Allahabad High Court
Commissioner Of Income Tax vs M/S Arvind Footwear Pvt. Ltd. on 17 January, 2014
Author: Dilip Gupta
Bench: Dilip Gupta
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Chief Justice's Court Case :- INCOME TAX APPEAL No. - 14 of 2014 Appellant :- Commissioner Of Income Tax Respondent :- M/S Arvind Footwear Pvt. Ltd. with Case :- INCOME TAX APPEAL DEFECTIVE No. - 3 of 2014 Appellant :- Commissioner Of Income Tax Respondent :- M/S Arvind Footwear Pvt. Ltd. with Case :- INCOME TAX APPEAL DEFECTIVE No. - 4 of 2014 Appellant :- Commissioner Of Income Tax Respondent :- M/S Arvind Footwear Pvt. Ltd. with Case :- INCOME TAX APPEAL DEFECTIVE No. - 5 of 2014 Appellant :- Commissioner Of Income Tax Respondent :- M/S Arvind Footwear Pvt. Ltd. Counsel for Appellant :- Shambhu Chopra, Sr. S.C. Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice Hon'ble Dilip Gupta,J.
The aforesaid appeals by the Revenue arise from a common judgment of the Income Tax Appellate Tribunal, Lucknow Bench dated 27 August 2013 in a batch of four appeals. The assessment years are 2003-04, 2004-05, 2005-06 and 2006-07. The Revenue has raised the following questions of law :-
1. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in setting aside the issue and remitting to the CIT (A) for adjudication de novo without appreciating the fact that the case is squarely covered by the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT [317 ITR 218 (SC)] ?
2. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT was justified in not following a binding precedent that was squarely applicable to the case before it ?
The issue before the Tribunal was whether or not the Commissioner (Appeals) was justified in declining a deduction under Section 80 IB of the Income Tax Act 1961 in respect of a duty drawback. The assessee had claimed a deduction under Section 80 IB of the total profit from business including the duty drawback. The Assessing Officer held that the duty drawback would not qualify for a deduction under Section 80 IB since this was not a profit derived from the industrial undertaking. The CIT (A) confirmed the disallowance.
Sri Shambhu Chopra, learned counsel appearing on behalf of the appellant submitted that the judgment of the Tribunal is clearly in defiance of the law as laid down by the Supreme Court in Liberty India Vs. Commissioner of Income Tax reported in [2009] 317 ITR 218 (SC).
In Liberty India (supra), the Supreme Court held that the expression 'derived from' is narrower than the expression 'attributable to' and that the Parliament intended to cover sources which were not beyond the first degree. In that context, the Supreme Court held as follows:-
"16. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as a percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore, in our view, DEPB/Duty drawback are incentives which flow from the Schemes framed by Central Government or from Section 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such undertakings.
17. The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and section 37 of the Central Excise Act, 1944, empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in section 75 of the Customs Act and section 37 of the Central Excise Act.
18. Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in section 80-IB."
The issue, therefore, stands squarely covered by the judgment of the Supreme Court. Despite a binding judgment of the Supreme Court, the Tribunal observed as follows:-
".......... On these facts, as learned counsel rightly pleads, it cannot be an open and shut inference that the duty drawback receipts are independent sources of income on standalone basis and that these receipts have no first degree nexus with the business activity of the industrial undertaking. There is still a room for the consideration of the plea that but for the duty drawback, the assessee would not have carried out the business activity in the industrial undertaking, because, that would have meant carrying out business for incurring losses. If that be so, the duty drawback receipts cannot be said to be 'not direct but only incidental' income, an 'independent source of income' or 'ancillary profit of the industrial undertaking. It is also important to bear in mind the fact that the very distinguished Hon'ble Justice, who authored judgment in Liberty India's case (supra), also dismissed special leave petition against the judgment of Hon'ble Delhi High Court in Lakahnpal Premchad Ltd's case............."
Again in a subsequent part of the decision the Tribunal has observed thus:-
"To up a question to ourselves, what are the options open to us in this situation and on the facts of this case. On the one hand, the words employed in Hon'ble Supreme Court's judgment in Liberty India's case (supra) leave little doubt about the fact that, in the esteemed views of Hon'ble Supreme Court, the duty drawback receipts do not have first degree nexus with the profits of the industrial undertaking, but then there is no warrant for the assumption that this approach must remain valid in all factual situations. Of course, it is tempting to proceed on the basis that lack of first degree nexus is a legal principle, but then an issue likes that of degree of nexus between nature of receipts vis-a-vis the industrial undertaking cannot be decided in vacuum; it has to depend on the facts, and business situations can never be so static or uniform that lack of nexus in one factual matrix must essentially imply lack of that nexus in all factual matrixes. On the other hand, on the peculiar facts of this case, duty drawback receipts, at least at the first-sight, appear to be integral part of the business receipts, but for which even running of industrial undertaking does not make sense, and, therefore, it cannot be viewed as ancillary or incidental profits or industrial undertaking or a standalone and independent source of income. ................"
On this reasoning, the Tribunal held that adjudication by it "is certainly not the end of the road but when the matter travels to higher forum it would certainly appropriate that all the relevant facts are before Their Lordships". On this ground, the Tribunal remitted the matter to the file of the CIT (A) for adjudication de novo in the light of its observations.
We find merit in the contention of the Revenue that what the Tribunal has done constitutes a dereliction of its bounden obligation to follow the binding precedent of the Supreme Court. Article 141 of the Constitution provides that law declared by the Supreme Court shall be binding on all Courts within the territory of India. In our view, the judgment of the Tribunal amounts to a clear infraction of judicial discipline. The Tribunal has observed, for instance, that in a situation in which an important part of the revenues is generated as a result of the exports "it may not really be correct to say that duty drawback receipt is an incidental, unintended, ancillary or independent benefit, which can be seen as a standalone or independent source of income". This observation is clearly in defiance of the law laid down by the Supreme Court. The Tribunal, in remitting the matter to the CIT (A) despite the binding judgment of the Supreme Court in Liberty India (supra), has acted patently contrary to law.
Sri R.P. Agarwal, learned counsel appearing for the assessee, however, submitted that as the ITAT has merely remanded the matter to the CIT (A) for recording a finding, the appeals are not maintainable.
We are unable to accept this contention. Though it is correct that the ITAT remitted the matter to the file of the CIT(A) for giving a finding on a factual aspect but at the same time comments have been made by the ITAT on substantial issues which, as noted above, stand concluded by the decision of the Supreme Court in Liberty India (supra).
For these reasons, we answer the substantial questions of law in the negative and in favour of the Revenue.
The Income Tax Appeals are, accordingly, disposed of. There shall be no order as to costs.
Date:17.01.2014 SK (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.)