COMMISSIONER OF INCOME TAX vs. M/S.MIDLAND RUBBER & PRODUCE

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ITA/1571/2009HC KeralaKLHC01026332200909 July 2012Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the issue is no longer res integra, referencing the Supreme Court's decisions in IPCA Laboratories Ltd. vs. Deputy Commissioner of Income Tax (2004) 266 ITR 521 and A.M. Moosa vs. Commissioner of Income Tax (2007) 294 ITR 1. These judgments established that an assessee suffering a net loss in their export business is not entitled to a deduction under Section 80HHC. Consequently, the High Court allowed the appeals, answering the questions of law in favour of the Revenue and against the assessee. The orders of the Tribunal and the first appellate authority were set aside, restoring the order of the Assessing Officer. The operative direction was to restore the Assessing Officer's order.

What were the facts?

The assessee, The Midland Rubber & Produce Co. Ltd., is a company engaged in plantation and local trading, as well as export. For assessment years 1990-91 and 1991-92, the assessee claimed deduction under Section 80HHC of the Income Tax Act, which was initially allowed by the Assessing Officer. However, upon noticing that the assessee incurred a loss in its export business, the Assessing Officer initiated rectification proceedings and disallowed the deduction. The first appellate authority reversed this decision, granting the deduction. The Income Tax Appellate Tribunal confirmed the first appellate authority's order. The Commissioner of Income Tax (Revenue) has appealed these decisions.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and in fact in allowing the deduction under Section 80HHC of the Income Tax Act? 2. Whether, on the facts and in the circumstances of the case and considering the scope, ambit and restraint in the words “derived from” the Tribunal is right in law in granting deduction under Section 80HHC? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in granting deduction under Section 80HHC when no profits is derived from the export of goods and merchandise? The Revenue contended that the Tribunal erred in allowing the deduction under Section 80HHC, particularly when the assessee suffered a net loss in its export business. The Revenue relied on the Supreme Court decisions in IPCA Laboratories Ltd. vs. Deputy Commissioner of Income Tax and A.M. Moosa vs. Commissioner of Income Tax. The judgment does not record specific arguments from the assessee.

Which sections of the Income-tax Act were involved?

Section 80HHC

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN MONDAY, THE 9TH DAY OF JULY 2012/18TH ASHADHA 1934 I.T.A.No.1571 of 2009 --------------------------------------- [AGAINST THE ORDER IN I.T.A.48/COCH/99 DATED 28.06.2002 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH] (ASSESSMENT YEAR 1991-92) ----------------- APPELLANT/APPELLANT:- -------------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX. RESPONDENT/RESPONDENT:- -------------------------------------------- THE MIDLAND RUBBER & PRODUCE CO.LTD., ALAPPUZHA. BY ADV. SRI.E.K.NANDAKUMAR (SENIOR ADVOCATE) SRI.A.K.JAYASANKAR NAMBIAR (SENIOR ADVOCATE) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH SRI.RAJA KANNAN. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09-07-2012, ALONG WITH I.T.A.1573/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:-

Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. ------------------------------------------------- I.T.A.Nos.1571 of 2009 & 1573 of 2009 ------------------------------------------------- Dated this, the 9th day of July, 2012 JUDGMENT K.Vinod Chandran,J: The above appeals, relating to the assessment years 1990-91 and 1991-92, have been filed by the Revenue raising the following questions of law: 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and in fact in allowing the deduction under Section 80HHC of the Income Tax Act? 2. Whether, on the facts and in the circumstances of the case and considering the scope, ambit and restraint in the words “derived from” the Tribunal is right in law in granting deduction under Section 80HHC? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in granting deduction under Section 80HHC when no profits is derived from the export of goods and merchandise?

ITA.Nos.1571 & 1573 of 2009 - 2 - 2. The assessee being a company carrying on the business of plantation along with local trading conducts also export. For the relevant assessment years, the assessee claimed deduction under Section 80HHC, which was allowed by the Assessing Officer. Subsequently, noticing that the result of assessee's export business is a loss, proceedings were initiated for rectification of mistake apparent on the face of the record and the deduction was disallowed. The first appellate authority reversed the finding of the Assessing Officer and granted deduction claimed, which was confirmed by the Income Tax Appellate Tribunal. 3. The issue is no longer res integra. The Hon'ble Supreme Court in IPCA Laboratories Ltd. vs. Deputy Commissioner of Income Tax, (2004) 266 ITR 521, and in A.M.Moosa vs. Commissioner of Income Tax, (2007) 294 ITR 1, held that on an assessee suffering net loss in export business, the entitlement for deduction under Section 80HHC is not available. In such circumstances, the above appeals are allowed, answering the questions of law in favour of the Revenue and

ITA.Nos.1571 & 1573 of 2009 - 3 - against the assessee. The order of the Tribunal and the first appellate authority are set aside, restoring the order of the Assessing Officer. Ordered accordingly.

Sd/- Thottathil B.Radhakrishnan Judge Sd/-

K.Vinod Chandran vku/- Judge. - true copy -

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