TMI Blog1991 (2) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 143(3) by the Income-tax Officer and the records relating thereto, the Commissioner found that the said order was erroneous insofar as it was prejudicial to the interests of Revenue for the following reasons : The assessee had claimed reliet under section 80HH of Rs. 16,586 and the same was fully allowed in the assessment. It was seen that sales of waste material of Rs. 25,766, export incentive of Rs. 1,82,290, duty drawback of Rs. 1,19,779 and import licence premium of Rs. 5,398 aggregating to Rs. 3,33,233 were credited to the profit and loss account of the gloves industrial unit for the year ended on 31-3-1982. The above incomes credited to the profit and loss account did not arise out of the industrial activity of the assessee firm a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and so the sale of the waste arose out of the assessee's industrial activity just like the sale of finished product. So the sale proceeds of waste materials should be taken into account for arriving at the profits of the industrial undertaking for calculating the relief under section 80HH. In order to enable the assessee to compete in the foreign market and to compensate the assessee in the possible loss in the export sales, the Government of India gave it cash compensatory support on the FOB value of exports. This also arose out of the assessee's industrial activity. The price paid by the assessee for the purchase of cotton fabrics and rib cloth and packing material included excise duty. Since these raw materials were converted into glove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not arise at all. He also observed that the judgment of the Madras High Court in the case of Wheel Rim Co. of India Ltd. was rendered in connection 2(5)(a) of the Finance Act, 1966 and not section 80HH of the Income-tax Act, 1961 and the High Court had no occasion to go into the meaning of the expression "derived from" used in section 80HH. Relying on the decision of the Karnataka High Court in the case of Sterling Foods v. CIT [1984] 150 ITR 292, he held that export incentive or cash compensatory support was received by the assessee as a result of a scheme framed by the Government of India to encourage exports, and the same was not directly derived from the industrial undertaking of the assessee itself and so such income will not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 982-83. The arguments of the assessee's counsel were to the following effect : The assessee is a small scale industrial unit manufacturing hand gloves. The sale proceeds of waste materials, export incentive, duty drawback and import licence premium were treated as income of the assessee and accordingly offered for assessment and relief under section 80HH was claimed on the profit derived from the said industrial undertaking. The ITO has allowed the same accordingly. Import licence premium, export incentive and duty drawback are chargeable to income-tax under the head 'Profits and gains of business' as per section 28(iiia), (iiib) and (iiic) respectively as per the amendments incorporated by the Finance Act, 1990 with retrospective effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1980] 121 ITR 951 (Bom.) and CIT v. Cochin Refineries Ltd. [1982] 135 ITR 278 (Ker.). Reliance is also placed on the decision of the Tribunal in the case of Madura Coats Ltd. 7. The arguments of the Departmental Representative were to the following effect. As laid down by the Karnataka High Court in the case of Sterling Foods, the industrial undertaking itself must be the direct source of profit for entitlement to relief under section 80HH. Profit derived from sale of import entitlement cannot be included in the total income for computing the relief under section 80HH. This decision applies with equal force in respect of sale proceeds of waste material, export incentive and duty drawback also. Same view is taken by the Kerala High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be included in the profits of the business for computing the deduction under section 80HHC. When similar words were used in section 80HH also, we fail to see the reason why the said CBDT's Circular cannot be applied here in the assessee's case for purposes of section 80HH also. It is true that the High Courts of Karnataka, Kerala and Bombay have taken a different view in the matter. However, we are bound by the decision of the Hon'ble Madras High Court, namely, the jurisdictional High Court. Hence, respectfully following the said decision in the case of Wheel Rim Co. of India Ltd. and applying the said Circular of the CBDT, we hold that the Commissioner is not justified in holding that the assessee is not entitled to deduction under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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