Calcutta High Court
Goodricke Group Ltd vs Commissioner Of Income-Tax-Ii on 19 May, 2011
Author: Bhaskar Bhattacharya
Bench: Bhaskar Bhattacharya
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IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction (Income-Tax)
(Original Side)
Present:
The Hon'ble Mr. Justice Bhaskar Bhattacharya
And
The Hon'ble Mr. Justice Sambuddha Chakrabarti
I.T.A. No.651 OF 2004
Goodricke Group Ltd.
Versus
Commissioner of Income-Tax-II, Kolkata
For the Appellants: Mr. J. P. Khaitan,
Mr. R.L. Mitra,
Mr. S.S. Roy.
For the Respondent: Mr. R.N. Bandopadhya,
Mrs. Asha Gourisaniya Gotgulia.
Heard on: 12.05.2011
Judgment on: 19th May, 2011.
Bhaskar Bhattacharya, J.:
This appeal under Section 260A of the Income-tax Act is at the instance of an assessee and is directed against an order dated April 23, 2004, passed by the Income-tax Appellate Tribunal, "B" Bench, Kolkata in ITA No.895 (kol)/2002 for the Assessment Year 1997-98 dismissing the appeal preferred by the assessee.
The facts giving rise to filing of this appeal may be summed up thus: 2
a) The assessee is a public limited liability company within the meaning of the Companies Act, 1956. The appellant carries on the business of growing and manufacturing tea.
b) The appellant has 17 tea gardens and its employees from time to time come from the gardens to the Headquarter of the appellant at Calcutta for the purpose of appellant's business.
c) The appellant maintains a transit flat at Calcutta for the garden-
employees who come to the Headquarters for official work and such transit flat is exclusively used by the employees of the appellant who come to Calcutta for official work. The appellant does not pay any allowance to such employees and no recovery is also made from them for their stay at the said transit flat.
d) The Assessing Officer for the assessment for the Assessment Years 1988-89 to 1992-93 treated the transit flat as guest house within the meaning of sub-sections (4) and (5) of Section 37 of the Act and disallowed the expenditure relating thereto.
e) The appellant succeeded before the Commissioner of Income-tax (Appeals) for the Assessment Year 1988-89 but in the subsequent years, the disallowance was upheld. On further appeal, the Tribunal upheld the treatment of the transit flat as guest house within the meaning of sub-sections (4) and (5) of Section 37. The Tribunal, however, limited the nature of expenses which could be subjected to 3 disallowance and held that disallowance could be made only in respect of depreciation and rent and that any other expenditure which was covered by the provisions of Sections 30 to 36 could not be disallowed under Section 37(4) of the Act.
f) Section 80HHC of the Act provides for a deduction in respect of export profits and under the provisions of Rule 8 of the Income-tax Rules, 1962, the income from such composite business is required to be computed as if it were income derived from business and 40% of such income is liable to tax under the Act. In the context of the said provisions, a dispute arose as to whether the deduction under Section 80HHC was to be allowed before apportioning the composite income in the ration of 60:40 or after such apportionment and as to the method of quantification of the deduction under the said Section.
g) For the Assessment Year 1997-98 the appellant claimed deduction under Section 33AB of the Act amounting to Rs.50,69,336/-. The appellant also claimed deduction under Section 80HHC before apportioning the composite income in the ration of 60:40.
h) In the order of assessment dated March 31, 2000, the Assessing Officer allowed deduction under Section 33AB as claimed in the return, though with reference to the assessed income, according to the appellant, it was entitled to a higher deduction. The Assessing Officer computed and allowed deduction under Section 80HHC after 4 apportioning the composite income in the ration 60:40. The Assessing Officer disallowed the transit flat expenditure under Section 37(4) of the Act.
i) Being dissatisfied, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals), by the order dated March 26, 2002, the said authority upheld the disallowance of the transit flat expenditure under Section 37(4) of the Act. With regard to the appellant's claim for higher deduction under Section 33AB with reference to the assessed income, the Commissioner of Income-tax (Appeals) held that deduction under Section 33 AB was to be allowed after apportioning the composite income in the ration 60:40 and with reference to 40% of the composite income. The Commissioner of Income-tax (Appeals) also rejected the claim of the appellant under Section 80HHC by relying upon the retrospective amendment made by the Finance Act, 1999.
j) Being dissatisfied, the appellant preferred a further appeal before the Income-tax Appellate Tribunal and the said Tribunal by the order impugned in this appeal rejected the claim of the appellant for deduction of transit flat expenditure as also the claim for deduction under Section 80HHC before apportioning the composite income in the ratio of 60:40. With regard to the appellant's income of higher income under Section 33AB of the Act. The Tribunal observed tha 5 deduction under Section 33 AB was to be calculated on 40% of the composite income determined under Rule 8 of the Rules. The Tribunal, however, remanded the matter to the Commissioner of Income-tax (Appeals) for the purpose of deciding the quantum of deduction under Section 33 AB with reference to 40% of the composite income as assessed.
Being dissatisfied, the assessee has come up with the present appeal. A Division Bench of this Court at the time of admission of this appeal formulated the following substantial question of law:
"a) Whether on a proper interpretation of the provisions of sub-section (4) and (5) of Section 37 of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the transit flat for employees was a guest house and the expenditure in respect thereof was to be disallowed as expenditure on the maintenance of guest house within the meaning of the said provisions?
"b) Whether the finding and/or direction of the Commissioner of Income-
Tax (Appeals) that deduction under section 33AB was to be allowed after determining 40% of the composite income under rule 8 was without and/or in excess of jurisdiction and the Tribunal was justified in law in not setting aside the said finding/direction?
"c) Whether and in any event and on a true and proper interpretation of the provisions of section 33AB of the Act and rule 8 of the Rules, the 6 Tribunal was justified in law in holding that deduction under section 33AB was to be calculated on 40% of the income determined under rule 8?
"d) Whether on a true and proper interpretation of the provisions of section 80HHC of the Act and those or rule 8 of the Rules, the deduction under section 80HHC is to be computed and allowed before applying the said rule 8 and the Tribunal was justified in law in rejecting the appellant's said contention?"
Mr. Khaitan, the learned Senior Counsel appearing on behalf of the appellant, at the very outset, fairly conceded that in view of the Division Bench decision of this Court in the Case of Keshoram Industries & Cotton Mills Limited vs. C.I.T., reported in (1991) 191 ITR 518 which has decided the said point against his client, he did not press the aforesaid question. We, thus, answer the aforesaid question in the affirmative and against the assessee by relying upon the said decision.
As regards the third question formulated by the Division Bench, Mr. Khaitan contended that the provision contained in Section 33AB of the Act should be applied first and after calculating the deduction available under the said provision, the total deduction should be excluded and, thereafter, Rule 8 of the Rule should be applied for the purpose of calculation of 40% of the total income. Mr. Khaitan contends that the Tribunal below committed substantial error of law in holding that the deduction under Section 33AB was to be 7 calculated on 40% of the income determined under Rule 8. He, therefore, prays for setting aside the aforesaid finding of the Tribunal below.
As regard the fourth question formulated by the Division Bench, Mr. Khaitan fairly conceded that in view of the Division Bench of this Court in the case of Union of India & Ors. vs. Warren Tea Ltd. & Ors., reported in (2004) 266 ITR page 226 (CAL) holding against his client, he was not inclined to press the said point. Mr. Khaitan further submits that the Supreme Court in the case of Commissioner of Income-tax vs. Williamson Financial Services & Ors., reported in (2008) 297 ITR 17 has taken the same view. In view of such fact, we answer the said question in the affirmative against the assessee.
As regards the second question formulated by the Division Bench, according to Mr. Khaitan, the Commissioner of Income-tax (Appeals) acted without jurisdiction in passing direction upon the assessee on the aforesaid question although no such point was taken by the appellant before the first appellate authority. In other words, Mr. Khaitan submits that it was the duty of the Tribunal to set aside the said direction of the Commissioner of Income-tax (Appeals) as the said direction was beyond the scope of the appeal.
Mr. Khaitan, thus, prays for setting aside those two parts of the order passed by the Tribunal.
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Mr. Banerjee, the learned Advocate appearing on behalf of the Revenue, however, tried to defend the order passed by the Tribunal on the second and the third question by supporting the reasons assigned by the Tribunal.
As the regards the third question formulated by the Division Bench mentioned above, it will be profitable to refer to the provision contained in Section 33AB of the Act without the proviso to the same as those are unnecessary for our purpose and the said provisions are quoted below:
"33AB. (1) Where an assessee carrying on business of growing and manufacturing tea in India has, before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with the Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought form earlier years is set off under section 72) of-
(a) a sum equal to the amount or the aggregate of the amounts so deposited; or
(b) a sum equal to twenty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section), whichever is less:9
We are of the opinion that in a case where the assessee is involved in the business of growing and manufacturing tea, on the question of deduction in terms of Section 33AB of the Act, the answer to the same depends upon the interpretation of the phrase "a sum equal to twenty per cent of the profits of such business (computed under the head "Profits and gains of business or profession"
before making any deduction under this section), whichever is less:" as indicated above. Thus, of the two amounts, i.e. the amount deposited in the Nationalised Bank in terms of the first part of Section 33AB (1) and the aforesaid sum, whichever is less, should be deducted first. After such deduction and other available deductions under the Act, the profit or loss from such business will be determined. After such profit or loss is determined, Rule 8 of the Income tax Rules would be applicable to find out the amount of tax payable on the said determined amount of profit or loss from business.
We find that the Tribunal below erroneously held that the deduction under Section 33AB of the Act would be made after the taxable amount will determine under Rule 8 of the Rules. The question of application of Rule 8 does not come so long the profit or loss from the business of growing and manufacturing tea is determined after deduction of all permissible deductions under the Act. We, thus, answer the third question in the negative and against the Revenue.
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In view of our above finding on the third question, the second question has lost its relevance and no answer is necessary for effective disposal of this appeal.
The appeal is thus partly allowed by answering the questions referred to above and modifying the order of the Tribunal only on the third question indicated above.
In the facts and circumstances, there will be, however, no order as to costs.
(Bhaskar Bhattacharya, J.) I agree.
(Sambuddha Chakrabarti, J.)