Commissioner of Income Tax vs A.M. Moosa

Om Prakash, C.J.—As directed by this court u/s 256(2) of the Income Tax Act, 1961, the Income Tax Appellate 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 u/s 80HH on the income by way of sale of import licence, export house premium and customs draw-backs ?

(2) Whether, the Tribunal is right in holding that the withdrawal of deduction u/s 80HH in proceedings u/s 154 of the Income Tax 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 assessment year 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, ), held that in order to claim special deduction under Sections 80HH and 80J of the Income Tax 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, (page 739) "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 the High Court eventually held that in working out the relief due to the assessee under Sections 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 Appellate Tribunal has not recorded any finding on the validity of action, initiated by the Assessing Officer u/s 154 of the Income Tax Act. Simply because the Appellate Tribunal on merits held that the assessee was entitled to deduction u/s 80HH it jumped to the conclusion that there was no error in granting deduction u/s 80HH. Since there is no categorical finding on the validity of the action taken u/s 154 of the Income Tax Act by the Assessing Officer, we refrain from going into the merits of question No. 2 and return this question unanswered.