INCOME TAX OFFICER v. PARAMOUNT INDUSTRIAL CORPN
[Citation -2006-LL-0731-1]

Citation 2006-LL-0731-1
Appellant Name INCOME TAX OFFICER
Respondent Name PARAMOUNT INDUSTRIAL CORPN.
Court ITAT
Relevant Act Income-tax
Date of Order 31/07/2006
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags computing total income • industrial undertaking • cost of production • eligible business • imported material
Bot Summary: According to the learned Departmental Representative, the AO had relied upon the decision of the apex Court in the case of CIT vs. Sterling Foods Ltd. 153 CTR 439: 237 ITR 579 in coming to his conclusion that income on account of duty drawback could not be said to have been derived from the assessee s industrial undertaking. The Hon ble High Court was considering as to whether the duty drawback income received by the assessee would constitute income derived from an industrial undertaking so as to qualify for relief under s. 80J of the Act. The following discussion made by the Hon ble High Court is worth of notice: The object of the duty drawback scheme is to reimburse exporters for tariffs paid on the imported raw materials and intermediates and excise duties paid on domestically produced inputs which enter into export production. Duty drawback is an integral part of the pricing of the goods and part of the cost of production of the industrial undertaking and duty drawback has to be treated as derived from the industrial undertaking. On the basis of aforesaid discussion, the Hon ble High Court came to the conclusion that duty drawback income was derived from the industrial undertaking and was eligible for deduction under s. 80J of the Act. The provisions of s. 80-IB insofar as they have to be understood in the context of the expression derived from stand on similar footing to that of s. 80J. Therefore, the duty drawback income is also to be considered as qualifying for deduction under s. 80-IB having regard the parity of the reasoning enunciated by the Hon ble Gujarat High Court in the case of India Gelatine Chemicals Ltd. Therefore, we are inclined to affirm the conclusion drawn by the CIT(A) and the appeal of the Revenue is dismissed. The principles laid down by the apex Court in the case of Sterling Foods, which we have discussed in the earlier part of our order, do not stand in the way of applying the reasoning enunciated by the Hon ble Gujarat High Court in the case of India Gelatine Chemicals Ltd. We conclude by holding that the assessee is eligible for relief under s. 80-IB in relation to the income derived by it on account of duty drawback.


This is appeal by Revenue against order of CIT(A) order dt. 20th May, 2004 pertaining to asst. yr. 2001-02. In this appeal only issue is with regard to claim of deduction under s. 80-IB of IT Act, 1961 (in short Act ) on income by way of duty drawback earned by assessee. assessee claimed deduction under s. 80-IB on income inclusive of income by way of duty drawback on imported material used for manufacture of goods which were ultimately exported out of India. deduction under s. 80-IB was claimed at Rs. 28,73,753. AO restricted claim to Rs. 20,94,545. difference was on account of denial of deduction under s. 80-IB with respect to income earned by assessee by way of duty drawback with respect to export made by it. CIT(A) has since allowed claim of assessee on ground that duty drawback income can be said to have been derived from industrial undertaking so as to qualify for deduction under s. 80-IB. CIT(A) has relied upon decision of Tribunal in case of A.P. Industrial Components Ltd. vs. Dy. CIT (2002) 74 TTJ (Hyd) 272 in coming to this conclusion. Against aforesaid, Revenue is presently in appeal before us. Before us, learned Departmental Representative assailed order of CIT(A) by submitting that judgment of Hon ble Delhi High Court in case of CIT vs. Ritesh Industries Ltd. (2004) 192 CTR (Del) 81 was in favour of Revenue. According to learned Departmental Representative, AO had relied upon decision of apex Court in case of CIT vs. Sterling Foods Ltd. (1999) 153 CTR (SC) 439: (1999) 237 ITR 579 (SC) in coming to his conclusion that income on account of duty drawback could not be said to have been derived from assessee s industrial undertaking. According to learned Departmental Representative such income was only incentive given to exporters in terms of scheme formulated by Central Government and did not have any nexus with industrial undertaking of assessee. On other hand, learned counsel appearing on behalf of respondent assessee has defended order of CIT(A) by placing reliance on various decisions including decision of Chandigarh Bench of Tribunal in case of ITO vs. Kiran Enterprises (2005) 92 TTJ (Chd) 104. other decisions which have been relied upon by counsel are as under: (a) Dy. CIT vs. Metro Tyres Ltd. (2001) 79 ITD 557 (Del); (b) Siddhartha Tubes Ltd. vs. CIT (2004) 86 TTJ (Ind) 820: (2003) 85 ITD 316 (Ind); (c) Aarti Industries Ltd. vs. Dy. CIT (2005) 95 TTJ (Ahd) 14; (d) Ahmedabad Manufacturing & Calico Printing Co. Ltd. vs. CIT (1981) 25 CTR (Guj) 263: (1982) 137 ITR 616 (Guj); (e) CIT vs. Madras Motors Ltd. (2002) 174 CTR (Mad) 221: (2002) 122 TAXMAN 516 (Mad); (f) CIT vs. India Pistons Repco Ltd. (1987) 66 CTR (Mad) 124: (1987) 167 ITR 917 (Mad); (g) Anil L. Shah vs. Asstt. CIT (2005) 95 TTJ (Mumbai) 216. We have carefully considered rival submissions. Sec. 80-IB of Act provides for deduction of profits and gains which are derived from any of eligible business specified therein, while computing total income of assessee. presence of expression "derived from" in s. 80-IB is crux of matter in dispute before us. said expression also finds usage in certain other sections under Chapter VI-A of Act, namely, ss. 80HH, 80-I, etc. In case of CIT vs. Sterling Foods (supra), Hon ble apex Court had occasion to consider interpretation of expression "derived from" in s. 80HH of Act. According to apex Court, expression means "get, to trace from source; arise from, originate in, show origin or formation of". Considered in aforesaid light, said expression is to be understood to mean that profit and gain referred to in s. 80-IB should have direct nexus with eligible business of assessee. eligible business per se should be direct or effective source of profits and gains so as to qualify for deduction under s. 80-IB. Similar principle has been laid down by Hon ble apex Court even in other judgment viz., Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99: (2003) 262 ITR 278 (SC). question for consideration before us is as to whether impugned income can be said to have been derived from eligible business of assessee so as to qualify for deduction under s. 80-IB of Act. There is no dispute that industrial undertaking of assessee qualified for deduction under s. 80-IB of Act. assessee has earned income by way of duty drawback on exports made by it. Hon ble High Court of Gujarat had occasion to consider objects of duty drawback scheme in case of CIT vs. India Gelatine & Chemicals Ltd. (2005) 194 CTR (Guj) 492: (2005) 275 ITR 284 (Guj). Hon ble High Court was considering as to whether duty drawback income received by assessee would constitute income "derived from" industrial undertaking so as to qualify for relief under s. 80J of Act. following discussion made by Hon ble High Court is worth of notice: "The object of duty drawback scheme is to reimburse exporters for tariffs paid on imported raw materials and intermediates and excise duties paid on domestically produced inputs which enter into export production. Customs duties and excise duties on input raise cost of production in industries and thereby affect competitiveness of exports. Therefore, exporters need to be assisted for neutralizing escalation in their costs attributable to such customs and excise duties. Duty drawback is, therefore, intended to reduce cost of production. Hence, duty drawback is integral part of pricing of goods and, therefore, part of cost of production of industrial undertaking and, therefore, duty drawback has to be treated as derived from industrial undertaking." On basis of aforesaid discussion, Hon ble High Court came to conclusion that duty drawback income was derived from industrial undertaking and was eligible for deduction under s. 80J of Act. purport of judgment is that duty drawback was inextricably linked with cost of production and thus liable to be considered as having been derived from industrial undertaking. provisions of s. 80-IB insofar as they have to be understood in context of expression "derived from" stand on similar footing to that of s. 80J. Therefore, duty drawback income is also to be considered as qualifying for deduction under s. 80-IB having regard parity of reasoning enunciated by Hon ble Gujarat High Court in case of India Gelatine & Chemicals Ltd. (supra). Therefore, we are inclined to affirm conclusion drawn by CIT(A) and appeal of Revenue is dismissed. Before parting, we may also refer to contrary view advocated by learned Departmental Representative on basis of decisions of Hon ble Delhi High Court in case of Ritesh Industries (supra) and of Hon ble Madras High Court in case of CIT vs. Jameel Leathers & Uppers (2000) 246 ITR 97 (Mad) on this issue. In aforesaid two decisions, issue related to entitlement of assessee for relief under ss. 80-I and 80J, respectively in context of duty drawback income. (a). On this, we find that there is neither decision of Hon ble jurisdictional High Court and nor that of apex Court. Therefore, without going into relative merits of two views, we respectfully follow view which is favourable to assessee having regard to trite law on issue. This explains our preference to follow reasoning enunciated by Hon ble Gujarat High Court in case of India Gelatine & Chemicals Ltd. (supra). We also notice that Hon ble High Court of Gujarat has considered contrary view as expressed by Hon ble High Court of Madras in coming to its conclusion. learned Departmental Representative has also relied upon decision of apex Court in case of Sterling Foods (supra) in support of its submissions. On this aspect, we find that it does not help case of Revenue. principles laid down by apex Court in case of Sterling Foods (supra), which we have discussed in earlier part of our order, do not stand in way of applying reasoning enunciated by Hon ble Gujarat High Court in case of India Gelatine & Chemicals Ltd. (supra). We, therefore, conclude by holding that assessee is eligible for relief under s. 80-IB in relation to income derived by it on account of duty drawback. As result, appeal of Revenue stands dismissed. *** INCOME TAX OFFICER v. PARAMOUNT INDUSTRIAL CORPN.
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