JUDGMENT
M.M. Kumar, J.
1. The revenue has preferred I.T.A. Nos. 495 and 496 of 2006 against the common order dated 28-9-2005, passed by the Income Tax Appellate Tribunal, Delhi Bench, ‘SMC, New Delhi (‘the Tribunal’), in respect of assessment year 2001-02 in the case of Lakhvinder Singh (IT. Appeal No. 5169 (Delhi) of 2004), and in respect of assessment year 2001- 02 in the case of G.S. Exports (IT Appeal No. 5175 (Delhi) of 2004). It is claimed that the following substantial question of law under Section 260A of the Income Tax Act, 1961 Income Tax Act would arise for determination of this Court:
Whether on the facts and in the circumstances of the case, the ITAT was right in law in sustaining the order of the Commissioner (Appeals) directing the assessing officer to allow deduction under Section 80-IB on the amount of duty drawback received by the assessee which cannot be termed as income “derived from” an industrial undertaking ?
Facts in brief may first be noticed from I.T.A. No. 495 of 2006.
2. The assessee-respondent is a proprietary concern and filed its return declaring total income of Rs. 75,000 on 29-10-2001. The assessing officer completed the assessment under Section 143(3) of the Act on a total income of Rs. 2,97,670, vide order dated 16-1-2004 (A-1). The assessee has claimed deduction under Section 80-IB, amounting to Rs. 4,12,930, on the total business profit which included an amount of Rs. 13,80,673 on account of duty drawback. However, the assessing officer applying the judgment of Hon’ble the Supreme Court in the case of CIT v. Sterling Foods Ltd. , declined to exclude from the total business profit the amount so claimed while working out the allowable deductions under Section 80-IB of the Act.
3. Feeling aggrieved, the assessee-respondent challenged the order dated 16-1 -2004 (A-1) before the Commissioner (Appeals), who differed with the assessing officer and held that the duty drawback received by the assessee-respondent was inextricably linked with the production cost of the goods manufactured by the assessee-respondent. Accordingly, it was held that the duty draw-back was trading receipt of the industrial undertaking. The Commissioner (Appeals) directed the assessing officer to allow deduction under Section 80-IB on the amount of duty drawback of Rs. 13,60,673.
4. On further appeal filed before the Tribunal, the decision taken by the Commissioner (Appeals) was confirmed and the appeal of the revenue was dismissed, vide its order dated 28-9-2005. The view of the Tribunal is based on the view taken by Delhi Bench of the Tribunal in the case of Asstt. CIT v. Vipin Sardana (2005) 148 Taxman 41 (Mag.). The aforementioned view of the Tribunal is discernible from paras 6 and 7 which reads as under:
6. I have carefully considered the matter. I am respectfully bound by the orders of the Delhi Benches of the Tribunal in identical cases cited above where the controversy has been resolved in favour of the assessee after noticing the judgment of the Gujarat and Delhi High Courts. In the case of Vipin Sardana (supra), the Division Bench of the Delhi Tribunal has noted that there is no judgment of the jurisdictional High Court, which is the Punjab & Haryana High Court in the present cases, available on the issue and, therefore, the decision which is in favour of the assessee should be followed as held by the Supreme Court in CIT v. Vegetable Products Ltd. 88 ITR 192. The Division Bench has also noted the earlier order of the SMC Bench, Delhi in the case of Anand International, which has also been cited before me. Copies of all these orders have been filed. In these circumstances and having regard to the rule of consistency and judicial discipline, I decide the issue against the department and in favour of the assessee, respectfully following the orders of the Delhi Bench of the Tribunal.
7. I may also observe in passing that it seems to me that there is a difference between the phraseology of Section 80-1, which was considered by the Hon’ble Delhi High Court and that of Section 80-IB which is the subject-matter of controversy in the present cases and which has risen before the Delhi Benches of the Tribunal in the above cited cases. Whereas Section 80-1 referes to “profits and gains” derived from an “industrial undertaking”, Section 80-IB referes to “profits and gains derived from any business referred to in Sub-sections (3) to (11), (11 A) & (11B) (such business being hereinafter referred to as the eligible business)Sub-section (3) refers to industrial undertakings located in different areas classified as backward.
5. Mr. Yogesh Putney, learned Counsel for the revenue has argued that in the case of Sterling Foods Ltd. (supra), Hon’ble the Supreme Court dealing with a case relating to assessment year 2001-02 has held that income of an assessee from the duty drawback cannot be held to be an income derived from specified business for the purpose of allowing deduction under Section 80-IB and, therefore, the Tribunal has committed a grave error in law by refusing to follow the judgment of Hon’ble the Supreme Court in the Sterling Foods Ltd.’s case (supra). He has then referred that the aforementioned judgment has been followed by two Division Benches of this Court in the cases of Nahar Exports Ltd. v. CIT (2007) 288ITR 4941 and Liberty India v. CIT (2007) 158 Taxman 462 (Punj. & Har.). He has maintained that once the jurisdictional High Court, which is Punjab and Haryana High Court in the present case, has taken a particular view then no other view could possibly be taken in view of the law laid down by Hon’ble the Supreme Court in the case of CIT v. Vegetable Products Ltd. . Another argument raised by Mr. Putney that according to the provisions of Section 28(iiic) of the Act, it has been expressly provided that any duty of Custom or Excise to be paid or re-payable as a drawback to any person against exports under the Customs and Central Excise Duty Drawback Rules, 1971 is chargeable to Income-tax under the head ‘Profit and gains of business/profession’.
6. Mr. S.K. Mukhi, learned Counsel for the respondent-assessee, on the other hand, has vehemently argued that the consistent view taken by various Courts is that any duty of Custom and Excise re-paid as drawback to an assessee against export under the Custom and Central Excise Duty Drawback Rules, 1971, if inextricably linked with the industrial undertaking then deductions under Section 80-IB are allowable. In that regard, learned Counsel has placed reliance on a Division Bench judgment of this Court in the case of Phatela Cotgin Industries (P.) Ltd. v. CIT (IT Appeal No. 432 (Punj. & Har.) of 2005, dated 31-5-2007) which pertains to deductions claimed under Sections 80HH and 80-1 of the Act. The assessee had claimed that interest received on delayed payments on account of sale to the customers of the manufactured goods could clearly be termed as income derived from industrial undertaking which is distinct from the income on account of interest that has been received from fixed deposit. Learned Counsel has urged that the expression ‘derived’ used by Section 80-IB cannot be subjected to a narrow construction and the court must refer a construction which is favourable to the assessee.
7. In some connected appeals, Mr, Pankaj Jain, learned Counsel for the assessee-respondent has also made submissions by arguing that the export leading to the claim of duty drawback is so closely linked to industrial undertaking that it has to be regarded as ‘income derived from industrial undertaking’. In support of his submission, Mr. Jain has placed reliance on a chart which reads as under:
Imported
raw material received in India after paying the custom duty
Indigenous
material
Will
use for consumption in India
Will
transfer to manufacturing
Will
transfer to manufacturing
Will
transfer to manufacturing
No
duty drawback
No
duty drawback
Manufacturing,
processing or any operation for domestic consumption
Excise
payable on manufacturing
Manufacturing processing or any
operation for export
No
duty drawback on goods consumed in India
Conditions
for drawback.
Value
of exported goods should be higher than imported goods used in the exported
goods.
Sale
proceeds should reach India of such exported goods, etc.
Section-75
of Customs Act
Drawback
should be allowed of duties of customs used in the manufacture or processing
of such goods or carry out any operation on such goods.
Customs
and Central Excise Duty Drawback Rules, 1995
2(a)
“Drawback” in relation to any goods manufactured in India, and
exported, means the rebate of duty chargeable on any imported materials or
excisable materials used in the manufacture of such goods;
(b)
Excisable materials means any material produced or manufactured under this
Act, in India subject to duty of excise under Central Excise Act, 1944.
Exports
made claiming duty drawback
8. Mr. Jain has insisted that the dictionary meaning of the word ‘derived’ would also support his submission. In that regard, he has referred to “Law Lexicon 2nd Edition Reprint 2000” and “Webster’s New 20th Century-2nd Edition.”
9. Controverting the submission made by the revenue that Section 28(iiic) provides for charging Income-tax on any duty of Custom and for Excise-paid or re-payable as drawback against export, learned Counsel has submitted that it was confined to only that duty of Custom/Excise which was re-paid or re-payable under the Customs and Central Excise Duty Drawback Rules, 1971. According to learned Counsel, those rules stand repealed and are replaced by the rules known as Customs and Central Excise Duty Drawback Rules, 1995 which have come into force on 26-5-1995. He has urged that the provisions of Section 28(iiic) would not be attracted as the assessee could not have availed any re-payment of Custom Duty or Excise in pursuance to 1971 Rules. Learned Counsel has then placed reliance on a judgment of Hon’ble the Supreme Court in the case of CIT v. Baby Marine Exports (2007) 160 Taxman 160.
10. We have thoughtfully considered the submissions made by learned Counsel for the parties and do not feel persuaded to accept the submissions made by the counsel for the assessee-respondent because Hon’ble the Supreme Court in Sterling Foods Ltd. s case (supra) has held in favour of the revenue. After referring to Section 80HH, Their Lordships had observed as under;
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 entitlements 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.
11. The aforementioned view has been followed by a Division Bench of this Court in the cases of Nahar Exports Ltd. (supra) and Liberty Shoes Ltd. v. CIT (2007) 158 Taxman 340 and Liberty India (supra). Even the Delhi High Court has taken a similar view in the case of CIT v. Ritesh Industries Ltd. . Therefore, we do not see any reason to deviate from the view consistently taken by this Court in the aforementioned judgments which are primarily based on the judgment of Hon’ble the Supreme Court in Sterling Foods Ltd. ‘s case (supra) and the question raised by the revenue deserves to be answered in its favour.
12. The arguments raised by learned Counsel for the assessee do not require detail examination in view of the settled position. Therefore, we express our inability to accept the same.
13. For the reasons aforementioned, these appeals are allowed. The order dated 28-9-2005 passed by the Tribunal is set aside and that of the assessing officer (A-1) is restored. However, there shall be no order as to costs.