2007 (7) TMI 302 - HC - Income Tax

Duty drawback not income from industrial undertaking for deduction under section 80-IB

The High Court held that duty drawback received by an assessee cannot be considered as income 'derived from' an industrial undertaking for the purpose of ... Industrial Undertakings – exemption under section 80IB – duty drawback – held that - section 80-IB refers to ‘profits and gains’ derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business) ... sub-section (3) refers to industrial undertakings located in different areas classified as backward - held in favour of the Revenue - 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. – benefit of deduction u/s 80Ib is not allowed for duty drawback Issues:Interpretation of section 80-IB of the Income-tax Act, 1961 regarding deduction on duty drawback received by an assessee.Analysis:The High Court addressed the issue of whether duty drawback received by an assessee can be considered as income 'derived from' an industrial undertaking for the purpose of allowing a deduction under section 80-IB of the Income-tax Act, 1961. The case involved an assessee who claimed a deduction under section 80-IB based on duty drawback received, which was declined by the Assessing Officer following the judgment in the case of CIT v. Sterling Foods [1999] 237 ITR 579. The Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer and directed the deduction to be allowed, considering the duty drawback as a trading receipt of the industrial undertaking.The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) based on the view taken in a similar case by the Delhi Bench of the Tribunal. The Tribunal emphasized the importance of consistency and judicial discipline in following previous decisions favoring the assessee. The Tribunal also noted the distinction between section 80-I and section 80-IB of the Act, highlighting the requirement of profits and gains derived from an eligible business under section 80-IB.The Revenue argued that duty drawback cannot be considered income derived from the industrial undertaking based on the judgment in Sterling Foods case. The Revenue contended that once the jurisdictional High Court has taken a view, it should be followed, citing the decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. Additionally, the Revenue pointed out the provision in section 28(iiic) of the Act regarding the taxation of duty drawback.On the other hand, the assessee argued that duty drawback linked to the industrial undertaking should be eligible for deductions under section 80-IB. The assessee relied on previous court judgments supporting the inclusion of duty drawback as income derived from the industrial undertaking. The assessee emphasized a broader interpretation of the term 'derived' in section 80-IB to support their claim.The High Court, after considering the arguments presented, referred to the judgment in Sterling Foods case and subsequent decisions by various courts, including the Supreme Court and the High Court. The Court held that duty drawback cannot be considered as income derived from the industrial undertaking based on the established legal precedents. Therefore, the Court allowed the appeals filed by the Revenue, setting aside the Tribunal's order and restoring the Assessing Officer's decision to disallow the deduction claimed by the assessee under section 80-IB.