V.M. SALGAOCAR AND BROTHER PRIVATE LIMITED vs. COMMISSIONER OF INCOME TAX

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TXA/14/2011HC BombayHCBM05002145201122 November 2019Author: HON'BLE SHRI JUSTICE M. S. SONAK,HON'BLE SHRI JUSTICE C. V. BHADANG5 pages
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What did the High Court hold?

The High Court addressed the surviving substantial questions of law. For questions (i) and (iii), concerning the deduction of 90% of income from various hire charges and receipts for Section 80HHC computation, the Court held that the Tribunal was correct in upholding the Assessing Officer's action of deducting 90% of such income. However, the Court modified the impugned orders, stating that such deduction ought to have been made on the basis of net receipts and not gross receipts, citing the Supreme Court's decision in ACG Associated Capsules (P) Ltd. vs. Commissioner of Income Tax. For question (iv), regarding the addition of losses from export of trading goods to the profit eligible for Section 80HHC deduction, the Court held that this question was entirely covered in favour of the assessee and against the revenue, referencing its own earlier decision dated 27.03.2012 in the case of The Commissioner of Income Tax vs. V. M. Salgaoncar & Brothers Ltd. & anr. The appeals filed by the revenue in that case were dismissed, leading to the substantial question (iv) being answered in favour of the assessee. The appeal was disposed of in terms of these findings.

What were the facts?

The assessee, V. M. Salgaoncar & Brother Private Limited, filed an appeal before the High Court of Bombay at Goa against an order of the Income Tax Appellate Tribunal (ITAT). The appeal concerned assessment year(s) not explicitly stated but implied to be related to earlier years due to references to previous ITAT orders. The core dispute revolved around the computation of profits for deduction under Section 80HHC of the Income Tax Act, 1961, and the disallowance of certain expenditures. The assessee had sought deductions related to income from truck hire, barge hire, ore processing, trans-shipper loader, machinery hire, and launch hire, as well as losses from export of trading goods. The Assessing Officer had made certain deductions, which were challenged before the ITAT. The High Court was considering several substantial questions of law framed at the time the appeal was admitted.

What were the issues?

The Tribunal had to decide several substantial questions of law. The primary questions were: 1. Whether the Tribunal was correct in upholding the Assessing Officer's deduction of 90% of income from various hire charges and receipts while computing business profits under Section 80HHC(baa) (Question i). 2. Whether the Tribunal was correct in not following its own earlier order for assessment year 1997-1998, which allowed the assessee's claim that no part of income from certain hire charges and receipts should be reduced for Section 80HHC purposes (Question ii). 3. Whether the Tribunal erred in holding that Clause (baa) of the Explanation below Section 80HHC requires 90% of gross receipts, not net receipts, when the controversy was about computing net receipts (Question iii). 4. Whether the Tribunal was correct in not allowing the addition of losses from export of trading goods (disclaimed turnover) to the profit eligible for Section 80HHC deduction (Question iv). 5. Whether the Tribunal was correct in confirming the disallowance of brokerage/commission expenditure incurred while computing income chargeable under the head 'Income from House Property' (Question v). Assessee's contentions: The assessee initially raised all five questions. However, during the hearing, the assessee conceded that substantial questions (ii) and (v) did not arise or were not pressed. The assessee's arguments implicitly supported allowing deductions for Section 80HHC based on net receipts and adding losses from disclaimed turnover. The assessee relied on its own earlier order for question (ii) and the Supreme Court's decision in ACG Associated Capsules (P) Ltd. for question (iii). Revenue's contentions: The judgment does not record specific arguments made by the revenue for each question. However, the revenue's position was implicitly upheld by the Assessing Officer and the Tribunal on certain aspects, which the assessee was challenging.

Which sections of the Income-tax Act were involved?

Section 80HHC

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 TXA-14-2011.doc IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 14 OF 2011 V. M. Salgaoncar & Brother Private Limited, Salgaocar House, Off Francisco Luis Gomes Road, Vasco-Da-Gama, Goa, 403 802. ... Appellant V e r s u s Commissioner of Income Tax having office at Aayakar Bhavan, 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 : 22 nd November, 2019.

JUDGMENT (Per M. S. Sonak, J.)

1.

Heard Mr. A. F. Diniz, learned Counsel for the appellant and Ms. Amira Razaq, learned Standing Counsel for the Department.

2 TXA-14-2011.doc

2.

This appeal was admitted on 05.09.2011 on the following substantial questions of law : (i) Whether on the facts and in law, the Tribunal was right in upholding the action of the Assessing officer of deducting 90% of the income from truck hire charges, barge hire charges, ore processing receipts, trans-shipper loader charges, machinery hire charges and launch hire charges while computing the "profits of the business" in accordance with Clause (baa) of the Explanation below Section 80HHC? ii) Whether on the facts and in law, the Tribunal was right in not following its earlier Order dated February 26, 2010 in the Appellant's own case for the earlier Assessment year i.e. 1997-1998, where the Tribunal had upheld the Appellant's claim that no part of the income from truck hire charges, barge hire charges, ore processing receipts, trans-shipper loader charges and machinery hire charges was to be reduced while computing the profits of the business for the purpose of deduction under Section 80HHC? iii) Whether the Tribunal was right in law in holding that Clause (baa) of the Explanation below

3 TXA-14-2011.doc Section 80HCC, requires 90 % of the gross receipts instead of net receipts when the only controversy before it was the manner of computation of net receipts? iv) Whether on the facts and in law, the Tribunal was right in not permitting adding of losses from export of trading goods in respect of disclaimed turnover to the profit eligible for deduction under Section 80HHC of the Act? v) Whether the Tribunal was right in confirming the disallowance

of expenditure

on brokerage/commission incurred while computing the income chargeable under the head "Income form House Property"?

3.

Mr. Diniz, learned Counsel for the appellant, at the very outset states that the substantial question at (ii) above does not really arise in this appeal and, consequently, the same is not pressed. He also makes a statement that the substantial question of law at (v) is also not being pressed. Accordingly, what survives in this appeal is the consideration of substantial question at (i), (iii) and (iv).

4 TXA-14-2011.doc

4.

Insofar as the substantial questions of law at (i) and (iii) are concerned, the same are covered by our separate judgments and orders dated 22.11.2019 passed in TXA No.21 of 2011 and TXA No.28 of 2011. For the reasoning recorded therein, we hold that the Tribunal was right in upholding the action of the Assessing Officer of deducting 90% of the income from truck hire charges, barge hire charges, ore processing receipts, trans-shipper loader charges, machinery hire charges and launch hire charges while computing the profits of the business in accordance with Clause (baa) of the Explanation below Section 80HHC of the Income Tax Act (IT, Act).

5.

However, such deduction ought to have been made on the basis of net receipts and not gross receipts as held by the Hon'ble TXA-14-2011.doc

6.

Insofar as the substantial question of law at (iv) is concerned, the same stands entirely covered in favour of the assessee and against the revenue in terms of our decision dated 27.03.2012 in the case of The Commissioner of Income Tax vs. V. M. Salgaonkar & Brothers Ltd. & anr. in Income Tax Appeal Nos.5, 6 and 7 of 2002. Incidentally, all these appeals were in the case of the present assessee and the ITAT had in fact held in favour of the present assessee. The appeals instituted by the revenue were accordingly dismissed. The substantial question of law at (iv) is consequently answered in favour of the assessee- appellant and against the revenue-respondent. The impugned orders are modified accordingly.

7.

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/*

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