismissed. 7.Having perused the record, we find that the substantialquestion of law at (ii), (iv) and (v) above relate to one and thesame issue namely, whether the Tribunal in the present case, wasright in upholding the action of the Assessing Officer deducting90% of the income from truck hire charges, barge hire charges, ore processing receipts, trans-shipper loader charges, machineryhire charges and launch hire charges while computing the profits of the business in accordance with Clause (baa) of theExplanation below Section 80HHC of the Income Tax Act (IT,Act). Further, if at all, the Tribunal was so justified, then whetherthe deductions ought to have been made on the basis of grossreceipts and not net receipts. 8.In ACG Associated Capsules (P) Ltd. (supra), the Hon'bleSupreme Court, has clearly held that deductions of the nature asare referred to in the substantial question of law at (ii) above, arepermissible, such deductions are required to be made not on thegross receipts but on the net receipts. This is clear from theobservations in paragraph 12 which read as follows : “12. If we now apply Explanation (baa) asinterpreted by us in this judgment to the facts ofthe case before us, if the rent or interest is a receiptchargeable as profits and gains of business andchargeable to tax under Section 28 of the Act, andif any quantum of the rent or interest of theassessee is allowable as an expense in accordancewith Sections 30 to 44D of the Act and is not to be included in the profits of the business of theassessee as computed under the head “Profits andGains of Business or Profession”, ninety per cent ofsuch quantum of the receipt of rent or interest willnot be deducted under clause (1) of Explanation(baa) to Section 80HHC. In other words, ninetypercent of not the gross rent or gross interest butonly the net interest or net rent, which has beenincluded in the profits of business of the assessee ascomputed under the head “Profits and Gains ofBusiness or Profession”, is to be deducted underclause (1) of Explanation (baa) to Section 80HHCfor determining the profits of the business.”(Emphasis supplied). 9.From the aforesaid, it is quite clear that the substantialquestions of law at (ii), (iv) and (v) will have to be answered byholding that the revenue was quite right in making thedeductions referred to in the substantial question of law at (ii).However, such deductions ought to have been made on the basisof net receipts and not gross receipts. The substantial questionsof law at (ii), (iv) and (v) are answered accordingly. The revenue will therefore have to rework the assessment on such basis and extend the necessary benefits, if any, to the appellant within areasonable period. The impugned orders are modifiedaccordingly. 10.Insofar as the substantial question of law at (vi) isconcerned, the same stands answered entirely in favour of theassessee and against the revenue in terms of our decision dated27.03.2012 in the Income Tax Appeal Nos.5, 6 and 7 of 2002.Incidentally, all these appeals were in the case of the presentassessee and the ITAT had in fact held in favour of the presentassessee. The appeals instituted by the revenue were accordinglydismissed. The substantial question of law at (vi) is consequentlyanswered in favour of the assessee-appellant and against therevenue-respondent. The impugned orders are modifiedaccordingly. 11.The present appeal is disposed off in the aforesaid terms. There shall be no order as to costs. C. V. BHADANG, J. 10.Insofar as the substantial question of law at (vi) isconcerned, the same stands answered entirely in favour of theassessee and against the revenue in terms of our decision dated27.03.2012 in the Income Tax Appeal Nos.5, 6 and 7 of 2002.Incidentally, all these appeals were in the case of the presentassessee and the ITAT had in fact held in favour of the presentassessee. The appeals instituted by the revenue were accordinglydismissed. The substantial question of law at (vi) is consequentlyanswered in favour of the assessee-appellant and against therevenue-respondent. The impugned orders are modifiedaccordingly. 11.The present appeal is disposed off in the aforesaid terms. There shall be no order as to costs. C. V. BHADANG, J. M. S. SONAK, J. arp/*