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TMI Blog2004 (4) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ). The Commis- sioner of Income-tax on perusal of the record opined that the orders of the ITO for the years under consideration were erroneous and prejudicial to the interests of Revenue. According to the CIT, the relief under section 80J was allowed in respect of Unit No. II where the receipts on account of cash assistance and duty drawback aggregate more than the amount of profit earned by the said unit. The CIT was of the view that these receipts could not be termed as profits derived from the industrial undertaking. The CIT accordingly issued show-cause notices to the assessee for both the years under consideration on the ground that unit No. II in respect of which the ITO had allowed relief under section 80J reflected a figure of loss after the exclusion of the amounts received on account of Cash Compensatory Support (CCS) and duty drawback. According to the CIT, the said relief under section 80J was accordingly not allowable and proposed to be withdrawn by taking action under section 263. In response to the show-cause notices for both the years the assessee raised objections on the question of jurisdiction of the CIT as also on the merits of the case. It also furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, 1961, uses the expression 'derived from'. The word derived is usually followed by the word from , and it means: get or trace from a source; arise from, originate in; show the origin or formation of. The expression derived from is narrower than the expression attributable to . Had it been the intention of the Parliament that all business income qualified for the benefit under sections 80J and 80HH of the Act, the statutory language would have been different. The fact that an expression which had the narrower meaning has been used, warrants the inference that the Legislature intended to limit the extent of profit and gain that should be properly considered as being relevant for the purpose of those provisions. While cash assistance, duty drawback and import entitlements are undoubtedly attributable to business carried on by the assessee and the assessee would not have been in a position to receive any of these benefits had the assessee not been carrying on business it cannot be said that such income is derived from business so as to qualify for deduction under sections 80J and 80HH of the Act. (p. 97) 7. In Sterling Foods' case (supra ) the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit. Reference was also made to the meaning of the word source and it was held that the import entitlements that the assessee had earned were awarded by the Central Government under the Scheme to encourage exports. The source referable to the profits and gains arising out of the sale proceeds of the import entitlement was, therefore, the scheme of the Central Government and not the industrial undertaking of the assessee. Cash Compensatory Support 8. In the instant case, the Tribunal had relied on the decision of this Court in Ahmedabad Manufacturing Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616 (Guj.) and particularly on the finding given in the said decision that the cash subsidy is directly concerned with the export of the goods and eligible for rebate under section 2(5) of the Finance Act, 1964. This Court laid down the following principle in the Calico case:- The words 'derived from exports' cannot be interpreted as meaning referable to exports . Profits and gains can be said to have been derived from an activity carried on by a person only if the activity is the immediate or effective source of the profits or gains. There must be a direct nexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the export of the finished goods out of India and that benefit is given by statutory provisions embodied in the Customs Act and the Excise Act. Hence, duty drawback is derived from the industrial undertaking and, therefore, to be included in the profits and gains of the industrial undertaking for the purposes of section 80J. Mr. Shah has, of course, submitted that though there is no direct High Court judgment taking the above view regarding duty drawback, but there are two decisions of the Income-tax Appellate Tribunal - one of the Delhi Bench of the Tribunal in Dy. CIT v. Metro Tyres Ltd. [2001] 79 ITD 557 and another of the Hyderabad Bench in A.P. Industrial Components Ltd. v. Dy. CIT [2002] 124 Taxman 76 (Mag.). 11. On the other hand, Mr. Tanvish U. Bhatt, learned Standing Counsel for the revenue has submitted that duty drawback is as much an incentive as cash assistance in the nature of CCS being given by the Government for the development of foreign market or Indian products and commodities. The learned counsel has referred to the decisions of the ITAT, Delhi in Indo Asian Switchgears (P.) Ltd. v. IAC [1985] 12 ITD 65 (SB) and in Reliance International Corpn. Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, duty drawback has to be treated as derived from the industrial undertaking. 13. Mr. Bhatt for the revenue would, of course, argue that the assessee could have carried on its business even without the duty drawback and, therefore, the duty drawback is merely attributable to the industrial undertaking but not derived from the industrial undertaking and, therefore, it has to be treated similarly as cash compensatory support or import entitlements because the latter incentives are also given to industries exporting their goods and such incentives are also given on the basis of the value of the goods exported. Mr. Bhatt has further submitted that derived from means originates from and the source of duty drawback is export of goods and not manufacturing activity of the industrial undertaking. 14. In this regard, we would like to refer to the distinction that the Courts have made in the context of the question whether the subsidy granted by the Government is to be taken into account for determining the actual cost of assets under section 43(1) of the Act for the purpose of depreciation and development rebate. In CIT v. Grace Paper Industries (P.) Ltd. [1990] 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis that the Court held that the subsidy was not given to meet cost of the fixed assets and it was merely granted as an incentive to establish industry in a backward area for balanced growth of industries. Since the subsidy was not granted to meet the fixed assets or a portion thereof, it did not take the colour of the part of the cost of the fixed assets, it was not to meet the cost of the fixed assets but was given as an incentive, the cost being only a measure to quantify it. This Court, therefore, recognised that if the subsidy was given to meet the cost of the fixed assets or a portion thereof, different considerations would prevail and it would be taken into account for reducing the actual cost of acquisition of the assets. The above view came to be approved by the Apex Court in CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 8301 . 15. We are of the view that the same distinction would apply while considering the various incentives being given to an industrial undertaking. If the incentives are like cash compensatory support and import entitlement, they are in the nature of general incentives though for determining the quantum of such incentives, the Government may take into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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