TaxTMI 
TaxTMI 
2006 (11) TMI 92
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.... is covered under section 28 of the Act and deduction under section 80HHC is available on such income. In the course of hearing before us, the attention of the learned Departmental Representative was drawn towards the amendment made by the Taxation Laws (Amendment) Act, 2005, retrospectively with effect from April 1, 1998, by which clause (iiid) was inserted in section 28 with a view to deem any profit on the transfer of DEPB, being Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992, as the profits and gains of business. By the same Amendment Act, provisions of section 80HHC of the Act were also modified by, inter-alia, inserting clause (iiid) in the clause (ba) of the Explanation below sub-section (4C). These amendments were made after the passing of the order by the Assessing Officer and the learned Com missioner of Income-tax (Appeals). By virtue of these amendments, profit on transfer of DEPB Scheme became entitled to deduction under section 80HHC from the assessment year 1998-99 onwards. Thus, deduction on the aforesaid profit was admissible in the proceedings of the asse....
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....the whole of the profit from manufacturing and trading activities ought to have been considered for the purpose of deduction under section 80-IB. It was also argued that profit from DEPB Scheme constituted profits and gains derived from the industrial undertaking. Therefore, it was claimed that the deduction as claimed in the return of income may be allowed. The learned Commissioner of Income-tax (Appeals) did not agree with the assessee on either of the two issues. It was held by him that the action of the Assessing Officer in attributing 50 per cent. of the profits to the manufacturing activity was reasonable on the facts and in the circumstances of the case. It was also held that profit earned on sale of DEPB entitlements cannot be said to be the income derived from the industrial undertaking of the assessee. He, however, made some changes in the computation of deduction and granted further relief amounting. to Rs. 94,708 to the assessee. 7 Aggrieved by this order, the assessee is in appeal before us. 8 Before us, learned counsel relied on the decision of the hon'ble Income-tax Appellate Tribunal, "SMC" Bench, New Delhi in the case of Lakhvinder Singh and M/s. G. S. Export....
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....DEPB Scheme. 11 As against the aforesaid, the learned Departmental Representative pointed out that Duty Draw Back Scheme leads to reimbursement of excise duty and customs duty, if paid, when the goods are exported. On the other hand, DEPB Scheme grants entitlements to the assessee to make import of materials used as input in the goods exported or meant to be exported. Such entitlements can be used by the assessee himself or sold in the market, leading to the profit. The assessee has sold the entitlement in the market, leading to the profit. It was argued that such profit cannot be termed to be profits and gains derived from the business of industrial undertaking, as it is one step removed from the business of the industrial undertaking in terms of nexus. 12 In the aforesaid connection, the learned Departmental Representative relied on the decision of the hon'ble Madras High Court in the case of CIT v. Jameel Leathers and Uppers [2000] 246 ITR 97, a case decided under section 80HH of the Act. The hon'ble court pointed out that the words "derived from" has a narrower meaning than the words "attributable to' Referring to the decision of another Bench of the hon'ble Madras High C....
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....usiness of the industrial undertaking. However, in our case, the assessee became entitled to import goods on export of certain goods, and such entitlement was sold in the market to earn profit. This profit is not in the nature of reimbursement of the duty already paid. The profit arises out of an independent transaction of sale of entitlement, although such entitlement was received on account of export of goods. Therefore, we are of the view that the transaction is one step removed from the business of the industrial undertaking. We may incidentally mention that while interpreting any fiscal statute, we do not have to refer to the features of the industrial undertaking but to its business. Therefore, the two terms "derived from industrial undertaking" and "derived from the business of the industrial undertaking" have the same meaning. 14 The learned Departmental Representative also relied on the decision of the hon'ble Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579, in which it was held that the assessee was not entitled to deduction under section 80HHC on profit from sale of import entitlement. He also relied on the decision of the hon'ble Supreme C....
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....ntal Representative also relied on the decision of the hon'ble Gujarat High Court in the case of CIT v. India Gelatine and Chemicals Ltd. [2005] 275 ITR 284, in which it was held that cash assistance was not the income derived from the new industrial undertaking and, therefore, not entitled to deduction under section 80J. However, duty draw back is the income derived from the industrial undertaking, eligible under section 80J. 17 On the basis of the aforesaid decision, the learned Departmental Representative pointed out that while there was a difference of opinion in regard to duty draw back, but in respect of profit by way of DEPB Scheme, which is akin to profit on sale of licences, there was no difference of opinion. It was also pointed out that the decision in the case of Shri Lakhvinder Singh (supra) was not binding on the Division Bench, as that decision was rendered by SMC Bench. Therefore, it was argued that the assessee was not entitled to deduction on profit from the DEPB Scheme. 18 In the rejoinder, learned counsel pointed out that the assessee is located at Karnal, which falls under the territorial jurisdiction of the Punjab and Haryana High Court, which has not re....