COMMISSIONER OF INCOME TAX vs. M/S NICE OVERSEAS

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ITA/206/2009HC Punjab & HaryanaPHHC01084289200924 August 2009Bench: MR. JUSTICE ADARSH KUMAR GOEL,MRS JUSTICE DAYA CHAUDHARY3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal filed by the Revenue. The Court noted that it was not disputed that the matter was covered against the assessee by the judgment of the Hon'ble Supreme Court in CIT v. Sterling Food (supra) and by an order of the High Court itself dated September 9, 2008, in ITA No. 629 of 2007 (M/s Raj Oversease v. The Commissioner of Income Tax, Ludhiana). Consequently, the High Court set aside the order of the Tribunal and restored the order of the Assessing Officer. The ratio decidendi is that duty drawback, being an incentive, is not income 'derived from' the industrial undertaking for the purpose of claiming deduction under Section 80IB, as per the precedent set by the Supreme Court in Sterling Foods.

What were the facts?

The Revenue, Commissioner of Income Tax, Karnal, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT), New Delhi. The ITAT's order, dated July 25, 2006, pertained to ITA No. 821/DEL/2006 for the assessment year 2002-03. The dispute involved the assessee, M/s Nice Overseas, claiming deduction under Section 80IB of the Act on export incentives, specifically duty drawback received. The Assessing Officer (AO) disallowed this claim, a view initially affirmed by the CIT(A). However, the CIT(A) later allowed the assessee's claim, and the Tribunal upheld this decision. The Revenue's appeal to the High Court challenges the ITAT's confirmation of the CIT(A)'s order allowing the deduction.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of the CIT(A) directing the AO to allow deduction under Section 80IB on the amount of duty drawn back received by the assessee, which cannot be termed as income 'derived from' an industrial undertaking, as held by the Hon'ble Supreme Court of India in CIT v. Sterling Foods (1999) 237 ITR 579 (SC)? (Question of law) 2. Whether on the facts and circumstances of the case, the Ld. ITAT is right in law in allowing deduction under Section 80IB of the Income Tax Act, 1961, on the total business profits which includes duty drawn back/export incentives without considering the provisions of section 80IB under which the deduction is allowable only from the income derived from the industrial undertaking having direct nexus with the activity of industrial undertaking? (Question of mixed law and fact) Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The duty drawback received by the assessee cannot be considered income 'derived from' the industrial undertaking, citing the Supreme Court judgment in CIT v. Sterling Foods. The deduction under Section 80IB should only be from income directly derived from the industrial undertaking's activity, not from export incentives.

Which sections of the Income-tax Act were involved?

Section 80IB,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 206 of 2009 (O&M) Date of decision: 24.8.2009 Commissioner of Income Tax, Karnal ......Appellant Vs. M/s Nice Overseas, 41, Sector 25, HUDA, Panipat. ...Respondent CORAM:- HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MRS.JUSTICE DAYA CHAUDHARY PRESENT: Mr.Sukant Gupta, Standing Counsel for revenue. Mr.Pankaj Jain, Advocate, for assessee. **** ADARSH KUMAR GOEL, J. (Oral) 1. The revenue has preferred this appeal under section 260A of the Income Tax Act, 1961 ( for short, “the Act”) against the order of Income Tax Appellate Tribunal, New Delhi, Bench 'SMC' passed in ITA No. 821/DEL/2006 on 25.7.2006 for the assessment year 2002-03, proposing to raise following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of the CIT(A) directing the AO to allow deduction under Section 80IB on the amount of duty drawn back received by the

ITA No. 206 of 2009 [2] assessee which cannot be termed as income “derived from” an industrial undertaking as held by the Hon'ble Supreme Court of India in the case of CIT v. Sterling Foods (1999) 237 ITR 579 (SC)”? 2. Whether on the facts and circumstances of the case the Ld. ITAT is right in law in allowing deduction under Section 80IB of the Income Tax Act, 1961 on the total business profits which includes duty drawn back/export incentives without considering the provisions of section 80IB under which the deduction is allowable only from the income derived from the industrial undertaking having direct nexus with the activity of industrial undertaking?” 2. The assessee received export incentives and claimed deduction under Section 80IB of the Act. The claim of the assessee in respect thereof was disallowed following judgment of the Hon'ble Supreme Court in CIT v. Sterling Food, (1999) 237 ITR 579. The said view has been affirmed by the CIT(A) and allowed the claim of the assessee but the Tribunal restored the same, which view was affirmed by the Tribunal. 3. It is not disputed that the matter is covered against the assessee

ITA No. 206 of 2009 [3] by the judgment of the Hon'ble Supreme Court in Sterling Food, (supra) and order of this Court dated 9.9.2008 in ITA No. 629 of 2007 (M/s Raj Oversease v. The Commissioner of Income Tax, Ludhiana.) Accordingly, the appeal is allowed. The order of the Tribunal is set aside and that of Assessing Officer is restored. (ADARSH KUMAR GOEL) JUDGE (DAYA CHAUDHARY) August 24, 2009

JUDGE raghav Note: Whether this case is to be referred to the Reporter? ........Yes/No

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