Commissioner of Income tax -III, vs. Srilekha Hire Purchase AND Finance Pvt. Limited

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

Date : 30/11/2013

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O/TAXAP/200/2008 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. As common question of law and facts arise in these group of appeals and as such arises out of the impugned common judgment and order passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘ITAT’) and with respect to the same assessee but different Assessment Years, all these appeals are heard, decided and disposed of by this common judgment and order. 2. All these Tax Appeals have been preferred by the revenue against the impugned common judgment and order passed by the ITAT dated 08/08/2007 in ITA Nos. 116, 177 and 118/Rjt/2007 with respect to the Assessment Years 1998-99, 1999-2000 and 2002-03 raising the following common substantial question of law; “Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in coming to the conclusion that the profit earned by sales of DEPB Licence is a profit earned from the export business of an industrial undertaking?” 3. Heard Shri Pranav Desai, learned Counsel appearing on behalf of the appellant and Shri S.N. Soparkar, learned Counsel appearing on behalf of the opponent-assessee. At the outset, it is required to be noted that while passing the impugned judgment and order ITAT has heavily relied upon the decision in the case of CIT Vs. India Gelatine and Chemicals Ltd. reported in (2005) 275 ITR 284 (Guj.) and held that profit earned by the assesse cannot be included in the income Page 2 of 4

O/TAXAP/200/2008 JUDGMENT derived from the industrial undertaking. It is reported that in view of the subsequent decision of the Hon’ble Supreme Court in the case of Liberty India Vs. Commissioner of Income- tax reported in [2009] 317 ITR 218 (SC) the view taken by this Court in the case of India Gelatine and Chemicals Ltd (Supra) is not a good law. It is required to be noted that as such in the case of Liberty India (Supra) the Hon’ble Supreme Court did consider the decision of this Court in the case of India Gelatine and Chemicals Ltd (Supra) and has observed and held as under; “DEPB/Duty drawback are incentives which flow from the schemes framed by the Central Government or from Section 75 of the Customs Act, 1962. Incentive profits are not profits derived from eligible business under Section 80-IB:they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression “profits derived from industrial undertaking” under Section 80-IB” 3.1. By observing so, the Hon’ble Supreme Court has held that Duty drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of the deduction under Section 80-I/80-IA/80-IB of the Income Tax Act. 4. In view of the above decision and the law laid down by Hon’ble the Supreme Court, the impugned judgment and order Page 3 of 4

O/TAXAP/200/2008 JUDGMENT passed by the ITAT cannot be sustained and the same deserves to be quashed and set aside. Applying the law laid down by Hon’ble the Supreme Court in the case of Liberty India (Supra), all these appeals are allowed and the impugned common judgment and order passed by the ITAT is hereby quashed and set aside. (M.R.SHAH, J.) (R.P.DHOLARIA,J.) Siji Page 4 of 4