TMI Blog2001 (8) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... ( vii ) Amount received against IPRS 6,29,369 2. The aforesaid amounts were included by the assessee in the profits of the industrial undertaking for claiming the deductionundersection80-I for assessment year 1992-93. However, the Assessing Officer was of the view that the words derived from used by the legislature in section 80-I has restricted meaning as compared to the expression attributable to . Reliance was placed by him on the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 . Applying this legal position he was of the view that the aforesaid amounts of income could not be said to be income derived from the industrial undertaking. Accordingly the claim of the assessee to that extent was disallowed. 3. The matter was carried before the CIT(Appeals), who has allowed the claim of the assessee after following the decisions of Madras High Court in the case of Shardlow India Ltd. v. CIT [1981] 128 ITR 571 1 and in the case of CIT v. India Piston Repco Ltd. [1987] 167 ITR 917 . Aggrieved by the same, the revenue is in appeal before the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursement of such expenses would have direct connection with industrial undertaking and accordingly such income cannot be excluded while computing the profits derived from industrial undertaking. Consequently, it was argued by him that sales-tax refund, duty drawback as well as claim for insurance and transport must be held to be income derived from industrial undertaking. Proceeding further he drew our attention to the various schemes i.e., cash subsidy scheme and International Price Reimbursement Scheme and argued that these are the trading receipts in view of the decision of the Supreme Court in the case of CIT v. Sahni Steel Press Work [1997] 226 ITR 253 having originated from the industrial activity of export of the goods manufactured by assessee. According to him, the profits do not accrue on mere manufacturing but accrue on sale thereof. Therefore, if on the basis of such sales any incentive is received then it must be held to have derived from industrial undertaking. Proceeding further, it was submitted that the difference in exchange was also directly related to the activity of the industrial undertaking. At this stage, a query was raised from the Bench as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the income from the sale of import entitlements could be said to have derived from the industrial undertaking. In this connection, following observations were made by their Lordships : We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlement can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words derived from , a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee s industrial undertaking. 7. In view of the above discussion, it is held that there must be direct nexus between the income and the industrial undertaking meaning thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creases the cost of manufacturing but when the same is received back as drawback, it nullifies the affect of aforesaid increase in the cost of manufacturing. Therefore, in our opinion, the duty drawback is inextricably linked with the production cost of the goods manufactured by assessee. Accordingly, it is held that 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 CIT(Appeals) is, therefore, upheld with reference to this item. 9. For the similar reasons we are of the view that assessee is entitled to succeed in respect of claims received from insurance company and transporters. The reasons is obvious. The payment of freight charges to the transporter as well as the premium to the insurance company is directly connected with the activity of the industrial undertaking affecting the profits of the business and consequently, refund thereof has a direct nexus with such business activity. The details furnished before us clearly shows that amount received from transporters was on account of shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les-tax payment to P L account simply does not arise. However, if sales-tax collected and paid are transferred to P L account it would not affect either the profit or loss of such undertaking. However, sometimes, the assessee may challenge the levy of sales-tax itself in writ petition before the High Court and subsequently, may get the refund. Such cases have been considered by the courts as cases of unjust enrichment in as much as taxes are paid after collecting the same from the customers. In such cases, the sale-tax refund may constitute business receipts in view of the decision of Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542, but the same, in our opinion, cannot be considered as profits derived from industrial undertaking because there is no direct link between the activity of such undertaking and receipt of sales-tax. Further, copy of profit and loss account appearing at page 20 of the paper book does not show that any amount of sales-tax was debited to P L account. It is also not the case of the learned counsel for the assessee that sales-tax paid on raw material is given back against the export/local sales of the goods manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy received and the activity of the industrial undertaking. The source of the subsidy is the scheme framed by the Government and not the industrial undertaking. Hence the decision of the Hon ble Supreme Court in the case of Sterling Foods (supra) would apply squarely to the present issue. It has been held in that case that receipts on sale of import entitlements had nexus with the scheme of Government and not the industrial undertaking and, therefore, deduction under section 80HH could not be allowed. Respectfully following the same, it is held that CCS cannot form part of profits derived from industrial undertaking. The order of CIT(Appeals) is, therefore, reversed on this aspect of the issue and order of Assessing Officer is restored. 14. Now coming to International Price Reimbursement Scheme (IPRs), we find that a scheme was formulated by the Central Government under which exporters of engineering goods were allowed reimbursement of part of the price paid in the domestic market in respect of certain kinds of iron steel so that such exporters could compete in the international market. Payment of purchase price in respect of raw material certainly affects the profits of an indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, the net addition of ₹ 1,82,29,686 was made. 17. The matter was carried before the CIT(Appeals) before whom it was contended that in the case of change in the method of valuation, the opening stock cannot be disturbed because the closing stock of the preceding year has to be taken as opening stock of next year as per the settled position of law. In this regard three judgments were relied on, namely, decision of Andhra Pradesh High Court in the case of CIT v. Mopeds India Ltd. [1988] 173 ITR 3471, the decision of Karnataka High Court in the case of CIT v. Corporation Bank Ltd. [1988] 174 ITR 6162 and the decision of the Bombay High Court in the case of Melmould Corporation v. CIT [1993] 202 ITR 7893. The CIT(Appeals) agreed with this contention of the assessee and further strengthened the same by referring to the decision of Hon ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 wherein it has been held that valuation of closing stock must be taken as opening stock in the succeeding year. Following this legal position, the CIT(Appeals) deleted the addition made by Assessing Officer. Aggrieved by the same, the revenue is in appeal before th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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