High Court Of Punjab & Haryana
Liberty India vs. CIT
Section 80-IB
Asst. Year 2001-02
Adarsh Kumar Goel & Rajesh Bindal, JJ.
IT Appeal No. 590 of 2005
22nd September, 2006
Counsel Appeared
P.C. Jain, for the Assessee : Yogesh Putney, for the Revenue
ORDER
By the court :
This appeal has been preferred under s. 260A of the IT Act, 1961 (for short, the Act”) against the order passed by Tribunal, Delhi Bench, Delhi in ITA No. 5433/Del/2004, dt. 28th June, 2005 in respect of the asst. yr. 2001-02, proposing following question of law : “Whether, under the facts and circumstances of the case and on interpretation of s. 80-IB, whether Tribunal is justified in upholding the action of assessing authority by not allowing deduction under s. 80-IB on amount of DEPB and duty drawback being export incentives @ 25 per cent of Rs. 22,70,056 being Rs.5,76,514?” The assessee claimed deduction under s. 80-IB in respect of duty drawback amounting to Rs. 1,74,316, which was disallowed by the AO on the ground that the said income was not “derived from” the business of the assessee as per requirement of s. 80-IB, as held by the Hon’ble Supreme Court in CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). On appeal, the CIT(A) allowed the claim of the assessee on the ground that the duty drawback received by the assessee was inextricably linked with the production cost and thus, duty drawback was trading receipt of the industrial undertaking having direct nexus with the activity of such industrial undertaking and, therefore, it formed part of the income derived from such industrial undertaking.
On further appeal by the Revenue, the view taken by the AO was restored, following the judgment of Delhi High Court in CIT vs. Ritesh Industries Ltd. (2004) 192 CTR (Del) 81 : (2005) 274 ITR 324 (Del), which in turn is based on judgment of the Hon’ble Supreme Court in Sterling Foods (supra). Learned counsel for the assessee submits that the view taken by Gujarat High Court in CIT vs. India Gelatine & Chemicals Ltd. (2005) 194 CTR (Guj) 492 : (2005) 275 ITR 284 (Guj) supports the stand of the assessee and the SLP against the judgment of Delhi High Court in Ritesh Industries (supra), has been admitted by the Hon’ble Supreme Court being Civil Appeal No. 451 of 2006 and thus, the substantial question of law arises. Learned counsel for the Revenue submits that since the matter is covered by the judgment of Hon’ble Supreme Court in Sterling Foods (supra), which has been followed by this Court in Nahar Exports Ltd. vs. CIT IT Ref. No. 642 of 2005 decided on 4th July, 2006 [reported at (2006) 204 CTR (P&H) 464—Ed.], CIT vs. Nahar Spinning Mills Ltd., ITC No. 201 of 1994, decided on 19th April, 2006 and Liberty Shoes Ltd. vs. CIT ITA No. 140 of 2005 decided on 17th Aug., 2006 [reported at (2007) 207 CTR (P&H) 181—Ed.] no substantial question of law arises. It is submitted that the crucial issue was not whether the income of the assessee had the effect of reducing the cost of production, but whether the income was “derived from” the specified business as against income from any other source, irrespective of the question whether such source was inextricably connected to the business activity of the assessee. It was submitted that the nature of income derived from duty drawback was similar to the nature of income derived by the assessee in Sterling Foods’ case (supra), which was considered by the Hon’ble Supreme Court. Before the Hon’ble Supreme Court, the question for consideration was in respect of income from import entitlements, which was similar to income from duty drawback.
6. We have considered the rival submissions and perused the record. Sec. 80-IB(1) is asunder :
“(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-ss. (3) to (11) and (11A) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.”
7. Interpreting the identical language in s. 80HH, the Hon’ble Supreme Court in Sterling Foods (supra) observed : “We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be for the application of the words ‘derived from’, a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee’s industrial undertaking.”
8. We are of the view that for the reasoning adopted by the Hon’ble Supreme Court, income of the assessee from duty drawback cannot be held to be income “derived from” specified business.
9. Distinction sought to be made by the learned counsel for the assessee, in income derived from duty drawback and sale of import entitlement cannot be accepted as relevant distinction, as the core question before the Court was that such income was “derived” from specified business, which reasoning is fully applicable to the present situation.
10. For the above reasons, we are of the view that the matter being covered by the judgment of Hon’ble Supreme
Court in Sterling Foods (supra), no substantial question of law arises in the appeal.
11. Learned counsel for the assessee also submitted that there has been an amendment in the year 2005 to the provisions of 80HHC, which is as under:
“Provided also that in case the computation under cl. (a) or cl. (b) or cl. (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of— (a) any sum referred to in cl. (iiia) or cl. (iiib) or cl. (iiic), as the case may be, or (b) any sum referred to in cl. (iiid) or cl. (iiie), as the case may be, of s. 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.”
12. We are unable to accept this submission. The amendment to s. 80HHC of the Act does not help the appellant, the same being independent and not controlling interpretation of s. 80-IB of the Act.
13. In view of above, the appeal is dismissed.
[Citation : 293 ITR 520]
