THE COMMISSIONER OF INCOME-TAX, TVPM vs. M/S.G.P.N. CASHEW EXPORTING CO., KOLLAM

PDF · subscribers
ITA/34/2008HC KeralaKLHC01026939200824 March 2009Author: HONOURABLE MR.JUSTICE K.SURENDRA MOHAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the sale proceeds of a REP licence cannot be treated as export profit. It is deemed business income under Section 28(iii)(a) of the Income Tax Act. Consequently, 90% of these proceeds must be excluded when computing business profits for the purpose of Section 80 HHC deduction. The Court referred to the Supreme Court's decision in COMMISSIONER OF INCOME-TAX V. K.RAVINDRANATHAN NAIR (2007) 295 ITR 228. Since the Assessing Officer had not computed the deduction considering total turnover, export turnover, and the percentage of profit from export business, the High Court set aside the orders of the Tribunal and the CIT (Appeals). The matter was remanded back to the Assessing Officer to re-work the relief under Section 80 HHC after obtaining necessary particulars from the assessee and considering the first and fifth provisos to Section 80 HHC(3) introduced by the Taxation Laws Amendment Act, 2005, with retrospective effect from 1.4.1992.

What were the facts?

The assessee, M/s. G.P.N. Cashew Exporting Co., filed a loss return of Rs. 3,96,780/- for assessment year 1994-95 after receiving a notice under Section 148. The Assessing Officer (AO) disallowed several items and added Rs. 7.75 lakhs towards the sale proceeds of a REP licence. The AO denied Section 80 HHC deduction, stating that after excluding 90% of the REP licence sale proceeds as per Section 80 HHC(4c)(baa), the net result would be negative. The CIT (Appeals) allowed the claim, considering the REP licence as income from export business. The Tribunal confirmed this decision, leading to the present appeal by the Commissioner of Income-Tax, Trivandrum.

What were the issues?

1. Whether the Tribunal was justified in granting deduction under Section 80 HHC of the Income Tax Act in respect of sale proceeds of REP licence, treating it as profit in export business (question of law). Assessee's Contention: The assessee contended that the REP licence sale proceeds are income derived from export business, thus eligible for deduction under Section 80 HHC. The CIT (Appeals) supported this view, which was confirmed by the Tribunal. Revenue's Contention: The revenue argued that the sale proceeds of the REP licence cannot be considered export profit. They contended that 90% of such proceeds must be excluded in the computation of business profits for Section 80 HHC purposes, as per Section 80 HHC(4c)(baa). The AO initially denied the deduction on this ground, and the present appeal is filed against the Tribunal's order.

Which sections of the Income-tax Act were involved?

Section 80 HHC,Section 28(iii)(a),Section 80 HHC(4c)(baa),Section 80 HHC(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN TUESDAY, THE 24TH MARCH 2009 / 3RD CHAITHRA 1931 ITA.No. 34 of 2008() -------------------- ITA.169/COCH/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: -------------------- THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. BY ADV. SRI.JOSE JOSEPH, SC FOR IT RESPONDENT(S): --------------- M/S.G.P.N.CASHEW EXPORTING CO., BEACH ROAD, THAMARAKKULAM, KOLLAM. ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24/03/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. .................................................................... I.T. Appeal No.34 of 2008 .................................................................... Dated this the 24th day of March, 2009.

JUDGMENT Ramachandran Nair, J. The question raised in the departmental appeal is whether the Tribunal was justified in granting deduction under Section 80 HHC of the Income Tax Act in respect of sale proceeds of REP licence treating it as profit in export business. We have heard Standing Counsel for the appellant and Sri.P.Balakrishnan appearing for the respondent- assessee. The assessee did not file any return voluntarily for the year 1994-95. However, against Section 148 notice, assessee filed return declaring a loss of Rs.3,96,780/-. The Assessing Officer disallowed many items and along with it made an addition of Rs.7.75 lakhs towards sale proceeds of REP licence. Even though loss return was converted into positive income and tax was demanded, the Assessing Officer declined relief under Section 80 HHC for the reason that if 90% of the sale proceeds of REP licence is reduced in the computation of profits of business in terms of Section 80 HHC(4c)(baa), then the net

2

result will be a negative figure. However, in appeal, the CIT (Appeals) allowed the claim stating that REP licence is also income in export business. This was confirmed by the Tribunal against which this appeal is filed.

2.

We are unable to uphold sale proceeds of REP licence as export profit. On the other hand, it is deemed business income under Section 28(iii)(a) of the Income Tax Act and so much so, 90% of the same has to be excluded in the computation of business profit while computing relief under Section 80 HHC. The Supreme Court has in COMMISSIONER OF INCOME-TAX V. K.RAVINDRANATHAN NAIR reported in (2007) 295 ITR 228 considered the scope of Explanation referred above, though in the context of processing charges. Since the Assessing Officer has not considered total turnover and the export turnover and the percentage of profit from export business, deduction of export profit has to be made by applying formula under Section 80 HHC(3) of the Act. Since relief is not computed by the Assessing Officer, we set aside the orders of the Tribunal and that of the first appellate authority and remand the matter

3 back to the Assessing Officer to rework relief after calling for particulars from the assessee and after referring to the decision of the Supreme Court abovereferred. The Assessing Officer while considering relief should take into account first proviso and fifth proviso introduced to Section 80 HHC(3) of the Act by the Taxation Laws Amendment Act, 2005 with retrospective effect from 1.4.1992. C.N.RAMACHANDRAN NAIR Judge K.SURENDRA MOHAN Judge pms

More judgments on Section 80 HHC

All 26 judgments and leading authorities on Section 80 HHC →

Recent GST High Court judgments

Search GST case law →