2008 (5) TMI 199 - HC - Income Tax

Assessees, who are supporting manufacturers, are receiving export incentives as duty draw back and claimed deduction of this amount, under section 80HHC - assessees are deriving income from manufacturing and sale of textile goods as supporting manufacturers. In the returns of income, the assessees are claiming deduction under section 80HHC, claiming themselves at par with the direct exporter claim of assessee is accepted

Summary

Issues:
1. Whether a supporting manufacturer can claim deduction under section 80HHC of the Income-tax Act at par with a direct exporter.
2. Natural justice principles in Tribunal orders.
3. Eligibility of duty draw back and Duty Entitlement Pass Book Scheme under section 28(iiie) and section 28(iiid) respectively.
4. Interpretation of the term 'derived' as per legal precedents.
5. Denial of duty draw back claim by the executive.
6. Whether duty draw back is derived from an industrial undertaking.

Issue 1 - Deduction under section 80HHC:
The judgment dealt with the issue of whether supporting manufacturers could claim a deduction under section 80HHC of the Income-tax Act at par with direct exporters. The assessees, as supporting manufacturers, claimed this deduction based on previous tribunal rulings. The Assessing Officer initially rejected this claim, but the Commissioner of Income-tax (Appeals) accepted it. The Tribunal also upheld the assessees' claim, leading to the Revenue filing appeals. The court referenced the Kerala High Court judgment, affirmed by the Supreme Court, allowing supporting manufacturers to claim the deduction at par with direct exporters. Consequently, the Revenue's appeals were dismissed.

Issue 2 - Natural Justice in Tribunal Orders:
The assessees challenged the Tribunal's ex parte order, questioning its compliance with natural justice principles. They argued for the duty draw back and Duty Entitlement Pass Book Scheme's eligibility under specific sections of the Income-tax Act. Additionally, they raised questions regarding the interpretation of the term 'derived' and the denial of the duty draw back claim by the executive. The court considered these arguments and ultimately allowed the assessees' appeals, setting aside the orders of the Assessing Officer, Commissioner of Income-tax (Appeals), and the Tribunal.

Issue 3 - Eligibility of Duty Draw Back and Duty Entitlement Pass Book Scheme:
The judgment addressed the eligibility of duty draw back and the Duty Entitlement Pass Book Scheme under sections 28(iiie) and 28(iiid) respectively. The assessees sought clarification on whether these amounts could be claimed as per the relevant sections of the Income-tax Act. The court analyzed these claims and ultimately set aside the previous orders, allowing the assessees' appeals.

Issue 4 - Interpretation of the Term 'Derived':
The court considered the interpretation of the term 'derived' in relation to the duty draw back claim. The assessees argued for a broader interpretation based on legal precedents. They questioned the executive's denial of the claim, citing relevant judgments. The court examined these arguments and, in light of the Supreme Court's decision affirming the Kerala High Court judgment, ruled in favor of the assessees.

Issue 5 - Denial of Duty Draw Back Claim:
The judgment discussed the denial of the duty draw back claim by the executive and its relevance to the business. The assessees challenged this denial, highlighting the direct nexus of the duty draw back to their business activities. The court considered these arguments and, based on legal precedents, allowed the assessees' appeals, setting aside the previous orders.

Issue 6 - Duty Draw Back from Industrial Undertaking:
The court examined whether the duty draw back received by the assessees was derived from an industrial undertaking. The assessees argued for the claim's validity based on the true sense and spirit of the term 'derived.' The court analyzed this aspect and, considering the settled controversy and Supreme Court rulings, allowed the assessees' appeals, setting aside the earlier orders.