ORDER
K.G. Bansal, Accountant Member
1. The appeal of the revenue and 1 the cross-objection of the assessee arise out of the order of the Commissioner (Appeals), Karnal, passed on 30-7-2004. The corresponding order of assessment was passed by the Assistant Commissioner of Income-tax, Karnal Circle, Karnal (hereinafter called the assessing officer), under the provisions of Section 143(3) of the Income Tax Act, 1961, on 20-2-2004. The appeal and the cross objection were argued in a consolidated manner by the learned departmental Representative and learned counsel of the assessee. Therefore, a consolidated order is passed.
I. T. A. No. 4345/(Delhi)/2004Appeal of the revenue.
2. The only substantive ground taken in this appeal is that the learned Commissioner (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 Commissioner (Appeals). By virtue of these amendments, profit on transfer of DEPB Scheme became entitled to deduction under Section 80HHC from the assessment year 1998-99 onwards. Thus, deduction on the aforesaid profit was admissible in the proceedings of the assessment year 2001-02 at hand. The learned departmental Representative agreed that the assessee was entitled to deduction on the aforesaid profits also but stated that the matter may be restored to the file of the assessing officer for computation of the deduction in accordance with the amended provisions. Learned counsel had no objection to the aforesaid proposition of the learned departmental Representative. Therefore, the matter is restored to the file of the assessing officer with a direction to grant further deduction under Section 80HHC on the aforesaid profits in accordance with law.
3. In result, the appeal of the revenue is treated as dismissed. CO. No. 181(Del)/2006objection of the assessee.
4. The only objection taken by the assessee is that the learned Commissioner (Appeals) erred in upholding the decision of the assessing officer regarding exclusion of DEPB receipts from the business income and, thus, denying deduction under Section 80-IB. Thus, he erred in reducing the claim of the assessee under Section 80-IB.
5. In the assessment order, it is mentioned that the assessee is engaged in the business of making rice from paddy and it also purchases rice from the open market. The rice obtained from paddy and purchased from the market is thereafter sold. The assessee claimed deduction under Section 80-IA (it should be read as 80-IB) amounting to Rs. 9,81,199. The deduction was claimed on the whole of the profit of the undertaking. However, since purchase and sale of rice did not amount to the profits of any industrial undertaking, the assessing officer attributed 50 per cent. of the profit to the manufacturing activity. Coming to the issue of grant of deduction under Section 80-IB, it was stated that in so far as profit from DEPB Scheme is concerned, there is no direct nexus between the profit and the industrial undertaking. The aforesaid profit has its source in the Export Promotion Scheme of the Central Government, under which the assessee becomes entitled to the benefit of DEPB Scheme. Therefore, such profit cannot be said to be the profit derived from the industrial undertaking. Thus, deduction under Section 80-IB was denied in respect of profit 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 (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 (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 us.
8. Before us, learned counsel relied on the decision of the Honble Income- 8 tax Appellate Tribunal, “SMC” Bench, New Delhi in the case of Lakhvinder Singh and M/s. G. S. Exports in I. T. A. Nos. 5169(Del)/2004 and 5175(Del)/2004 for the assessment year 2001-02 dated September 28, 2005, a copy of which was filed before us. The Honble Tribunal pointed out that the cases on which the revenue relied were decided under Section 80-I or 80HH, which used the words “profits and gains derived from an industrial undertaking”. However, Section 80-IB uses the words “profits and gains derived from any business”. In view of the subtle difference in the words used in Sections 80HH and 80-I on one hand, and Section 80-IB on the other hand, the scope of deduction under the latter section is wider than the former section. Therefore, it was held that the duty draw back was entitled to deduction under Section 80-IB.
9. She further relied on the decision of the Honble Income-tax Appellate 9 Tribunal, Delhi Bench “C”, New Delhi in the case of M/s. Eltec SGS (P) Ltd. in I. T. A. Nos. 3669 and 3646Pel)/2003, for the assessment year 2001-02 dated June 2006. From the copy of the order filed before us, it does not appear that the same has been signed by the Honble Members, who delivered the judgment. However, in the interest of justice, the arguments advanced in that order will be considered in coming to the decision in this case. In that order, it was pointed out that the words “income derived from the business of industrial undertaking” are wider in ambit than the words “income derived from the industrial undertaking”. It was further pointed out that duty draw back is nothing but reimbursement of excise duty and customs duty debited in the books of account and paid by the assessee. Therefore, it was also pointed out that receipt of excise duty by way of reimbursement of the excise duty paid earlier is a trading receipt. Such a trading receipt will form part of profits of the business of the industrial undertaking, eligible for deduction under Section 80-IB of the Act.
10. She also filed a copy of Indian Exim Policy in which it was, inter alia, 10 mentioned that the DEPB Scheme allows draw back of import charges on inputs used in the export product. On that basis, it was pointed out that the claim of DEPB is similar to the claim of duty draw back and, therefore, the decision 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 11 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 Honble Madras High Court in the case of CIT v. Jameel Leathers and Uppers , a case decided under Section 80HH of the Act. The Honble court pointed out that the words “derived from” has a narrower meaning than the words “attributable to”. Referring to the decision of another Bench of the Honble Madras High Court in the case of CIT v. Pandian Chemicals Ltd. , the Honble court at page 104 mentioned that the interpretation of the words “derived from” used in Section 80HH of the Act had been that there must be a direct nexus between profit or gain and the business (emphasis supplied), and the fact that the business is the means of securing the receipt is by itself insufficient. In view thereof, the appeal was decided in favour of the revenue. At this juncture, we may reproduce the paragraph, which has been paraphrased earlier. It reads :
Another Bench of this Court more recently in the case of CIT v. Pandian Chemicals Ltd. elaborately considered the decisions of this and other High Courts as also the Supreme Court bearing on the interpretation of the words ‘derived from’ used in Section 80HH of the Act, and held that there must be a direct nexus between the profit or gains and the business, and the fact that the business is the means for securing the receipts was by itself insufficient.
13. We are at pains to reproduce this paragraph with a view to demonstrate that the interpretation under Section 80HH was also on the issue whether there was a direct nexus between the profits and gains of the business of the industrial undertaking and the income. In other words, while interpreting Section 80HH, the courts read the words “derived from the industrial undertaking” to mean “derived from the business of the industrial undertaking” for the grant of the deduction, and held that there was no direct nexus between the business and amounts received as cash assistance, duty draw back and import licence nomination entitlement from the Government of India. Therefore, it is clear that there is some conflict between the aforesaid decision of the Honble Madras High Court and the decision of the Honble Tribunal in the case of M/s. Eltec SGS (P) Ltd. We may also point out that the issue before us is one regarding profit on transfer of entitlement under DEPB Scheme, which is not equivalent to the reimbursement of the duty already paid. The decision in the case of the aforesaid Eltec was based on the premise that earlier certain amounts were debited as excise 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 Honble Supreme Court in the case of CIT v. Sterling Foods , in which it was held that the assessee was not entitled to deduction under Section 80HHC on profit from sale of import entitlement. He also relied on the decision of the Honble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT , in which it was held that the assessee is not entitled to deduction under Section 80HH on interest received on deposit made with the Electricity Board for supply of electricity. The Honble court concurred with the decision of the Honble Madras High Court in the case of Pandian Chemicals Ltd. , which was also referred to by the Honble Madras High Court in the case of Jameel Leathers and Uppers . We have already extracted the decision of the Honble Madras High Court in the case of Pandian Chemicals Ltd. and pointed out that the decision held that there was no nexus between profits and gains of the business of industrial undertaking and cash assistance, duty draw back and import licence nomination entitlement. Thus, it follows that by concurring with the aforesaid decision, the Honble Supreme Court also held that there was no nexus between the interest on deposit with the Electricity Board and the business of the industrial undertaking. The learned departmental Representative also relied on the decision of the Honble Madras High Court in the case of CIT v. Viswamthan and Co. (2003) 261 ITR 737, in which it was pointed out that there was no good reason to doubt or depart from the law that was laid down in the case of Jameel Leathers and Uppers .
15. He also relied on the decision of the Honble Delhi High Court in the case of CIT v. Ritesh Industries Ltd. , in which it was held that deduction under Section 80-I was not available in respect of duty draw back, as the same could not be said to have been derived from the industrial undertaking. The findings of the Honble Tribunal, reproduced at page 326, was that while the cash assistance, duty draw back and import entitlement are undoubtedly attributable to the business carried on by the assessee and the assessee would not have been in a position to receive any of these benefits had the assessee not been carrying on the business, it cannot be said, however, that such income is derived from the business. Thus, it will be seen that the Division Bench of the Tribunal 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 Honble Gujarat High Court in the case of CIT v. India Gelatine and Chemicals Ltd. , 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 Lakh-vinder 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.
18. In the rejoinder, learned counsel pointed out that the assessee is located at Karnal, which falls under the territorial jurisdiction of the Punjab and Haryana High Court, which has not rendered any decision in the matter till date. It was further pointed out that there was no difference between the DEPB Scheme and the Duty Draw Back Scheme. Since there was a difference of opinion of two courts in respect of Duty Draw Back Scheme, the one favourable to the assessee should be followed. The decision of the Division Bench of the Honble Tribunal, Delhi in the case of Eltec SGS (P) Ltd. was also in favour of the assessee. Therefore, it was agitated that the matter may be decided in favour of the assessee.
19. We have considered the facts of the case and rival submissions. In 19 regard to Duty Draw Back Scheme, the Division Bench of the Honble Income Tax Appellate Tribunal, Delhi pointed out that the receipt was in lieu of expenses earlier incurred by payment of excise and customs duty. Therefore, the receipt was in the course of the business of the industrial undertaking. Accordingly, it was entitled to exemption under Section 80-IB. The Honble Tribunal also pointed out that the scope of Section 80-IB was some what wider than the scope of Section 80HH or Section 80-I Nonetheless, the decision was rendered in connection with the duty draw back received by the assessee in lieu of payment of duties earlier. Such is not the case before us. The assessee exported rice and as a matter of incentive got entitlement to import some goods. The assessee was entitled to import goods on its own or sell the entitlement to a third party for import of goods. The assessee chose to sell the entitlement, leading to profit under the scheme. We have pointed out earlier that the Honble Madras High Court decided the cases of Pandian Chemicals Ltd. and Jameel Leathers and Uppers under Section 80HH by pointing out that there was no direct nexus between cash assistance, duty draw back and import licence nomination entitlement with the profits and gains of the business of the undertaking. In other words, the Honble court interpreted Section 80HH liberally by importing the concept of profit and gains of the business of the undertaking by reading these words into the aforesaid section. In so far as duty draw back is concerned, there is a difference of opinion between the Honble Madras High Court and the Honble 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 , the Honble 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. rendered by the Honble Madras High Court was approved by the Honble Supreme Court in 262 ITR 278.
20. The result of the aforesaid discussion is that the assessee is not entitled to deduction under Section 80-IB on profit from DEPB Scheme. Thus, the cross-objection is dismissed.
21. In the result, the appeal of the revenue is treated as dismissed and the cross-objection of the assessee is also dismissed.
