The Commissioner of Income Tax-III, vs. M/S Raasi Growth Fund Ltd.,

I.T.A. Nos.347, 349, 354, 368/2010 -:5:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 26TH DAY OF JULY 2021 / 4TH SRAVANA, 1943 ITA NO. 368 OF 2010 AGAINST THE ORDER IN ITA 902/Coch/2008 OF I.T.A.TRIBUNAL, COCHIN BENCH, ERNAKULAM APPELLANT/APPELLANT: M/S.KANAM LATEX INDUSTRIES PVT.LTD., KOTTAYAM. (PA NO.AABCK 0056E). BY ADVS. SRI.KURYAN THOMAS SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI RESPONDENT/RESPONDENT: *ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1, KOTTAYAM. *(DELETED) COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, LAL BAHADUR SASTRI ROAD, KOTTAYAM- 686001. (CAUSE TITLE OF THE RESPONDENT IS DELETED AND SUBSTITUTED AS PER ORDER DATED 10.03.2011 IN I.A.NO.536 OF 2011 IN ITA.NO.368 OF 2010) BY ADV SRI.JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.07.2021, ALONG WITH ITA.347/2010 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A. Nos.347, 349, 354, 368/2010 -:6:- JUDGMENT [I.T.A. Nos.347, 349, 354 & 368 of 2010] Dated this the 26th day of July, 2021 Bechu Kurian Thomas, J. These four appeals relate to the assessment years 2000-01, 2002-03, 2003-04 and 2004-05. The questions of law raised in all the four appeals are identical in nature, except for the appeal arising from assessment year 2003-04. 2. Since the questions raised in the appeals are elaborately worded, we deem it fit to re-frame the questions as follows: (i) Whether the computation of deduction under section 80HHC of the Income Tax Act is to be effected after reducing the amount allowed under section 80-IB and section 80-IA of the Act? (ii) Whether computation of deduction under section 80HHC of the Income Tax Act is to be done independently without restricting the quantum by reference to the provisions of section 80-IB or section 80-IA of the Act? (iii) Whether the activity of packing and sterilization of gloves purchased or produced by the appellant in non-sterilized form from the market would amount to a process of manufacture for the purpose of section 80-IB of the Income Tax Act? 3. The first two questions arise in all the four years while the

I.T.A. Nos.347, 349, 354, 368/2010 -:7:- third question arises only for the year 2003-04. The circumstances arising in the assessment year 2000-01 are considered as the lead case. I.T.A. No.347 of 2010 (arising from AY 2000-01) 4. The assessee is a company engaged in the manufacture and trading of latex gloves. In the revised return filed for the assessment year 2000-01, it declared a total income of Rs.1,63,74,320/-. After the assessing officer issued notice for reopening of the assessment under section 148 of the Income Tax Act, 1961 ('the Act' for brevity), though the assessee initially objected to the same, after the objections were rejected, a return was filed claiming deduction under Chapter VI-A of the Act as follows: (i) Deduction under section 80HHC : Rs.1,16,29,181/- (ii) Deduction under section 80-IB : Rs.1,05,77,345/- (iii) Deduction under section 80JJAA : Rs.2,02,730/- 5. The assessing officer disagreed with the manner of computation of deductions and held that simultaneous deductions cannot be made in respect of the three sections under Chapter VI-A in view of section 80-IB(13) read with section 80-IA(9) of the Act. It was found by the assessing officer that the claim under section

I.T.A. Nos.347, 349, 354, 368/2010 -:8:- 80HHC was eligible only to the extent it exceeded the deduction under section 80-IB of the Act. The assessing officer granted the entire deduction claimed under section 80-IB and after computing the deduction allowable under section 80HHC, to be Rs.1,15,70,866/-, reduced the deduction of Rs.1,05,77,345/- allowed under section 80- IB and thus allowed a deduction of Rs.9,93,521/- under section 80HHC. It was also factually found that no deduction under section 80JJAA was allowable in view of the statutory provisions. 6. On appeal filed by the assessee, the CIT (Appeals) held that the deduction under section 80HHC ought to be allowed only after reducing the amount allowed under section 80-IB from the eligible business profits. It was also held that the total deduction under Chapter VI-A could not exceed the gross total income in view of section 80A(2) of the Act. 7. Appeals were preferred by the department to the Appellate Tribunal, while cross-objections were preferred by the assessee. The Tribunal, by the order impugned, rejected all the appeals, thereby confirming the order of the First Appellate Authority. The Tribunal noticed that the computation directed by the CIT (Appeals) was more in conformity with the provisions of the Act. The assessee

I.T.A. Nos.347, 349, 354, 368/2010 -:9:- is thus before this Court. 8. We heard Adv.Kuryan Thomas, learned counsel on behalf of the appellant and Adv.Jose Joseph, learned Senior Standing Counsel for the department. 9. Adv. Kuryan Thomas, after inviting our attention to the decision reported in Olam Exports (India) Ltd. v. Commissioner of Income Tax [(2011) 332 ITR 40 (Ker)] submitted that, though this Court had held the simultaneous deduction of section 80HHC and section 80-IB as impermissible, the Supreme Court had referred the very same question to a Larger Bench for consideration. Referring to the decision reported in Assistant Commissioner of Income Tax, Bangalore v. Micro Labs Limited [(2015) 17 SCC 96], it was submitted that since the matter has been placed for consideration before the Larger Bench of the Supreme Court for an authoritative decision, the consideration of these appeals may be deferred. 10. The learned counsel further submitted, on behalf of the assessee, that, the intention of section 80-IA(9) was clear that the deductions are to be granted cumulatively. According to the learned counsel, the statute does not incorporate any prohibition in the grant of simultaneous deduction and on the other hand, the very intention

I.T.A. Nos.347, 349, 354, 368/2010 -:10:- behind providing different heads of deductions under the same Chapter was to give maximum benefit to the assessee. It was therefore submitted that since the decision in Olam Exports (India) Ltd. v. Commissioner of Income Tax (supra) case was wrongly decided, the same may require reconsideration. 11. Adv.Jose Joseph, learned Standing Counsel, on the other hand submitted that, this Court is bound by the decision in Olam Exports (India) Ltd. v. Commissioner of Income Tax (supra) and hence there was no requirement to defer the consideration of these appeals. He further submitted that these appeals have been pending consideration before this Court for the last more than 11 years and hence, it was not in the interest of all, to defer it further. 12. On merits, the learned Standing Counsel contended that the language of section 80HHC, 80-IA and 80-IB were clear that, if the assessee claims and is granted any deduction under section 80- IA or 80-IB, further deduction to the extent allowed under those sections cannot be granted under section 80HHC. 13. We have considered the rival contentions. Having regard to the fact that these appeals have been pending for the last 11 years and this Court had considered similar questions of law

I.T.A. Nos.347, 349, 354, 368/2010 -:11:- raised in these appeals earlier, we are of the view that there is no necessity to defer consideration of these appeals. Accordingly, we proceed to consider these appeals on merits. 14. For a better understanding of section 80-IA(9) as it stood in the year 2000 is extracted as below: “S.80-IA(9)- Where any amount of profits and gains of the undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading “C.- Deduction in respect of certain incomes” and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise as the case may be.” 15. From a reading of the above-extracted provision, it can be understood that if an assessee is allowed a deduction under section 80-IA of the Act on the ground of it being an eligible business undertaking, it cannot be allowed a further deduction of the entire profits and gains claimed under the provisions of section 80HHC also. The provisions are explicit that if any deduction is claimed and allowed under section 80-IA as an eligible business, then the assessee cannot claim deduction to that extent of such profits and gains coming under other heads of deduction of Chapter VI-A of the Act. Section 80HHC which relates to deductions in respect of the

I.T.A. Nos.347, 349, 354, 368/2010 -:12:- profits and gains from export business falls under the heading “C” of Chapter VI-A. There is no ambiguity in section 80-IA(9) of the Act. We are of the opinion that the intention of the legislature is clear that there cannot be a simultaneous deduction under section 80-IA and under section 80HHC. The profits and gains allowed as deductions under section 80-IA have to be excluded while computing the deduction under section 80HHC. 16. In fact this Court had, as pointed out by both counsel, already held, succinctly, in Olam Exports (India) Ltd. v. Commissioner of Income Tax (supra) that “by virtue of specific exclusion of section 80-IB(13) of the Act the assessee is not entitled to simultaneous deduction of both. In other words, while computing the deduction under section 80HHC, deduction granted under section 80-IB cannot be reckoned or has to be excluded.” We find no reason to depart from the aforesaid finding of this Court nor do we find any cause for reconsideration. 17. The learned counsel for the appellant by referring to the decision in Commissioner of Income Tax, Thiruvananthapuram v. K.Ravindranathan Nair [(2007) 15 SCC 1] contended that the decision in Olam Exports (India) Ltd. v. Commissioner of Income

I.T.A. Nos.347, 349, 354, 368/2010 -:13:- Tax (supra) has not laid down the correct proposition of law. In K.Raveendranathan Nair’s case (supra) the issue that arose for consideration was for the years 1993-94 and as observed in that case, the provisions of section 80HHC is no longer a complete code by itself after the subsequent amendments and restrictions. The Supreme Court was considering the computation of export incentive under section 80HHC(3) and the question, in that case, was whether the processing charges can be included in the total turnover while arriving at the export profits. 18. In the circumstances, we hold that the deduction under section 80HHC of the Act and the deduction under section 80-IB are not simultaneous. The deduction granted under section 80-IB has to be excluded while computing the deduction claimed under section 80HHC. The Tribunal was correct in its conclusion and the first two questions are answered in favour of the revenue. This appeal, therefore, stands dismissed. I.T.A. No.368 of 2010 (arising from AY 2002-03) 19. This appeal arises from the assessment year 2002-03. Questions 1 and 2 mentioned at the beginning of this judgment arise for consideration in this appeal. As we have already answered the

I.T.A. Nos.347, 349, 354, 368/2010 -:14:- same in favour of the revenue, this appeal stands dismissed. I.T.A. No.349 of 2010 (arising from AY 2003-04) 20. All the three questions of law mentioned at the beginning of this judgment arise for consideration for the assessment year 2003- 04 also. Since we have already found the first two questions of law in favour of the revenue, we proceed to consider the third question. 21. The assessee claimed that after non-sterilised gloves are purchased from the outside markets, the assessee subject the gloves to a process of sterilisation and packing. Assessee claimed the sterilization and packing as a manufacture for the purpose of section 80-IB of the Act. The Tribunal rejected the claim and held that there was no manufacture in the activity carried out by the assessee. It is in such circumstances that the third question raised in this appeal arises for consideration. 22. Non-sterilised gloves are purchased by the assessee and the same is subjected to sterilisation to make it more hygienic. It must be appreciated that the gloves have already been manufactured and processed. On a factual consideration, the Tribunal found that the process of sterilisation carried out by the assessee does not create or bring into being a new product so as to

I.T.A. Nos.347, 349, 354, 368/2010 -:15:- make it a ‘manufacture’. The Tribunal had, as a final fact-finding authority, found the process adopted by the assessee as one not coming within the purview of manufacture. We are of the view that the said finding needs no interference and hence the third question raised in these appeals is found against the assessee. This appeal therefore fails and is dismissed. I.T.A. No.354 of 2010 (arising from AY 2004-05) 23. This appeal arises from the assessment year 2004-05. Questions 1 and 2 mentioned at the beginning of this judgment arise for consideration in this appeal. Since we have already answered those questions in favour of the revenue, this appeal also stands dismissed. Conclusion In view of the discussions mentioned above, all these appeals are dismissed. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE vps

I.T.A. Nos.347, 349, 354, 368/2010 -:16:- APPENDIX OF ITA 347/2010 PETITIONER'S/S' ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 17.03.2006. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 16.10.2006. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, DATED 13.05.2010.

I.T.A. Nos.347, 349, 354, 368/2010 -:17:- APPENDIX OF ITA 349/2010 PETITIONER'S/S' ANNEXURE ANNEXURE A A TRUE COPY OF THE ASSESSMENT ORDER DATED 23.02.2006. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 16.10.2006. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, DATED 13.05.2010.

I.T.A. Nos.347, 349, 354, 368/2010 -:18:- APPENDIX OF ITA 354/2010 PETITIONER'S/S' ANNEXURE ANNEXURE A A TRUE COPY OF THE ASSESSMENT ORDER DATED 12.12.2006. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27.01.2008. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, DATED 13.05.2010.

I.T.A. Nos.347, 349, 354, 368/2010 -:19:- APPENDIX OF ITA 368/2010 PETITIONER'S/S' ANNEXURE ANNEXURE A A TRUE COPY OF THE ASSESSMENT ORDER DATED 26.12.2007. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 30.08.2008. ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 31.05.2010.