TMI Blog2006 (11) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is that the learned Commissioner of Income-tax (Appeals) erred in ordering that the Duty Entitlement Pass Book Scheme (hereinafter called DEPB) income is covered under section 28 of the Act and deduction under section 80HHC is available on such income. In the course of hearing before us, the attention of the learned Departmental Representative was drawn towards the amendment made by the Taxation Laws (Amendment) Act, 2005, retrospectively with effect from April 1, 1998, by which clause (iiid) was inserted in section 28 with a view to deem any profit on the transfer of DEPB, being Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992, as the profits and gains of business. By the same Amendment Act, provisions of section 80HHC of the Act were also modified by, inter-alia, inserting clause (iiid) in the clause (ba) of the Explanation below sub-section (4C). These amendments were made after the passing of the order by the Assessing Officer and the learned Com missioner of Income-tax (Appeals). By virtue of these amendments, profit on transfer of DEPB Scheme became entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from DEPB Scheme and the deduction was restricted to a sum of Rs. 3,01,228. 6 In the first appeal, it was argued before the learned Commissioner of Income-tax (Appeals) that the whole of the profit from manufacturing and trading activities ought to have been considered for the purpose of deduction under section 80-IB. It was also argued that profit from DEPB Scheme constituted profits and gains derived from the industrial undertaking. Therefore, it was claimed that the deduction as claimed in the return of income may be allowed. The learned Commissioner of Income-tax (Appeals) did not agree with the assessee on either of the two issues. It was held by him that the action of the Assessing Officer in attributing 50 per cent. of the profits to the manufacturing activity was reasonable on the facts and in the circumstances of the case. It was also held that profit earned on sale of DEPB entitlements cannot be said to be the income derived from the industrial undertaking of the assessee. He, however, made some changes in the computation of deduction and granted further relief amounting. to Rs. 94,708 to the assessee. 7 Aggrieved by this order, the assessee is in appeal before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of Eltec SGS (P) Ltd. (supra) was applicable to the facts of this case. Accordingly, it was urged that the assessee may be granted deduction in respect of profit from the DEPB Scheme. 11 As against the aforesaid, the learned Departmental Representative pointed out that Duty Draw Back Scheme leads to reimbursement of excise duty and customs duty, if paid, when the goods are exported. On the other hand, DEPB Scheme grants entitlements to the assessee to make import of materials used as input in the goods exported or meant to be exported. Such entitlements can be used by the assessee himself or sold in the market, leading to the profit. The assessee has sold the entitlement in the market, leading to the profit. It was argued that such profit cannot be termed to be profits and gains derived from the business of industrial undertaking, as it is one step removed from the business of the industrial undertaking in terms of nexus. 12 In the aforesaid connection, the learned Departmental Representative relied on the decision of the hon'ble Madras High Court in the case of CIT v. Jameel Leathers and Uppers [2000] 246 ITR 97, a case decided under section 80HH of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty and customs duty by the assessee and on refund of those amounts, equivalent credits were made in the books of account. Therefore, the profit constituted the profit derived from the business of the industrial undertaking. However, in our case, the assessee became entitled to import goods on export of certain goods, and such entitlement was sold in the market to earn profit. This profit is not in the nature of reimbursement of the duty already paid. The profit arises out of an independent transaction of sale of entitlement, although such entitlement was received on account of export of goods. Therefore, we are of the view that the transaction is one step removed from the business of the industrial undertaking. We may incidentally mention that while interpreting any fiscal statute, we do not have to refer to the features of the industrial undertaking but to its business. Therefore, the two terms "derived from industrial undertaking" and "derived from the business of the industrial undertaking" have the same meaning. 14 The learned Departmental Representative also relied on the decision of the hon'ble Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579, in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l had taken into account the fact that deduction under section 80-I was based on the factum of the income being derived from the business of the undertaking. 16 The learned Departmental Representative also relied on the decision of the hon'ble Gujarat High Court in the case of CIT v. India Gelatine and Chemicals Ltd. [2005] 275 ITR 284, in which it was held that cash assistance was not the income derived from the new industrial undertaking and, therefore, not entitled to deduction under section 80J. However, duty draw back is the income derived from the industrial undertaking, eligible under section 80J. 17 On the basis of the aforesaid decision, the learned Departmental Representative pointed out that while there was a difference of opinion in regard to duty draw back, but in respect of profit by way of DEPB Scheme, which is akin to profit on sale of licences, there was no difference of opinion. It was also pointed out that the decision in the case of Shri Lakhvinder Singh (supra) was not binding on the Division Bench, as that decision was rendered by SMC Bench. Therefore, it was argued that the assessee was not entitled to deduction on profit from the DEPB Scheme. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of opinion between the hon'ble Madras High Court and the hon'ble Gujarat High Court. However, no such conflict of opinion exists in respect of profit from DEPB Scheme between any two High Courts. It may also be mentioned that while deciding the case of English Electric Co. of India Ltd. v. CIT [1987] 168 ITR 513, the hon'ble Madras High Court came to the conclusion that interest from the bank was not the income derived from the business of priority industry. At page 515, it was pointed out that while interest received from suppliers of raw materials on deposit placed with them will constitute a direct nexus with the business of priority industry, no such nexus can be said to be exist between the business of the priority industry and the interest earned on fixed deposit. Therefore, we are of the view, that by adding the words "any business" in section 80-IB, no material difference in interpretation follows, vis-a-vis the interpretation given under section 80HH, especially when the decision in the case of Pandian Chemicals Ltd. [1998] 233 ITR 497 rendered by the hon'ble Madras High Court was approved by the hon'ble Supreme Court in 262 ITR 278. 20 The result of the aforesaid di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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