2020 (2) TMI 309 - HC - Income Tax

Deduction u/s 80HHC - receipts by way of shipping agency fees and the hire charges of machinery and installations will have to be reduced from the profits in terms of the explanation clause (baa) to Section 80 HHC - HELD THAT - In so far as hire charges of machinery and installations are concerned, this question has been squarely answered against the Appellant-Assessee and in favour of the Respondent-Revenue in 2015 (5) TMI 621 - BOMBAY HIGH COURT . Incidentally, this was also an appeal instituted by this very Appellant in relation to the Assessment Year 1996-97. Applying the reasoning therein, it will, therefore, have to be held that the hire charges of machinery and installations will have to be reduced in terms of clause (baa) to Section 80 HHC. In so far as shipping agency fees are concerned, again, we note that for the previous assessment year, as also for the assessment year with which we are concerned in the present Appeal, the fact finding authorities have held that the shipping agency fees have no nexus as such with the export and, therefore, reduction of even these receipts is warranted in terms of the explanation (baa) to Section 80 HHC. Since this appeal is on substantial question of law and further, since no perversity as such has been pointed out in the findings of fact recorded by the fact finding authorities, we hold that even shipping agency fees are required to be reduced from the profits in terms of clause (baa) to Section 80 HHC. Reduction has to be made not on gross basis, but on net basis only. Accordingly, we hold that though the receipts by way of shipping agency fees and higher charges for machinery and installation will have to be reduced in terms of explanation (baa) to Section 80 HHC, such receipts will have to be computed on net basis and not on gross basis. Accordingly, the reduction will also have to be effected only on net basis and not on gross basis. See M/S ACG ASSOCIATED CAPSULES PVT. LTD. 2012 (2) TMI 101 - SUPREME COURT Receipts by way of shipping agency fees and the higher charges of machinery and installation will have to be reduced in terms of the explanation (baa) to Section 80 HHC of the Income Tax Act. However, such reduction will have to be on net basis and not on gross basis. Receipts under the head extraction charges - whether could be considered as part of the total turnover as defined in the said clause (ba), for the purpose of computation of the deduction under section 80 HHC of the Act?- HELD THAT - As relying on own case SESA GOA LTD. VERSUS COMMISSIONER OF INCOME TAX, PANAJI-GOA 2015 (5) TMI 621 - BOMBAY HIGH COURT issue decided against the Appellant-Assessee and in favour of the Respondent-Revenue. Interest received from the subsidiary companies on loans lent to them to meet their working capital requirements - income from Profits and gains of business OR Income from other sources - HELD THAT - Issue is covered in favour of the Appellant-Assessee and against the Respondent-Revenue in Principal Commissioner of Income Tax vs. Sesa Resources Ltd. 2017 (9) TMI 126 - BOMBAY HIGH COURT and in the Commissioner of Income Tax vs. V.S. Dempo Co. Pvt. Ltd. 2016 (2) TMI 308 - BOMBAY HIGH COURT . Accordingly, the substantial question of law (C) is answered in favour of the Appellant-Assessee Receipts in the Appellant's accounts under the heads proceeds of services; hire of Ship/transhippers; hire of barges; and epairs of vessels by Shipyards, which receipts have substantial costs, and arise from the main business activity of the Appellant, would have to be reduced in terms of the said clause (baa)? - HELD THAT - Receipts towards hire of ships/transhippers and hire charges of barges will have have to be reduced in terms of the explanation (baa) to Section 80 HHC. However, the receipts towards proceeds of services and repairs of vessels by shipyards have not been covered under the explanation (baa) to Section 80HHC, will have to be reduced from out of the profits. Further, we add that in matters of such reductions, the computation will have to be on net basis and not on gross basis. Disallowance u/s 40(a)(i) - Non-resident Ship owners/charterers of the vessels - tax was not deductible - HELD THAT - Issue covered in favour of the Appellant-Assessee and against the Respondent-Revenue in the decision of the Full Bench of this Court in the Commissioner of Income Tax vs. V.S. Dempo Co. Pvt. Ltd. Income Tax 2016 (2) TMI 308 - BOMBAY HIGH COURT Bad debt actually written off as irrecoverable in the accounts of the Appellant - authorisation by the Board of Directors at a meeting held to approve the accounts after the close of the year, could be disallowed on the ground that the writing off of such bad debt did not take place in the relevant previous year - HELD THAT - Issue covered in favour of the Appellant-Assessee and against the Respondent-Revenue as relying on TRF. LTD 2010 (2) TMI 211 - SUPREME COURT , KERALA STATE INDUSTRIAL DEVT. CORPORATION LTD 2012 (9) TMI 805 - SUPREME COURT

Summary

Issues involved:
1. Whether receipts by way of "Shipping Agency fees" and "hire charges of machinery and installations" are to be reduced in terms of clause (baa) to Section 80 HHC, and if so, whether the reduction should be of gross receipts or net receipts?
2. Whether receipts under the head "extraction charges" can be considered as part of the "total turnover" for the purpose of deduction under section 80 HHC?
3. Whether interest received from subsidiary companies on loans lent to them can be considered as part of "Income from other sources" rather than "Profits and gains of business"?
4. Whether certain receipts in the appellant's accounts need to be reduced in terms of clause (baa)?
5. Whether demurrage payable to non-resident ship owners/charterers can be considered as disallowable under section 40(a)(i)?
6. Whether bad debt actually written off can be disallowed if it was not written off in the relevant previous year?
7. How should interest credited in the accounts, forming part of bad debt written off, be treated in computing deduction under section 80 HHC?

Analysis:

1. The Court held that shipping agency fees and hire charges of machinery and installations are to be reduced from profits in terms of clause (baa) to Section 80 HHC. The reduction should be on a net basis, not gross basis. The decision was based on previous rulings and the Supreme Court's judgment in ACG Associated Capsule (P) Ltd. vs. Commissioner of Income-tax.

2. The receipts under "extraction charges" were held not to be part of the "total turnover" for deduction under section 80 HHC based on a previous judgment.

3. The interest received from subsidiary companies on loans lent was considered assessable as "Income from other sources" based on specific judgments in favor of the appellant.

4. Certain receipts like hire of ship/transhipper and hire of barges were deemed to be covered under clause (baa) to Section 80 HHC and should be reduced from profits. However, proceeds of services and repairs of vessels by shipyards were not to be reduced as per the same clause. The reduction should be on a net basis.

5. Demurrage payable to non-resident ship owners/charterers was considered not disallowable under section 40(a)(i) based on a specific judgment in favor of the appellant.

6. The bad debt written off was allowed as irrecoverable based on relevant judgments in favor of the appellant.

7. The interest credited in the accounts, forming part of bad debt written off, was not to be netted off from the total interest assessed as income from "Profits and gains of business" while reducing 90% of the interest receipts in accordance with clause (baa) in arriving at the "profits of the business."