Income Tax Appellate Tribunal - Delhi
Asstt. Cit, Circle, Panipat vs Liberty India on 28 June, 2005
Equivalent citations: [2005]4SOT93(DELHI)
ORDER
The revenue has filed this appeal against the order of the CIT(A) passed in Appeal No. IT/122/PPT/CIT(A)/KNL/2003-04 dated 4-10-2004 on the following effective ground :
"On facts and in the circumstances of the case, the learned CIT(A) has erred in law in directing the assessing officer to allow deduction under section 80-IB on duty drawback, ignoring the judgements of the Hon'ble Madras High Court in the case of CIT v. Viswanathan & Co. 261 ITR 737 and CIT v. Jameel Leathers & Uppers, 246 ITR 97 and also the decision of the Hon'ble Delhi High Court in the case of CIT v. Ritesh Industries Ltd. 192 ITR 81 wherein similar issue was decided in favour of the revenue."
2. The relevant and material facts for the disposal of this ground of appeal are that the assessee claimed deduction under section 80-IB in respect of duty drawback amounting to Rs. 1,74,316. The same was disallowed by the assessing officer as according to him this duty drawback was not a profit and gain derived by the assessee from industrial undertaking while placing reliance in the case of CIT v. Sterling Foods (1999) 237 ITR 579 (SC).
3. On appeal, the CIT(A) allowed the claim of deduction of the assessee under section 80-IB in respect of duty drawback amounting to Rs. 1,74,316 by holding that the duty drawback received by the assessee was inextricably linked with the production cost of the goods manufactured by the assessee and so the duty drawback amounting to Rs. 1,74,316 was a trading receipt of the industrial undertaking having direct nexus with the activity of such industrial undertaking and, therefore, it forms part of the income derived from such industrial undertaking. The CIT(Appeals) coming to the above conclusion has placed reliance on the decision of the Delhi Bench of the Tribunal in the case of Dy. CIT v. Metro Tyres Ltd. (2001) 79 ITD 557 wherein the Tribunal held as under:
"There must be direct nexus between the income and the industrial undertaking meaning thereby, the source of income must be the industrial undertaking, if the source of the income is other than the industrial undertaking than it cannot be said that such income is derived from the industrial undertaking.
With regard to the issue of duty drawback, it has been observed as under :
"persual of section 75(1) of Customs Act, 1962 clearly shows that the duty drawback is given by way of incentive to boost the export of goods manufactured in India. If any imported goods on which custom duty has been levied, has been used in the manufacture of any goods of any class or description and such manufactured goods have been exported out of India, then custom duty paid on imported goods is given back to the manufacturer by way of rebate. This duty drawback is given only to manufacturers making export as is apparent from sub-section (2) of section 75. In other words, it is nothing but reimbursement of duty already paid. Whenever such duty is paid, it directly affects the profits of industrial undertaking inasmuch as it is debited to manufacture and profit and loss account. Such payment of custom duty increases the cost of manufacturing but when the same is received back as drawback, it nullifies the effect of aforesaid increase in the cost of manufacturing. Therefore, the duty drawback is inextricably linked with the production cost of the goods manufactured by the assessec. Accordingly, duty drawback is the trading receipt of the industrial undertaking having direct nexus with the activity of such industrial undertaking and, accordingly, the same forms part of the income derived from such industrial undertaking. The order of the CIT(A) was, therefore, upheld with reference to this item.'"
Before me, the learned Departmental Representative for the revenue, submitted that in this case, the CIT(A) was not justified in allowing the deduction claimed by the assessee under section 80-IB with regard to duty drawback amounting to Rs. 1,74,316. In support of his contention, he placed reliance on the recent decision of jurisdictional High Court of Delhi in the case of CIT v. Ritesh Industries Ltd. (2005) 274 ITR 324, wherein their Lordships applying the decision of Apex Court in the case of CIT v. Sterling Foods (1999) 237 ITR 579 and referring to CIT v. Jameel Leathers & Uppers (2000) 246 ITR 971 (Mad); CIT v. Viswanathan & Co. (2003) 261 ITR 737 (Mad) held as under:
"There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. On the raw materials utilized as inputs the assessee pays duty and on the total component of costs the assessee adds his profit component to arrive at the sale price. It is this profit which is included in the expression 'profits and gains derived from an industrial undertaking'. Merely because under the scheme to encourage exports the duty is refunded subsequently by way of 'duty drawback', it cannot be regarded as the profit or gain 'derived' from & industrial undertaking. It may constitute profits or gains of the business by virtue of section 28 of the Income Tax Act, 1961, but, it cannot be construed as profits or gains 'derived' from the industrial undertaking for, its immediate and proximate source is not the industrial undertaking but the scheme for duty draw-back. Hence, the amount of duty draw back cannot be regarded as income derived from an industrial undertaking so as to entitle the assessee to a deduction under section 80-I".
5. On the other hand, the learned authorised representative for the assessee, contended that as the words "derived from any business of an industrial undertaking" in section 80-IB assume importance for the sake of the issue involved in this appeal because earlier in section 80-I the words used were "derived from an industrial undertaking" so this duty draw back is directly linked with the income of the assessee from business of the industrial undertaking and, hence, the assessee was entitled to deduction in respect of this duty draw-back. He further contended that the decision of the jurisdictional High Court was not under section 80-IB and was only under section 80-I so, it does not apply to the issue involved in the instant case of the assessee because in the instant case, this Tribunal is required to adjudicate whether or not the assessee is entitled to deduction with regard to duty draw-back under section 80-IB. In support of his contention, he placed reliance on the decision of Chandigarh Bench of the Tribunal in the case of ITO v. Kiran Enterprises (2005) 92 TTJ (Chd) 104.
6. I have considered the rival submissions of both the parties, perused the records and carefully gone through the orders of the tax authorities below as well as the case law relied upon by both the parties. At the outset, may mention that the decision of the Chandigarh Bench of the Tribunal in the case of Kiran Enterprises (supra) does not apply to the issue involved in the instant case of the assessee because in that case, the Tribunal was required to adjudicate whether the assessee was entitled to claim deduction with regard to the grant of subsidy under section 80-IA of the Act whereas in the instant case of the assessee, I am required to adjudicate whether the assessee is entitled to claim deduction with regard to the amount of duty drawback under section 80-IB of the Act. I may further mention here that in order to resolve the issue under consideration before me, the words derived from used in section 80-I or 80-IB are significant. Their Lordships of jurisdictional High Court of Delhi in the case of Ritesh Industries Ltd. (supra) while clearly giving the meaning of the words "derived from" used in section 80-I has come to the conclusion that the amount of duty drawback cannot be regarded as income derived from an industrial undertaking so as to entitle the assessee to a deduction under section 80-I of the Act. The issue involved in the instant case of the assessee under consideration before me is also identical because in this case also the assessee has claimed deduction for the amount of duty drawback under section 80-IB of the Act claiming the same to be an income derived from a business of industrial undertaking under section 80-IB of the Act. Ratio of the decision of the Hon'ble Delhi High Court in the case of Ritesh Industries Ltd. (supra) fully applies to the facts and the issue involved in the instant case of the assessee and so, respectfully following the decision (supra), which is binding upon this Tribunal, being a decision of jurisdictional High Court, it is held that a sum of Rs. 1,74,316 received by the assessee on account of duty drawback cannot be considered as income derived from the business of an industrial undertaking so as to entitle the assessee to a deduction under section 80-IB and, hence, the order of the CIT(A) in allowing the impugned deduction is set aside. Ground of appeal taken by the revenue is allowed.
7. In the result, the appeal filed by the revenue is allowed.