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Issues:
Interpretation of section 2(5)(i) of the Finance Act, 1963 regarding entitlement to export profits rebate. Application of rule 2(3) of the Income-tax (Determination of Export Profits) Rules, 1963 for computing export profits. Validity of the Income-tax Officer's rejection of the assessee's claim for rebate. Applicability of the Appellate Assistant Commissioner's direction to determine export profits. Confirmation of the Tribunal's decision in favor of the assessee. Analysis: The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, involving the entitlement of the assessee to an export profits rebate as per section 2(5)(i) of the Finance Act, 1963, read with rule 2(3) of the Income-tax (Determination of Export Profits) Rules, 1963. The dispute arose when the Income-tax Officer rejected the assessee's rebate claim, citing adverse trading conditions and other factors affecting profits. The Appellate Assistant Commissioner disagreed, highlighting the lucrative export incentives received by the assessee and directing the Income-tax Officer to compute export profits as per rule 2(3) for determining the rebate. The Tribunal upheld this decision, leading to the reference to the High Court. The High Court analyzed section 2(5)(i) of the Finance Act, 1963, which allows a deduction for profits and gains derived from exports, subject to computation rules. Rule 2 of the Income-tax (Determination of Export Profits) Rules, 1963 provides the method for computing qualifying income, emphasizing the importance of adhering to the specified rules. The Court emphasized that the Income-tax Officer erred in not following the prescribed computation method under rule 2(3) and rejecting the claim based on irrelevant observations from the directors' report. The Court held that such observations were immaterial to the computation of export profits for the purpose of claiming the deduction under section 2(5)(i) of the Finance Act, 1963. The Court concluded that the Income-tax Officer was obligated to compute the profits and gains from exports strictly in accordance with the rules laid down in rule 2(3) of the Income-tax (Determination of Export Profits) Rules, 1963. Therefore, the direction given by the Appellate Assistant Commissioner to determine export profits in line with the rules was deemed appropriate. The Tribunal's decision in favor of the assessee was upheld, confirming the entitlement to the export profit rebate as provided in the Finance Act, 1963. Consequently, the Court answered the referred question affirmatively and in favor of the assessee, with no order as to costs.
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