2014 (7) TMI 520 - HC - Income Tax

Eligibility for deduction u/s 80HHC of the Act Premium purchased to be treated as cash assistance u/s 28(iiib) of the Act Held that - The judgment delivered by ITAT does not indicate that the Fifth proviso inserted by Taxation Law (Amendment) Act, 2005, with retrospective effect from April 1, 1992 was noticed by it the Tribunal relied upon its earlier decision in the case of P. NAVINKUMAR & CO. Versus INCOME TAX OFFICER 1998 (8) TMI 103 - ITAT AHMEDABAD-A - the matter deserves to be remitted to ITAT for its fresh consideration for the opinion in the light of the Fifth proviso referred to above, as also the amendment made under the Fifth Act 2005 - The matter is accordingly remitted to the ITAT for its fresh consideration - Decided in favour of Assessee. Business of cutting and polishing of rough diamonds - Whether the Tribunal was right in holding that for the purpose of working out deduction u/s. 80HHC, clause (a) of section 80HHC becomes applicable instead of clause (b) as the assessee was engaged in the business of cutting and polishing of rough diamonds which are imported from abroad and then selling out cut and polished diamonds in trading of polished diamonds and the percentage of trading of polished diamonds is more than 50% of the total export sales Held that - The decision in Gem Granites v. Commissioner of Income-Tax 2004 (11) TMI 13 - SUPREME Court followed - in view of the aforesaid 1984 Circular, cut and polished diamonds shall qualify for deduction under sec. 80HHC of the Income-tax Act - polished and processed granite did not fall within the meaning of word minerals in 80HHC(2)(b) as it stood before 1991- Decided against Revenue.

Summary

Issues:
1. Interpretation of the treatment of premium on licenses against export eligibility for deduction under sec. 80HHC.
2. Determination of applicable clause under sec. 80HHC for deduction in the case of a business engaged in cutting and polishing rough diamonds.

Analysis:

Issue 1:
The High Court considered the substantial question of law related to the treatment of a premium on licenses purchased by the assessee against export eligibility for deduction under sec. 80HHC. The Court noted that the Tribunal did not consider the Fifth proviso inserted by the Taxation Law (Amendment) Act, 2005, with retrospective effect from April 1, 1992. The appellant-revenue argued that the Tribunal heavily relied on a previous decision without considering the Fifth proviso. The Court observed that the matter deserved fresh consideration by the Tribunal in light of the Fifth proviso and the 2005 Amendment. Consequently, the Court remitted the matter back to the ITAT for a reevaluation of this issue.

Issue 2:
Regarding the determination of the applicable clause under sec. 80HHC for deduction in the case of a business engaged in cutting and polishing rough diamonds, the Court referred to a decision by the Hon'ble Supreme Court in Gem Granites v. Commissioner of Income-Tax. The Court highlighted a 1984 Circular indicating that cut and polished diamonds qualify for deduction under sec. 80HHC of the Income-tax Act. Based on this, the Court answered the second question against the appellant-revenue and in favor of the assessee. The Court disposed of the reference by remitting the matter back to the ITAT for a fresh consideration of the first question and directed completion within six months.

This comprehensive analysis of the judgment addresses the issues involved and the detailed legal reasoning provided by the High Court in Gujarat.