THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5 vs. PRIME WATCH COMPANY

TAXAP/201/2008HC GujaratGJHC24024660200830 November 2013Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.P.DHOLARIA4 pages
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What were the facts?

The Assistant Commissioner of Income Tax (Revenue) filed these appeals against the Income Tax Appellate Tribunal's (ITAT) common judgment and order dated August 8, 2007. The appeals pertain to Assessment Years 1998-99, 1999-2000, and 2002-03, concerning the assessee, Prime Watch Company. The ITAT had ruled that profits earned from the sale of DEPB (Duty Exemption Passbook) licenses were not to be included in the income derived from an industrial undertaking. The Revenue is challenging this decision.

What did the High Court hold?

The High Court allowed the appeals, quashing and setting aside the impugned common judgment and order passed by the ITAT. The Court applied the law laid down by the Hon'ble Supreme Court in the case of Liberty India vs. Commissioner of Income-tax [2009] 317 ITR 218 (SC). The Supreme Court had held that DEPB/Duty drawback receipts are incentives and do not form part of the net profits of eligible industrial undertakings for the purpose of deduction under Section 80-I/80-IA/80-IB of the Income Tax Act. These incentive profits are considered ancillary and do not fall within the expression 'profits derived from industrial undertaking'. Therefore, the ITAT's conclusion that profits from DEPB license sales were profits from export business of an industrial undertaking was found to be unsustainable.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in concluding that the profit earned from the sales of DEPB License is a profit earned from the export business of an industrial undertaking? Assessee's Contention: The ITAT, relying on the Gujarat High Court's decision in CIT vs. India Gelatine and Chemicals Ltd. (2005) 275 ITR 284 (Guj.), held that the profit earned by the assessee from DEPB licenses could not be included in the income derived from the industrial undertaking. Revenue's Contention: The Revenue argued that the Supreme Court's subsequent decision in Liberty India vs. Commissioner of Income-tax [2009] 317 ITR 218 (SC) overruled the Gujarat High Court's view in India Gelatine and Chemicals Ltd. The Supreme Court held that incentive profits like DEPB/Duty drawback are not profits derived from eligible business under Section 80-IB but are ancillary profits, and thus cannot be credited against the cost of manufacture or included within the expression 'profits derived from industrial undertaking' for the purpose of deduction under Section 80-I/80-IA/80-IB.

Which sections of the Income-tax Act were involved?

Section 80-IB,Section 80-I,Section 80-IA

AI-generated summary — verify with the full judgment below

O/TAXAP/200/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 200 of 2008 TO TAX APPEAL NO. 202 of 2008

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA

====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5....Appellant(s) Versus PRIME WATCH COMPANY....Opponent(s) ====================================== Appearance: MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA

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