2010 (10) TMI 638 - HC - Income Tax

Addition - export incentive - duty draw back rate - The Tribunal, after examining the scheme for export incentive, found that before quantification based on verification, no income could be held to have accrued to the assessee - There is nothing to dispute this factual aspect - In such a situation, the Tribunal rightly held that no income accrued till claim of the assessee was quantified and verified - Do not find it necessary to give direction to the Tribunal to refer the said question for opinion of this Court. Disallowance - Personal use of cars by the Directors of the company - learned counsel for the revenue fairly states that the amount involved is only Rs. 15,000 and in view of smallness of the amount involved, there is no justification for directing reference of the said question.

Summary

Issues:
1. Interpretation of the Income-tax Act, 1961 regarding the accrual of duty draw back income.
2. Disallowance of personal use of cars by directors of a company under section 38(2) of the Income-tax Act, 1961.

Analysis:

Issue 1: Interpretation of the Income-tax Act, 1961 regarding the accrual of duty draw back income:
The applicant filed an application under section 256(1) of the Income-tax Act, 1961 seeking a reference of questions of law to the High Court arising from the Income-tax Appellate Tribunal's order. The dispute revolved around whether duty draw back income accrued in the year of export or when the rate was fixed by the competent authority after verification of the claim. The assessee, engaged in manufacturing and exporting hosiery goods, argued that income accrual was dependent on verification and quantification. Both the CIT(A) and the Tribunal accepted the assessee's plea, emphasizing that income accrual happened upon verification and quantification, not at the time of export. The Tribunal's decision was based on the premise that the draw back income materialized only after the competent authority fixed the rate and verified the claim, not at the time of export. The High Court upheld the Tribunal's decision, stating that no income accrued until the claim was quantified and verified, thereby dismissing the application.

Issue 2: Disallowance of personal use of cars by directors of a company under section 38(2) of the Income-tax Act, 1961:
The second question raised in the application pertained to the disallowance of personal use of cars by directors of a company under section 38(2) of the Income-tax Act, 1961. The revenue's counsel acknowledged that the amount involved was minimal, only Rs. 15,000, and argued that due to the insignificance of the sum, there was no need to refer this question for opinion. Consequently, the High Court dismissed the application, citing the immateriality of the amount in question as a reason for not directing a reference on this issue.

In conclusion, the High Court's judgment clarified the accrual of duty draw back income under the Income-tax Act, 1961 and addressed the disallowance of personal use of cars by directors of a company, ultimately dismissing the application based on the findings and arguments presented during the proceedings.