COMMISSIONER OF INCOME TAX vs A.M. MOOSA HIGH COURT OF KERALA

OM PRAKASH, C.J.

As directed by this Court under s. 256(1) of the IT Act, 1961, the Tribunal referred the following questions for the opinion of this Court :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is entitled to a deduction under s. 80HH on the income by way of sale of import licence, export house premium and customs drawbacks?

(2) Whether, the Tribunal is right in holding that the withdrawal of deduction under s. 80HH in proceedings under s. 154 of the IT Act, 1961, is erroneous?"

First, we take up the first question for consideration. This question came up for consideration before this Court in the case of the assessee itself for the asst. yr. 1979-80 and then a Division Bench of this Court in the case of the assessee himself [see A.M. Moosa, Bharath Sea Foods Vs. Commissioner of Income Tax, (Kert held that in order to claim special deduction under ss. 80HH and 80J of the IT Act, 1961, the profits 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. Profit or gain can be said to have been 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. The Division Bench also held that, 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". This is how this Court eventually held that in working out the relief due to the assessee under ss. 80HH and 80J, the Tribunal was right in excluding the export house premia and the sale of import entitlements.

Following the said authority, we answer the first question in the negative, that is, in favour of the Revenue and against the assessee.

Turning to the second question, we are of the view that the Tribunal has not recorded any finding on the validity of action initiated by the AO under s. 154 of the IT Act. Simply because the Tribunal on merits held that the assessee was entitled to deduction under s. 80M, it jumped up to the conclusion that there was no error in granting deduction under s. 80H Since there is no categorical finding on the validity of the action taken under s. 154 of the IT Act by the AO, we refrain from going into the merits of question No. 2 and return this question unanswered.