Madras High Court
Commissioner Of Income Tax vs M/S.Ayshwarya Sea Food Pvt. Ltd on 2 August, 2021
T.C.A.No.438 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 02.08.2021
CORAM :
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP
T.C.A. No.438 of 2010
Commissioner of Income Tax,
Chennai. ... Appellant
Vs.
M/s.Ayshwarya Sea Food Pvt. Ltd.,
4/364, Anna Rd., Palavakkam,
Chennai – 600 041. ... Respondent
Tax Case Appeal preferred under Section 260A of the Income Tax
Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras,
“A” Bench, dated 06.11.2009 in I.T.A.No.47/Mds/2009, Assessment Year
2002-03.
For Appellant : Mrs.R.Hemalatha
Senior Standing Counsel
For Respondent : Mr.M.P.Senthil Kumar
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T.C.A.No.438 of 2010
JUDGMENT
(Judgment was delivered by T.S. SIVAGNANAM, J.)
This appeal by the Revenue, filed under Section 260-A of the Income
Tax Act, 1961 (“the Act”), is directed against the order passed by the Income
Tax Appellate Tribunal, Chennai, “A” Bench, in I.T.A.No.47/Mds/2009, for
the Assessment Year 2002-03.
2.The appeal was admitted on 14.06.2010 on the following substantial
questions of law :
“1.Whether on the facts and circumstances of the case,
the Tribunal was right in holding that the assessee is entitled
for deduction under Section 80 HHC where separate books of
account are maintained with respect to export and other units?
2.Whether on the facts and circumstances of the case,
the Tribunal was right in holding that the assessee is entitled
for deduction under Section 80 HHC by reckoning with the
profit of the export unit alone and ignoring the losses of the
other units without considering the decision of the Apex Court
in the case of Ipca Laboratories 266 ITR 521.
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3.Whether on the facts and circumstances of the case,
the Tribunal was right in holding that disallowance under
Section 40-A(3) cannot be made on the assessee with respect to
the cash payments made towards the purchase of shrimp
feed?”
3.We have elaborately heard Mrs.R.Hemalatha, learned Senior
Standing Counsel for the appellant/Revenue and Mr.M.P.Senthil Kumar,
learned counsel appearing for the respondent/assessee.
4.The assessee filed its return of income for the Assessment Year
under consideration, AY 2002-03, disclosing a total income of
Rs.10,17,233/-. The assessee is engaged in the business of processing
seafood and trading in shrimp food. The assessee claimed deduction under
Section 80HHC and the claim was negatived by the Assessing Officer on the
ground that the assessee had ignored the losses made by it in its trading
division and started its computation with the figure of profits made by the
manufacturing division. Thus, the Assessing Officer held that, in terms of
Section 80HHC(1), the deduction is to be given in computing the total
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T.C.A.No.438 of 2010
income of the assessee, and in doing so, the total income of the assessee,
both profits as well as losses, will have to be taken into consideration. The
other issue which arose for consideration was whether the payments made by
the assessee in cash to the account of M/s.C.P.Aquaculture (India) Pvt. Ltd.
should be hit by the provisions of Section 40A(3) of the Act. An explanation
was offered by the assessee, which did not find favour with the Assessing
Officer. Accordingly, assessment was completed by rejecting the claim of
deduction under Section 80HHC of the Act and disallowance of 20% was
made with regard to the cash payments.
5.Aggrieved by the same, the assessee preferred an appeal before the
Commissioner of Income Tax (Appeals)-III, Chennai. The appeal was
allowed by order dated 10.09.2008 on both grounds. Aggrieved by the same,
the Revenue preferred an appeal before the Tribunal, which has been
dismissed by the impugned order.
6.Though three substantial questions of law have been framed,
substantial questions of law 1 and 2 are interconnected. The case of the
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T.C.A.No.438 of 2010
Revenue rests upon the decision of the Hon'ble Apex Court in the case of
Ipca Laboratories Ltd. v. Deputy Commissioner of Income Tax, Mumbai
reported in (2004) 12 SCC 742, wherein, it was held that, in case of export of
both types of goods, namely, self manufactured goods as well as trading
goods, the loss from export of trading goods exceeded the profit of the total
exports, then, disclaimer by the exporter-assessee in favour of supporting
manufacturer in terms of the proviso to Section 80-HHC(1) would not have
such effect as to entitle the exporter to deduction. The case of the assessee is
by placing reliance on the decision of the Hon'ble Division Bench of this
Court in Chamundi Textiles (Silk Mills) Ltd. v. Commissioner of Income
Tax reported in (2012) 20 taxmann.com 514 (Madras). Thus, we are
required to consider as to whether the decision in the case of Ipca
Laboratories Ltd. relied on by the Revenue would be applicable to the facts
and circumstances of the case on hand. In fact, the Hon'ble Division Bench
in the case of Chamundi Textiles (Silk Mills) Ltd. has taken note of the facts
in Ipca Laboratories Ltd. and considered as to whether it could be made
applicable to the said case.
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T.C.A.No.438 of 2010
7.At this juncture, it will be relevant to take note of the distinguishing
features between the facts in Ipca Laboratories Ltd. and that of Chamundi
Textiles (Silk Mills) Ltd. and the relevant paragraphs of the judgment in
Chamundi Textiles (Silk Mills) Ltd. are extracted hereunder:
“16. Thus, the consistent view of this court is that even in
cases where the assessee had different units of business, so
long as there is no intermingling of expenditure or interlacing
of funds of any kind whatsoever and that the assessee had
maintained accounts separately which revealed the export
business and that the claim was supported by a chartered
accountant certificate in compliance with the statutory
provisions, the claim of the assessee under section 80HHC to
have deductions at 100 per cent. on the export made by the
unit, engaged 100 per cent. in exports, could not be denied
merely on the score that the assessee had various units, some of
which had export and some had export as well as local sales.
17. As far as the decision of the apex court IPCA
Laboratory Ltd.'s case (supra) is concerned, we do not find
that the statement of law declared by the apex court could, in
any way stand, in the way of this court accepting the plea of the
assessee herein that the claim in respect of 100 per cent. export
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T.C.A.No.438 of 2010
unit merited to be considered, independent of other units in
terms of section 80HHC(3). Before considering the decision
herein, the provisions of section 80HHC(3) merit to be seen,
which read as follows :
...
18. Referring to the provisions, the apex court pointed
out that sub-section (3)(a) deals with the case where the export
is only of self-manufactured goods, sub-section (3)(b) deals
with the case where the export is only of trading goods, and
sub-section (3)(c) deals with the cases where the export is of
both self-manufactured goods as well as trading goods. The
only condition that governs the grant of relief under section
80HHC is that the assessee having positive profit alone would
be entitled to have the deduction under section 80HHC. In
other words, if there is a loss then no deductions could be
claimed under the provisions of section 80HHC in arriving at
the positive profit. The apex court held that profits and loss of
the business have to be considered in arriving at the gross total
income, and income from various units have to be calculated
and if one of the units indicated a loss, then going by the said
provisions available, the gross total income will have to be
arrived at and ultimately if the net figure is also a loss, the
claim of the assessee for deductions would be rejected. The
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apex court further pointed out that section 80HHC(3) provides
for working out the computation of total income and for the
purpose of such computation, both profits and loss have to be
taken into account. Thus, section 80HHC, both in sub-section
(1) and in sub-section (3), means a positive profit worked out
after taking into consideration the losses, if any. Dealing with
the meaning of gross total income, in the decisions Synco
Industries Ltd.'s case (supra), the apex court pointed out that
gross total income would be arrived after making the
computation as follows (headnote) :
i. making deductions under the appropriate
computation provisions ;
ii. including the incomes, if any, under sections 60
to 64 in the total income of the individual ;
iii. adjusting intra-head and/or inter-head losses ;
and
iv. setting off brought forward unabsorbed losses
and unabsorbed depreciation, etc. Only if the gross
total income so determined is positive the question
of allowing the deductions under Chapter VI-A
would arise, not otherwise."
19. The apex court pointed out that in arriving at a
figure of positive profit, both the profits and loss have to be
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considered. If the net figure is a positive profit, then the
assessee would be entitled to a deduction, but if the net figure
is a loss, then the assessee would not be entitled to a deduction.
A reading of the judgment of the apex court reported in Synco
Industries Ltd.'s case (supra) shows that the assessee therein
had more than one unit. The claim of the assessee is that each
unit should be treated separately and the losses suffered in the
earlier years were not adjustable against the profits of the
other unit. But since the gross total income was nil, the
Assessing Officer rejected the plea of the assessee for the
benefit of deductions under Chapter VI-A. The Appellate
Tribunal and the High Court affirmed the view of the officer.
On further appeal, the apex court held that in determining the
gross total income, the assessee has to compute the income
from each one of the units. When one unit suffered loss and
other unit earned profit, after setting off loss, if the gross total
income worked out shows profit, the assessee would be entitled
to deduction under Chapter VI-A. On the other hand, if the
gross total income is a negative income, then the claim of the
assessee could not be considered for any benefit under Chapter
VI-A. In the light of the law thus laid down by the apex court, it
is clear that only in the case of gross total income being a
profit, the claim of the assessee for deduction merited to be
considered.
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20. Coming to the facts herein, it is not disputed by the
Revenue that both the units of the assessee are profit-making
units and the gross total income was computed in the manner
as given under the Act and that there was a positive income of
profit. Going by the decisions referred to above and the same
when applied to the facts of the case herein, the assessee would
be entitled to deduction under Chapter VI-A. In the light of this
fact, we do not find any justification in the view of the Tribunal,
rejecting the plea of the assessee for deduction under Chapter
VI-A.
21. A reading of the order of the Tribunal shows that it
misconstrued the decision of the apex court reported in IPCA
Laboratory Ltd. case (supra), to reject the case of the assessee.
Applying the said decision and the decision Synco Industries
Ltd.'s case (supra), to the facts herein that the assessee had
profit and the decisions of this court cited supra, viz.,
Macmillan India Ltd.'s (supra), Rathore Brothers (supra),
Suresh B. Mehta (supra) and M. Gani and Co.'s case (supra),
as regards the grant of 100 per cent. relief to the unit engaged
in export activity and the books of account maintained by the
assessee for the export unit to other units are independent, we
have no hesitation in holding that the assessee's unit at
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T.C.A.No.438 of 2010
Bangalore, being 100 per cent. export unit, is entitled to have
the deduction in terms of section 80HHC(3). Quite apart from
that, following the decisions of this court on the aspect of grant
of relief, it is relevant to note here that section 80HHC
contemplates three situations, viz., sub-section (3)(a) dealing
with the case where the export is only of self-manufactured
goods, sub-section (3)(b) dealing with the case where the
export is only of trading goods, and sub-section (3)(c) dealing
with the cases where the export is of both self-manufactured
goods as well as trading goods. Apart from this, the section
nowhere deals with the situation of an assessee having more
than one unit of business and one of the units being purely 100
per cent. export oriented unit and the other unit, a partially
export unit. Even though the Act does not provide for dealing
with such a situation, yet, being a beneficial provision, we feel
that, in fitness of things, the assessee is entitled to the relief in
respect of 100 per cent. export oriented unit. Consequently,
even in respect of the computation as given in Explanation
(baa) to section 80HHC, the consideration for grant of relief
must follow the decisions of the apex court L.M. Chhabda and
Sons as well as Waterfall Estates Ltd. case (supra). The case of
each of the units have to be considered independently for the
purpose of working out the relief under section 80HHC. This
would depend upon the facts to show that each of the unit had
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maintained their accounts independently and there was no
interdependency or interlacing of funds to treat them as one
consolidated unit. Going by the facts recorded therein, we have
no hesitation in accepting the plea of the assessee that the
income earned from the export goods from the Bangalore unit
merited to be considered for 100 per cent. relief, as one falling
under section 80HHC(3)(a) of the Act.”
8.As pointed out in the above decision, the facts of the case in Ipca
Laboratories Ltd. were entirely different and couched in a different manner
and there was no separate account maintained as in the case on hand. This
factual position has been clearly brought out by the Commissioner of Income
Tax (Appeals) in the order dated 10.09.2008 and the fact that the assessee
was maintaining separate Books of Accounts for the export unit and the
trading division, has not been disputed by the Assessing Officer. In such
circumstances, the decision in the case of Chamundi Textiles (Silk Mills) Ltd.
would clearly apply to the facts and circumstances of the case on hand.
Therefore, the substantial questions of law 1 and 2 are to be answered against
the Revenue.
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9.With regard to the third substantial question of law, on facts, the
Commissioner of Income Tax (Appeals) and the Tribunal held that the
assessee had purchased shrimp products from a supplier at Nellore and the
explanation given by them at the first instance before the Assessing Officer
is that they are doing shrimp feed trading business and they have purchased
shrimp feed from a company at Chennai and the invoice is directly raised
locally at Chennai and they have sold the shrimp feed at Nellore and Ongole
Districts of Andhra Pradesh and they have sold the feed to the shrimps
farmers and deposited the cash directly to M/s.C.P.Aquaculture (India) Pvt.
Ltd.'s Bank account. Further, it is stated that it is an usual procedure that all
the dealers/farmers use to deposit the amount into the Bank account of
M/s.C.P.Aquaculture (India) Pvt. Ltd. and fax the deposit slip to the said
company as proof of deposit and based on the deposit slip, the said company
will dispatch the shrimp feed and it also offers cash discount if payment is
made in advance. Due to such compelling reasons, they had to deposit cash
directly into the Bank account of M/s.C.P.Aquaculture (India) Pvt. Ltd.
Further, they stated that there is a risk of carrying cash to various places and
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by issuance of cheque, there will be a time delay and the assessee will be
prejudiced. The explanation offered was not found to be false but not
accepted by the Assessing Officer on the ground that the said company
M/s.C.P.Aquaculture (India) Pvt. Ltd. had a huge turnover and they have
been importing shrimp food from abroad and there was no necessity for the
assessee to make payments in cash to the said company. The question would
be as to whether such a presumption or adverse inference could be drawn.
10.Be that as it may, the Commissioner of Income Tax (Appeals)
considered the legal issue and found that, what was purchased was
undoubtedly a fish or fish product, which will fall within the scope of Rule
6DD(f)(iii) and if it is so, no disallowance under Clause (a) of Sub-Section
(3) of Section 40A shall be made and no payment shall be deemed to be the
profits and gains of business or profession under Clause (b) of Sub-Section
(3) of Section 40A. This aspect has been factually brought out by the
Commissioner of Income Tax (Appeals) as well as the Tribunal.
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11.Mrs.R.Hemalatha, learned Standing Counsel for the
appellant/Revenue would place reliance on the decision of the Division
Bench of this Court in the case of Vaduganathan Talkies v. Income Tax
Officer, Non-Corporate Ward 20(5), Chennai-34 reported in [2020] 428
ITR 224 (Madras). The facts in the said case were entirely different, where
the assessee company made cash payment for the purpose of acquiring rights
to screen movies in theatres to various parties and their case was decided
against the assessee on the ground that the assessee had miserably failed to
bring their cases within any one of the exceptions covered under Rule 6DD.
Thus, the said decision cannot be applied to the facts and circumstances of
the case on hand.
12.For all the above reasons, the substantial questions of law framed
for consideration are decided against the Revenue and the appeal filed by the
Revenue is dismissed. No costs.
(T.S.S., J.) (S.S.K., J.)
mkn 02.08.2021
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T.C.A.No.438 of 2010
Internet : Yes
Index : Yes / No
Speaking order / Nonspeaking order
To
1.The Income Tax Appellate Tribunal,
Chennai, “A” Bench.
2.The Commissioner of Income Tax,
Chennai.
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T.C.A.No.438 of 2010
T.S. SIVAGNANAM, J.
and
SATHI KUMAR SUKUMARA KURUP, J.
mkn
Tax Case Appeal No.438 of 2010
02.08.2021
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