THE WEST COAST POPER MILLS LTD vs. ADDL COMMISSIONER OF INCOME-TAX RANGE 1 (3) MUMBAI AND ANR

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ITXA/550/2005HC Bombay05 July 2024Author: HON'BLE SHRI JUSTICE G. S. KULKARNI, HON'BLE SHRI JUSTICE SOMASEKHAR SUNDARESAN5 pages
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What did the High Court hold?

The High Court decided the five questions of law as follows: Question 1 was answered against the Assessee and in favour of the Revenue, disallowing deduction for guest house expenses. Question 2 was answered in favour of the Assessee and against the Revenue, allowing deduction for presentation articles. Question 3 was answered in favour of the Assessee and against the Revenue. The Tribunal relied on the Supreme Court's decision in CIT vs. Punjab Stainless Steel Industries, holding that sale proceeds of scrap do not form part of 'total turnover' for Section 80HHC purposes. Questions 4 and 5 were answered against the Assessee and in favour of the Revenue, following the Supreme Court's judgment in CIT vs. K. Ravindranathan Nair. The lease rent received by the Assessee was held not to be part of business income or turnover, and the disallowance of 90% of the interest component was upheld. The appeal was disposed of in these terms.

What were the facts?

The appeal concerns Assessment Year 1997-98, filed by The West Coast Paper Mills Ltd. (Assessee) against the Additional Commissioner of Income-Tax (Revenue). The Assessee challenges the disallowance of certain expenses and the inclusion of certain receipts in its total income. The Assessee also disputes the treatment of lease rent and its interest component. The High Court is considering five questions of law. The Assessee's counsel conceded that three of the five questions have been decided against the Assessee by Supreme Court judgments. The Assessee also stated that two other questions were covered by a previous order of the High Court concerning the same Assessee for Assessment Year 1995-96.

What were the issues?

The Tribunal had to decide five questions of law: 1. Whether expenses of Rs. 2,33,726/- for municipal taxes, maintenance, and repair of a guest house are allowable as a deduction (Section 37 of the Income Tax Act, 1961). 2. Whether expenses of Rs. 18,40,239/- for buying presentation articles are allowable as a deduction (Section 37). 3. Whether sale proceeds of scrap amounting to Rs. 44,40,022/- are part of the total income for computing deduction under Section 80HHC. 4. Whether lease rent of Rs. 4,20,02,732/- received by the Assessee is part of the total turnover for purposes of Section 80HHC. 5. Whether 90% of the interest of Rs. 1,29,87,402/- included in the lease rent is rightly reduced from business income. Assessee's Contentions: - Questions 1, 4, and 5 are conceded as decided against the Assessee by Supreme Court judgments. - Questions 1 and 2 are covered by a previous High Court order for AY 1995-96. Revenue's Contentions: - The judgment records no specific arguments for the Revenue, but implies agreement with the Supreme Court's positions on the conceded issues.

Which sections of the Income-tax Act were involved?

Section 37,Section 80HHC

AI-generated summary — verify with the full judgment below

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 550 OF 2005 The West Coast Paper Mills Ltd. having its administrative office at Shreeniwas House, Hazarimal, Somani Marg, Mumbai – 400 001. …Appellant Versus

1.

The Additional Commissioner of Income-Tax, Range 13(1), having his office at Aayakar Bhavan, Maharshi Karve Marg, Mumbai – 400 020. 2. Union of India, through Ministry of Law, Aayakar Bhavan, Maharshi Karve Road, Mumbai – 400 020. …Respondents Ms. A. Vissanji a/w. Mr. S.J. Mehta i/b S.J. Mehta and A. Vissanji, Advocates for Appellant. Mr. Suresh Kumar, Advocate for Respondents. CORAM : G.S. KULKARNI & SOMASEKHAR SUNDARESAN, JJ. Date : July 05, 2024 Oral Judgement (per, Somasekhar Sundaresan) :

1.

In this Appeal, the Assessment Year in question is 1997-98. SHRADDHA KAMLESH TALEKAR SHRADDHA KAMLESH TALEKAR Date: 2024.07.08 11:55:28 +0530 CNR No : HCBM020205222005 Uploaded on - 10/07/2024 Downloaded on - 31/10/2026 00:30:42

2024:BHC-OS:10091-DB

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The Appeal raises the following questions of law : (1) Whether on the facts and circumstances of the case, the sum of Rs. 2,33,726/- being the expenses incurred in respect of municipal taxes, maintenance and repair of rest/guest house is allowable as deduction? (2) Whether on the facts and circumstances of the case, the sum of Rs. 18,40,239/- being the expenses incurred in buying presentation articles is allowable as deduction? (3) Whether on the facts and circumstances of the case, the sum of Rs. 44,40,022/- being the sale proceeds of the scrap is part of the total income? (4) Whether on the facts and circumstances of the case, sum of Rs. 4,20,02,732/- being the lease rent received by the Appellant, are part of the total turnover? (5) Whether on the facts and circumstances of the case, 90% of interest of Rs. 1,29,87,402/- included in the lease rent of Rs. 4,20,02,732/- received by the Appellant has been rightly reduced from business income of the Appellant?

2.

Learned Counsel for the Assessee fairly states that three out of the five questions have been answered against the Appellant by judgments of the Supreme Court, namely, Question No.1, Question No.4 and Question No.

5.

Question No.1 and Question No.2 were also covered in Income Tax Appeal No. 250 of 2004 relating to Assessment Year 1995-96, which Appeal has been dealt with by us in another order passed today. The same rationale and logic would apply to these two questions as well. Downloaded on - 31/10/2026 00:30:42

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3.

As a result, Question No.1 would stand answered against the Assessee and in favour of the Revenue by disallowing the deduction in respect of municipal taxes, maintenance taxes and repair of guest house. Question No.2 would stand answered in favour of the Assessee and against the Revenue, allowing deduction towards expenses of buying presentation articles.

4.

As regards, Question No.3, the issue raised was whether the proceeds of sale of scrap would be factored into the size of “total turnover” for purposes of computing the deduction under Section 80HHC of the Income Tax Act, 1961 (“the Act”). Under that Section, subject to other conditions, the size of the deduction was to be computed as an amount equal to the profits of the business, as multiplied by the ratio between “export turnover” and “total turnover”. If the “total turnover” were to be a lower number, the ratio would naturally be holding that for purposes of the term “total turnover” with regard to 1 364 ITR, 144, 151(23) Downloaded on - 31/10/2026 00:30:42

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Section 80HHC, the ratio should be between the export turnover of the business in question and the total turnover of the business in question, and that the proceeds of sale of scrap would not form part of “total turnover” for purposes of Section 80HHC. In the facts of the case at hand, such turnover would relate to a turnover of the paper manufactured by the Assessee, to which, the turnover of sale of scrap must not be added.

6.

In view of the explicit findings of the Supreme Court in the aforesaid decision, the Appeal deserves to be allowed in relation to Question No.3 in favour of the Assessee and against the Revenue.

7.

As regards, Question No.4 and Question No. 5, Learned Counsel for the Assessee fairly states that both these questions stand answered against the Assessee and in favour of the Revenue, in the light of the judgment of the Supreme Court in the case of Commissioner of Income-Tax Vs. K. Ravindranathan Nair 2. The lease rent received by the Assessee would therefore not be part of the business income or turnover of the Assessee. Likewise, the disallowance of 90% of interest component of the lease rental income also cannot be questioned. Since these 295 ITR 228, 240 (20) Downloaded on - 31/10/2026 00:30:42

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questions stand squarely answered by the law declared in the aforesaid judgment of the Supreme Court on the premise of the need to have a direct linkage to “export turnover”, nothing survives on these two issues under this Appeal.

8.

The Appeal stands disposed of in the aforesaid terms. No costs. [ SOMASEKHAR SUNDARESAN, J.] [G.S. KULKARNI, J.] Downloaded on - 31/10/2026 00:30:42 Powered by TCPDF (www.tcpdf.org)

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