TMI Blog2005 (7) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... r opinion to this court: "1. Whether the Tribunal was justified in law in holding that incentives received by the assessee are part of the export turnover and therefore entitled to relief under section 80HHC despite the foreign exchange realizations being nil?" Briefly stated the facts giving rise to the present reference are as follows: The present reference relates to the assessment year 1988-89 the previous year relevant to the assessment year in question is the calendar year. The Income-tax Officer in the course of the assessment proceedings rejected the claim for deduction made by the assessee under section 80HHC primarily on the ground that the same had been claimed on the amounts received as duty drawback, cash incentive and transfer of import licence there being no export during the year under consideration and there being complete absence of any foreign exchange earning. The Income-tax Officer also noted the absence of a separate set of accounts books pertaining to such receipts and the other business income of the assessee. Being aggrieved with the rejection of the claim the assessee came up in appeal before the Commissioner of Income-tax (Appeals) and raised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under appeal. It is an admitted fact that in the year under appeal there was no export but it is equally correct that these incentives have been received by the appellant only in respect of exports of the earlier year which are liable to be subjected to tax on receipt basis. The Income-tax Officer has subjected these receipts to tax on the same basis but has denied deduction under section 80HHC which in my opinion is not correct. Secondly, the observation of the Income-tax Officer that the appellant should have maintained two separate sets of accounts in the year to be entitled to deduction under section 80HHC is equally irrelevant so long as the income from incentives is question has been separately credited in the books of account maintained. The other condition regarding the certificate of a chartered accountant as required under section 80HHC is also found to be obtained by the appellant. In view of the same, the Income-tax Officer is directed to allow deduction under section 80HHC as claimed by the appellant." Being aggrieved, the Revenue came up in appeal before the Tribunal which after considering the submissions of both the parties confirmed the view taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the profit and 1055 account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange. (b) This section does not apply to the following goods or merchandise, namely: (i) mineral oil ; and (ii) minerals and ores. (3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be, (a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head 'Profits and gains of business or profession'; (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount received from sale of import entitlement could not be said to be profit derived from the assessee's industrial undertaking. The apex court has held as follows: "The word 'derive' is usually followed by the word 'from' and it means: 'get, to trace from a source; arise from, originate in, show the origin or formation of'. The source of import entitlements could not be said to be the industrial undertaking of the assessee. The source of the import entitlements could only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements became 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 was not direct but only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. Thereunder, the assessee was entitled to import entitlements, which it could sell. The sale consideration therefrom could not be held to constitute a profit and gain derived from the assessee's industrial undertaking. The receipts from the sale of import entit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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