2005 (12) TMI 74 - HC - Income Tax

Deduction under section 80-I on the amount of duty drawback - Assessing Officer denied the deduction on the said amount of duty drawback on the ground that the same did not constitute income of the assessee derived from industrial undertaking. - Tribunal was not correct in law in allowing any deduction under section 80-I to the assessee on the amount of duty drawback

Summary

Issues:
Appeal under section 260A of the Income-tax Act, 1961 against the Tribunal's order allowing deduction under section 80-I on duty drawback amount.

Analysis:
The case involved an appeal against the Tribunal's decision allowing the assessee company's claim for deduction under section 80-I of the Income-tax Act on the duty drawback amount of Rs. 46,66,113. The Assessing Officer had denied the deduction, stating that the duty drawback did not constitute income derived from an industrial undertaking. The Commissioner of Income-tax (Appeals) upheld this view. The central question before the High Court was whether the Tribunal was correct in allowing the deduction on the duty drawback amount.

The appellant argued that the duty drawback should not be considered income derived from an industrial undertaking for the purpose of section 80-I. Reference was made to a previous Division Bench decision which held that duty drawback could not be regarded as such income. The court analyzed the previous decision and emphasized that duty drawback, while constituting business profit, does not directly stem from the industrial undertaking itself but rather from the duty drawback scheme designed to promote exports.

In contrast, a Gujarat High Court decision took a different stance, considering duty drawback as reducing the cost of production and integral to the price of goods, thus constituting income derived from the industrial undertaking. However, the High Court of Delhi followed its previous decision and the reasoning of the Madras High Court and the Supreme Court, which highlighted the necessity of a direct nexus between profits and gains and the industrial undertaking. The court concluded that duty drawback, being a benefit under an export promotion scheme, does not qualify as income derived from the industrial undertaking under section 80-I.

Therefore, the High Court ruled against the assessee, setting aside the Tribunal's decision to allow the deduction under section 80-I on the duty drawback amount. The court held that the duty drawback did not qualify as income derived from the industrial undertaking as required by the provision.