2009 (1) TMI 93 - HC - Income Tax

Whether duty drawback is income derived from industrial undertaking - deduction u/s 80IB held that that the duty drawback is specifically granted to reduce the cost of manufacturing and hence, as customs duty and excise duty are admittedly an integral part of cost of production, any receipt by way of reimbursement of such duty is inexplicably linked with the cost of production - therefore, duty draw back was directly derived from the industrial undertaking and eligible for deduction

Summary

Issues:
Interpretation of duty drawback as 'income derived' from industrial undertaking for deduction u/s.80IB of the Income Tax Act.

Analysis:
The primary issue in this case revolves around whether duty drawback can be considered as 'income derived' from an industrial undertaking for the purpose of calculating deductions under Section 80IB of the Income Tax Act, 1961. The Appellant, represented by learned senior counsel, argued against this interpretation, citing a Supreme Court decision in CIT v. Sterling Foods, 237 ITR 579. The Appellant contended that duty drawback should not be treated as income derived from industrial activities. Furthermore, reference was made to conflicting views by other High Courts, such as the High Court of Delhi and High Court of Punjab and Haryana, as opposed to the stance taken by the Gujarat High Court in the case of CIT v. India Gelatine and Chemicals Ltd., 275 ITR 284. It was emphasized that the present case pertained to relief under Section 80IB, unlike the previous case under Section 80J, thereby raising a substantial question of law.

The Gujarat High Court, in its judgment in the case of CIT v. India Gelatine and Chemicals Ltd., analyzed the duty drawback scheme's objective and concluded that duty drawback is granted to reduce manufacturing costs, directly linked to the cost of production involving customs and excise duties. Consequently, the Court held that duty drawback is derived from industrial activities and qualifies for deduction. The Court rejected the Appellant's argument by stating that the nature of the duty drawback scheme remains consistent irrespective of the specific section under which the deduction is claimed. Therefore, the Court maintained that duty drawback should be considered 'income derived' from industrial undertakings for the purpose of calculating deductions under Section 80IB.

In conclusion, the Gujarat High Court dismissed the appeal, citing that the issue had been conclusively settled by its previous judgment. The Court upheld the position that duty drawback is indeed 'income derived' from industrial undertakings and is eligible for deduction under Section 80IB of the Income Tax Act.