2006 (7) TMI 253 - AT - Income Tax

Summary

Issues:
Claim of deduction under s. 80-IB of the IT Act on income by way of duty drawback.

Analysis:
The appeal by the Revenue concerns the claim of deduction under s. 80-IB of the IT Act on income from duty drawback earned by the assessee. The dispute arose when the AO restricted the claim, leading to an appeal before the ITAT. The CIT(A) allowed the claim, stating that duty drawback income can be considered as derived from the industrial undertaking, relying on past tribunal decisions. The Revenue challenged this decision, citing a judgment from the Hon'ble Delhi High Court. The Departmental Representative argued that duty drawback income was not directly linked to the industrial undertaking and was merely an incentive for exporters under a government scheme. The respondent assessee, however, supported the CIT(A) order, referencing various decisions, including those from the Tribunal and High Courts.

The crux of the matter lies in interpreting the phrase "derived from" in s. 80-IB of the Act. The ITAT referred to the interpretation of a similar phrase in s. 80HH by the apex Court, emphasizing a direct nexus between the eligible business and the profits for deduction. The question before the ITAT was whether the duty drawback income was derived from the assessee's eligible business. The High Court's analysis in a related case highlighted the purpose of duty drawback schemes to reduce production costs, making it an integral part of industrial production costs. This reasoning led to the conclusion that duty drawback income should be considered as derived from the industrial undertaking, aligning with the provisions of s. 80-IB. Thus, the ITAT affirmed the CIT(A) decision, dismissing the Revenue's appeal.

In acknowledging the contrary views presented by the Departmental Representative, the ITAT noted the absence of jurisdictional or apex Court decisions on the matter. Choosing to favor the assessee, the ITAT followed the reasoning of the High Court of Gujarat, emphasizing the linkage between duty drawback income and industrial production costs. The ITAT also highlighted the inconclusive nature of the apex Court's decision in a related case, which did not contradict the High Court's reasoning. Consequently, the ITAT concluded that the assessee was eligible for relief under s. 80-IB in relation to income derived from duty drawback, ultimately dismissing the Revenue's appeal.