2006 (11) TMI 163 - HC - Income Tax

Deduction u/s 80-IB - duty drawback received - income 'derived from' an industrial undertaking - HELD THAT - Learned counsel for the Revenue relies upon the judgment of this court, in Liberty India v. CIT 2006 (9) TMI 79 - HIGH COURT, PUNJAB AND HARYANA , wherein, the question raised was examined and it was held that the amount of duty drawback received by the assessee could not be treated as income derived from an industrial undertaking. We find merit in the contentions raised. For the reasons recorded in Liberty India's case, the question raised is answered in favour of the Revenue and against the assessee. Accordingly, the appeal is allowed and the order of the Tribunal is set aside.

Summary

Issues:
1. Appeal by Revenue against ITAT order regarding deduction under section 80-IB on duty drawback.
2. Whether duty drawback can be considered income derived from an industrial undertaking.
3. Lack of appearance by the assessee.
4. Interpretation of section 80-IB and relevant case laws.
5. Decision based on previous judgment in Liberty India case.
6. Criticism of Tribunal's handling of the issue and failure to consider relevant judgments.

Analysis:
1. The appeal was filed by the Revenue against the ITAT order concerning the allowance of deduction under section 80-IB on duty drawback for the assessment year 2001-02. The substantial question of law raised was whether duty drawback received by the assessee could be considered income derived from an industrial undertaking, as per various court judgments cited in the case.

2. Despite being served, no one appeared for the assessee during the proceedings, leading to a one-sided representation during the hearing. This lack of appearance by the assessee could have impacted the case's outcome.

3. The court heard the learned counsel for the Revenue, who relied on the judgment in Liberty India v. CIT, where it was held that duty drawback received by the assessee cannot be treated as income derived from an industrial undertaking. The court referred to relevant sections and previous court decisions to support this interpretation.

4. The court emphasized the interpretation of section 80-IB and cited the Supreme Court's observations in Sterling Foods' case, highlighting the need for a direct nexus between profits and the industrial undertaking for income to be considered derived from the specified business. The court concluded that income from duty drawback does not meet this criterion.

5. Based on the reasoning and decision in the Liberty India case, the court found merit in the Revenue's contentions. It ruled in favor of the Revenue, setting aside the ITAT order. The court's decision was guided by the principles established in the previous judgment regarding the treatment of duty drawback as income derived from an industrial undertaking.

6. The court criticized the Tribunal's handling of the issue, noting its failure to consider relevant judgments cited by the Departmental Representative. The Tribunal's decision to ignore previous orders and follow its own earlier rulings without proper justification was deemed inappropriate. The court stressed the importance of adhering to judicial discipline and considering established legal principles to avoid unnecessary litigation.

In conclusion, the High Court allowed the Revenue's appeal, emphasizing the inapplicability of duty drawback as income derived from an industrial undertaking based on legal interpretations and previous judgments. The court also highlighted the importance of judicial propriety and adherence to legal principles by the Tribunal to ensure fair and informed decision-making in tax matters.