The Commissioner Of Income Tax – Vi, Mumbai v. M/S.cravetex Limited, Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1760 OF 2009 WITH INCOME TAX APPEAL NO.1122 OF 2008 ANDINCOME TAX APPEAL NO.1495 OF 2009 The Commissioner of Income Tax – VI, Mumbai Versus M/s.Cravetex Limited, Mumbai ..Appellant. ..Respondent. Mr.Suresh Kumar for the appellant. Mr.K.B. Bhujle with Mr.P.V. Bhujle for the respondent. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. P.C. : DATE : 22 June, 2010. 1.In these three appeals by the Revenue, the question of law that has been formulated is as follows : “Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of deduction u/s.80HHC, total turnover means the total turnover of the export division of the assessee at Bangalore alone and not the total turnover of the entire business of the assessee in contradiction to the express provisions of Section 80HHC (3) of the Income Tax Act ?” 2.The appeals relate to assessment years 2000-01, 2002-03 and 2003-04. The case of the assessee is that it has two separate divisions; one which engages in export and another which engages in the local trading business. The assessee claimed a deduction under Section 80HHC of the Income Tax Act, 1961. For the purposes of these proceedings, it would be necessary to advert to the record for assessment year 2003-2004, it being common ground between Counsel for the Revenue and Counsel for the assessee that facts as they obtain for the other two assessment years are similar. The issue which has been addressed in the order of the Tribunal is as to whether the turnover of each unit was liable to be considered separately for computing a deduction under Section 80HHC. 3.The Commissioner (Appeals) had in his order dated 5 October 2006 decided the issue in terms of the following observations : “...I do not agree with the contention of the authorised representative that the business of various divisions of the company are to be separately ascertained before grant of deduction u/s.80HHC. The statement that the export division at Bangalore is different from other divisions like Sports Division and Shops cannot be accepted. No doubt books of accounts of these branches are maintained separately as there is a long distance between these branches, however, for the purpose of taxation the profit of the business is to be decided as a whole. For deduction of 80HHC only one profit is to be taken as profit of the business and the deduction u/s.80HHC is to be allowed as per the amended Income Tax Act. It may be that the company is dealing in different products, but there is a inter-linking of management and inter-locking of funds also. The different divisions cannot borrow funds without the approval of Board of Directors of the company. As such, there is inter-linking of management and it is not true to say that the export division is separately existing and no administrative expenses are incurred at the Head Office. .....” 4.The Tribunal followed the decision of the Madras High Court in Commissioner of Income Tax V/s. Madras Motors Limited[1] and held that where an assessee had separate and distinct units and maintained separate and independent books of account for export as well as domestic sales, the turnover in the business of each unit should be considered separately in computing the deduction. On facts, the Tribunal observed as follows : at the Head Office. .....” 4.The Tribunal followed the decision of the Madras High Court in Commissioner of Income Tax V/s. Madras Motors Limited[1] and held that where an assessee had separate and distinct units and maintained separate and independent books of account for export as well as domestic sales, the turnover in the business of each unit should be considered separately in computing the deduction. On facts, the Tribunal observed as follows : “In the instant case, the assessee has separate units at Bangalore and other places and its unit at Bangalore known as Pro Apparels Pvt. Ltd., is engaged in export activities alone and the remaining units are involved in local sales. It is also an admitted fact that assessee has maintained separate books of accounts and there is no overlapping of the funds etc., In these circumstances, we are of the view that for computing deduction u/s. 80HHC, the business of the assessee of its export division, should be considered alone.” 5.There is merit in the grievance which has been urged on behalf of the Revenue that before the Tribunal could proceed to decide the question of law, it was necessary to address the basic finding of fact as noted earlier which was arrived at by the Commissioner (Appeals). The Commissioner (Appeals) held that though the export division at Bangalore and the other division may be dealing in different products, there is an interlinking of management and interlocking of funds. The findings of the Commissioner (Appeals) has not been displaced by the Tribunal because the Tribunal proceeds on the basis that it is “an admitted fact that the assessee has 1257 ITR 60 maintained separate books of account and there is no over-lapping of funds etc.”. From the findings of the Commissioner (Appeals), it is evident that there was no basis to conclude that it was an admitted fact that there was no “over-lapping” of funds. The Commissioner (Appeals) having held that there was an interlinking of the management and interlocking of funds, it was necessary for the Tribunal to consider the record and the material produced on behalf of the assessee and the Revenue in deciding as to whether the finding of fact could or could not be sustained. That exercise has evidently not been done. In the circumstances, before the question of law can be addressed, it is only necessary and proper that the Court should have the benefit of a considered finding on the issues of fact which arise between the parties. 6.In order to facilitate this exercise, we set aside the order of the Tribunal and restore the appeal to the file of the Tribunal for a fresh disposal in accordance with law. All questions of law and fact are kept open to be decided by the Tribunal. In view of the order that has been passed in these proceedings, it is not necessary for this Court to decide the question of law which has been raised by the Revenue, which is kept open. 7.The appeals are accordingly disposed of. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)