2015 (11) TMI 1071 - HC - Income Tax

Deduction u/s 80HHC(4C) - whether insurance claim was not in the nature of other receipts and 90% of such receipts could not be reduced from profit of business under clause (baa) of Explanation below section 80HHC(4C) of I.T. Act? - Held that - Question No. (i) is covered by the decision of this Court in Commissioner of Income Tax-I, Ludhiana v. Venus Fabrics, Ludhiana (2013 (7) TMI 927 - PUNJAB & HARYANA HIGH COURT) wherein it was held the words any other receipt of a similar nature included in such profits used in the explanation have to be read edjusdem generis to the preceding words, i.e., brokerage , commission , rent , charges . The words similar nature used before the words any other receipt refers to and alludes to the principle of edjusdem generis and in fact leaves no ambiguity as to legislative intent that only such receipts would fall within the meaning of sub-clause (1) of the explanation as would partake the nature of the words preceding the expression receipts of a similar nature . A claim for insurance arises on account of a special loss to an assessee and, therefore, does not require any degree of legal acumen or scholarship to infer that such receipt cannot be included within subclause (1) of the aforementioned explanation. - Decided against the revenue Deduction u/s 80HHC - Held that - The sales tax & CST were not includible in total turnover for computing deduction u/s 80HHC of I.T. Act, when the sales tax & CST were realized as a part of sale proceeds of the goods manufactured by the Respondent - This question is covered by the decisions of this Court in Commissioner of Income Tax v. Lakshmi Machine Works (2007 (4) TMI 202 - SUPREME Court) and Commissioner of Income Tax v. Vardhman Polytex Ltd. (2006 (5) TMI 82 - PUNJAB AND HARYANA High Court) wherein it was held that the amount of sales tax and excise duty for the purposes of computation of deduction under Section 80HHC of the Act are to be excluded from the total turnover. - Decided against the revenue Deduction u/s 80IB on duty drawn back - Held that - As revenue has relied upon the judgment of the Apex Court in Liberty India v. Commissioner of Income Tax (2009 (8) TMI 63 - SUPREME COURT) to urge that profit from DEPB and Duty Drawback Scheme are not profits derived from the eligible business under Section 80IB of the Act. It was prayed that question thus, to be answered in favour of the revenue. Learned counsel for the assessee was unable to controvert that the similar issue was adjudicated by the Apex Court in Liberty India s case (supra) in favour of the revenue. - Decided against the assessee.

Summary

Issues:
1. Interpretation of Section 80HHC of the Income Tax Act regarding the treatment of insurance claim as 'other receipts' and its impact on profits of business.
2. Inclusion of sales tax and CST in total turnover for computing deduction under Section 80HHC.
3. Allowance of deduction under Section 80IB on duty drawback as profit derived from industrial undertaking.

Analysis:

1. The appeal addressed the interpretation of Section 80HHC of the Income Tax Act concerning the treatment of an insurance claim as 'other receipts' affecting the profits of the business. The Tribunal had previously held that an insurance claim did not fall under 'other receipts' and could not be deducted from the profit of the business under clause (baa) of Explanation below Section 80HHC(4C) of the Act. The High Court, citing previous judgments, emphasized that an insurance claim, arising from a specific loss, did not align with the nature of receipts specified in the explanation. Referring to a previous case, the Court ruled against the revenue on this issue.

2. The issue of whether sales tax and CST should be included in the total turnover for computing deductions under Section 80HHC was also deliberated. Previous judgments were cited, stating that sales tax and excise duty should be excluded from the total turnover for deduction purposes under Section 80HHC. Consequently, the Court ruled against the revenue on this matter as well.

3. The question of allowing a deduction under Section 80IB on duty drawback as profit derived from an industrial undertaking was examined. The revenue relied on a Supreme Court judgment to argue that profits from schemes like DEPB and Duty Drawback were not eligible under Section 80IB. The Court agreed with the revenue on this issue, citing the Apex Court's decision in Liberty India's case. Consequently, the Court ruled in favor of the revenue and against the assessee on this particular question.

In conclusion, the High Court partially allowed the appeal, ruling against the revenue on the treatment of insurance claims and sales tax/CST for deduction purposes under Section 80HHC. However, the Court sided with the revenue on allowing a deduction under Section 80IB for duty drawback as profit derived from an industrial undertaking.