2008 (8) TMI 340 - HC - Income Tax

Industrial Undertakings exemption u/s 80IB sale / transfer of DEPB licence ITAT hold that the income derived by the assessee from the sale of DEPB licences was not the profit and gains from the industrial undertaking held that - the question, as framed, is required to be, and is, answered in favour of the assessee, and against the Revenue, in the manner, that the Tribunal was not justified in holding that the income derived by the assessee from the sale of DEPB licences was not profit and gain from industrial undertaking which was held to be eligible to claim deduction under section 80-IB of the Income-tax Act, 1961, otherwise - is held entitled to deduction under section 80-IB, for both the years

Summary

Issues:
Challenging Tribunal's judgment on deduction under section 80-IB for income from sale of DEPB licences.

Detailed Analysis:
1. Background: Two appeals filed by the assessee challenging Tribunal's judgment for assessment years 2003-04 and 04-05.

2. Substantial Question of Law: The main issue revolves around whether the income from the sale of DEPB licences can be considered as profits and gains derived from the industrial undertaking eligible for claiming deduction under section 80-IB of the Income-tax Act, 1961.

3. Assessing Officer's Observation: The Assessing Officer noticed that the assessee claimed deduction under section 80-IB for income from the sale of DEPB licences. A show-cause notice was issued based on the judgment in CIT v. Sterling Foods [1999] 237 ITR 579, questioning the eligibility of this income for deduction.

4. Contention of the Assessee: The assessee argued that the income from the sale of DEPB licences should be considered as profit derived from the industrial undertaking as per section 28(iiid) introduced with retrospective effect from April 1, 1998. The assessee claimed entitlement to 100% deduction under section 80-IB.

5. Judicial Decisions: The Commissioner (Appeals) and the Tribunal upheld the disallowance based on the judgment in Sterling Foods' case [1999] 237 ITR 579. The Tribunal also referred to the judgment in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278, emphasizing that income for exemption should be derived from the undertaking.

6. Legal Amendments: The introduction of clause (iiid) in section 28 with retrospective effect clarified that profit on the transfer of DEPB licences falls within the profits and gains derived from the industrial undertaking, making it eligible for exemption under section 80-IB.

7. Precedents: The appellant cited the judgment in B. Desraj v. CIT [2008] 301 ITR 439 and CIT v. Sharda Gum and Chemicals [2007] 288 ITR 116, supporting the assessee's entitlement to deduction under similar amendments in other sections.

8. Court's Decision: Considering the legal amendments and precedents, the court ruled in favor of the assessee, allowing the appeal, setting aside the impugned orders, and holding the appellant entitled to deduction under section 80-IB for both years. Each party was directed to bear its own costs.