2009 (11) TMI 576 - HC - Income Tax

Industrial undertaking special deduction Duty drawback - profits derived by way of such incentives do not fall within the expression profits derived from industrial undertaking in section 80-IB as held in Liberty India v. CIT (2009 -TMI - 34471 - SUPREME COURT) Appeal dismissed

Summary

Issues:
- Appeal against the order of the Income-tax Appellate Tribunal regarding deduction under section 80-IB in respect of duty drawback for the assessment year 2004-05.

Analysis:
The appeal was filed by the assessee against the Income-tax Appellate Tribunal's order rejecting the deduction under section 80-IB in respect of duty drawback for the assessment year 2004-05. The assessee claimed the deduction in relation to duty drawback amounting to Rs. 2,85,88,324 for a small scale unit. The Assessing Officer denied the deduction, stating that duty drawback is not a profit derived from industrial activity. The Commissioner of Income-tax (Appeals) favored the assessee's claim, relying on a decision of the Gujarat High Court. However, the Income-tax Appellate Tribunal reversed the Commissioner's order based on a decision of the High Court in another case. The matter was brought before the High Court to decide the correctness of the Tribunal's decision.

The High Court referred to previous judgments to analyze the issue. In a case related to duty drawback for deduction under section 80-I, the court emphasized the term "derived from" and its significance in determining eligibility for deductions. The court highlighted that profits eligible for deduction under section 80HH must be directly derived from the industrial undertaking itself, not from any other source. The court also cited a Supreme Court decision affirming that the interest derived by an industrial undertaking from external sources does not qualify for special deductions under section 80HH. Additionally, the court discussed the concept of duty drawback under the Customs Act and Central Excise Act, emphasizing that such incentives do not fall within the scope of "profits derived from industrial undertaking" under section 80-IB.

Given the precedents and the Supreme Court's decision in a similar case, the High Court concluded that the question of law raised in the appeal had already been settled against the assessee. Therefore, the appeal was dismissed, affirming the Tribunal's decision to reject the deduction under section 80-IB in relation to duty drawback for the assessment year 2004-05.