Kerala High Court
A.M. Moosa, Bharath Sea Foods vs Commissioner Of Income-Tax on 29 May, 1996
Equivalent citations: [1997]224ITR735(KER)
JUDGMENT V.V. Kamat, J.
1. The Tribunal has referred the following question :
" Whether, on the facts and in the circumstances of the case, in working out the relief due to the assessee under Sections 80HH and 80J of the Income-tax Act, 1961, the Tribunal was right in excluding the export house premia and the sale of import entitlements ?"
2. The facts are short. The assessee, Bharath Sea Foods, Chandiroor, deals in export business of sea food. The assessment year is 1979-80. On March 27, 1982, the assessment was completed for a total income of Rs. 1,62,910. At this stage, the Income-tax Officer granted deduction of Rs. 35,368 under Section 80HH and Rs. 17,226 under Section 80J.
3. The Commissioner of Income-tax acting under Section 263 of the Income-tax Act, 1961, found that this grant of exemption of the above amounts is erroneous and prejudicial to the interests of the Revenue. He issued notice (annexure "B") for the purpose of action under Section 263 of the Act.
4. The basis of the notice (to be found from annexure "B") is that the assessee was not engaged in any industrial activity and consequently, therefore, no deductions were admissible for other reasons also. Amongst other reasons, it is seen that assuming that the assessee was otherwise entitled, when the receipts by way of premia on import entitlements, export house premia and drawbacks are excluded from the business income, there will be only a negative figure. On the basis of these aspects, the Commissioner of Income-tax, Cochin, acting under Section 263 of the Income-tax Act, 1961, held that the Income-tax Officer's order granting deduction under Sections 80HH and 80J was clearly erroneous. In reaching this conclusion reliance is placed on the decision of this court in Cochin Co. v. CIT [1978] 114 ITR 822 for the proposition that the profit or gain can be said to have been derived from an activity carried on by a person only if the activity is the immediate and effective source of the profit or gain and that there must be a direct nexus between the activity and the earning of the profit or gain. In other words, it is observed that the income, profit or gain cannot be said to have been derived from an activity, helped to earn the income or profit in an indirect or remote ' manner. It is further observed that such a situation is dealt with in a similar manner in the case of Cochin Refineries Ltd. by this court.
5. The assessee took up this matter before the Income tax Appellate Tribunal. The question was as to whether the assessee would be entitled to deductions as available under Sections 80HH and 80J of the Income-tax Act, 1961. After referring to the statutory provisions of the above sections of the Act, with special reference to the words "any profits and gains derived from an industrial undertaking", the Tribunal took up the phrase "derived from" as considered by the decision of the Supreme Court in Cambay Eiectric Supply Industrial Co. Ltd. v. C1T [1978] 113 ITR 84, and observed that the expression "derived from" cannot be understood as the expression "attributable to". It is a term requiring an enquiry into the genealogy of the product and the process of activity to find out the effec-tive source.
6. The Tribunal also referred to the decision of the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325, to find out as to whether the interest on rent could be an agricultural income as revenue derived from the Land.
7. Ultimately, relying on the decision of this court in Cochin Co. v. CIT [1978] 114 ITR 822, the Tribunal observed that profit or gain can be said to have derived from an activity carried on by a person only if the said activity is an immediate and effective source of the said profit or gain.
8. The process of r asoning adopted by the Tribunal would show that in spite of there being decisions of this court, the Supreme Court and the Privy Council, the order of the Commissioner of Income-tax though with jurisdiction under Section 263, as full facts were not available with regard to the items to that extent, it is observed by the Tribunal that the order would require modification, upheld the same with regard to other aspects.
9. In fact, after reading the order of the Tribunal with regard to the legal position on the basis of which claim for deduction is sought to be made and granted, under Sections 80HH and 80J of the Act, the position is more than settled that it should be relatable to an industrial undertaking and there has to be material to show that it is derived from the business activity relatable to such an industrial undertaking.
10. Even in referring the question to this court, by the order dated January 31, 1986, the Tribunal after referring to the decision of this court in Cochin Co. v. CIT [1978] 114 ITR 822, and obviously finding the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd, v. CIT [1978] 113 ITR 84, curiously proceeded to observe that there is divergence of judicial opinion between the various High Courts which would justify reference treating the question as a question of law.
11. We find that the statutory provision that the amount in regard to which exemption is sought must be relatable to an industrial undertaking as the amount which could be understood to be "derived from" is more than settled not only by the two decisions of this court (referred to supra), the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 as well as of the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325. What is on record is only an order of enquiry relating to the aspects which are required to be considered obviously as statutory requirements. There is no unsettled position and a reference because of divergence of judicial decisions of other courts could not be appreciated to be a ground for reference in a situation where the question is decided by this court as well as by the Supreme Court and by the Privy Council, as stated above.
12. In fairness it is necessary to refer to the decision of the Supreme Court in CIT v. All India Tea and Trading Co. Ltd. [1996] 219 ITR 544, as it had been placed for our consideration by learned counsel for the assessee. It relates to the question of determination of agricultural income with regard to the land requisitioned by the State Government and was given to the refugees to carry on cultivation thereon. The assessee was carrying on agricultural operations at that time and at the time of claim for compensation it was taken into consideration. The question was whether the receipt of the amount of compensation received for requisition of the land in question could be agricultural income and hence not taxable. This was with reference to the contention of the Revenue that it could not be considered as agricultural income. In this connection reference is made to certain fact findings recorded with reference to the question as to whether the amount of compensation could be regarded as rent or revenue which could be considered to have been derived from land. We are afraid that the decision would not govern as a guidance to the position before us where except that the exemption was claimed and granted, it was subsequently found to be worthy of reopening, there is no trace of any factual material to ascertain whether the amount can be said to have derived from business activity with reference to the industrial undertaking as is clearly contemplated in the statutory provisions. The factual basis recorded in the decision cited on the basis of the fact findings therein cannot be of any use for the petitioner.
13. For all the above reasons, in our judgment, the question referred is answered in the affirmative, in favour of the Revenue and against the assessee.
14. A copy of this judgment under the seal of the court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.