CIT Vs Dabur India Ltd (Delhi High Court)
In the case of CIT vs. Dabur India Ltd, the Commissioner challenged the order passed by the Income Tax Appellate Tribunal (ITAT) dated April 12, 2017. The Commissioner proposed several questions of law for consideration. However, upon examination, it was found that the proposed questions primarily pertained to the rate of royalty and valuation of shares, which did not justify entertaining the appeals.
Regarding the questions related to Sections 80IB and 80IC of the Income Tax Act, the legal position had already been established by precedent, particularly in the case of CIT v. Sadhu Forging Ltd. The court observed that the activity of forging undertaken by the assessee qualified as manufacturing within the ambit of Section 80IB. The court cited examples from previous judgments to support this conclusion. Additionally, the receipts derived from activities such as heat treatment and sale of scrap were considered part and parcel of the manufacturing process and thus eligible for deduction under Section 80IB.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The Commissioner impugns the order dated 12 April 2017 passed by the Income Tax Appellate Tribunal [“ITAT”] and has proposed the following questions of law:
“1. Whether on the facts and in the circumstances of the case, the ITAT was legally justified in adjudicating that no royalty was payable by Dabur Nepal Pvt. Ltd. to the respondent as against the royalty chargeable at the rate of 7.5 percent on FOB sale value as worked out by the TPO/AO?
2. Whether on the facts and in the circumstances of the case, the ITAT was legally justified in adjudicating that royalty was payable by Dabur International Ltd. UAE at a reduced rate of 0.75 percent on FOB Value to the respondent as against the royalty chargeable at the rate of 4 percent on FOB sale value as worked out by the TPO/AO?
3. Whether the ITAT under the facts and circumstances of the case and in law was justified in confirming the deletion of the upward adjustment of Rs. 11.64 crores in respect of sale of equity shares of M/s Dabur Nepal Pvt. Ltd. by the respondent?
4. Whether the ITAT under the facts and circumstances of the case and in law was justified in directing that for the valuation of shares of M/s Dabur Overseas Ltd., the AO be required to adopt the figure of projected growth as taken by the respondent i.e. average of growth figure at 19% instead of 25% as previously directed by the Commissioner of Income Tax (Appeals) [“CIT(A)”] & 89% adopted by the AO?
5. Whether the Ld. ITAT’s was justified in allowing deduction u/s 80-IB and 80-IC in respect of additions on account of Sale of Scrap, Rental income, Miscellaneous Incomes besides statutory disallowances u/s 40(a)(ia) etc. of the IT Act, more so when income from these activities have no direct nexus with the eligible activities of the industrial undertakings?
6. Whether the Ld. ITAT’s impugned order suffers from perversity and material error due to non-application of judicial mind on the claim for deduction u/s 80-IB and 80-IC by the assessee and from unlawful abdication of duty to independently determine on facts and law on the said issue, as to whether the said claim was legally justified and correct?”
2. We note that insofar as questions 1, 2 and 4 are concerned and pertain to the rate of royalty, although the assessment on the regular basis was proposed on a total income of approximately INR 52,00,00,000/- the book profits were ultimately worked out in terms of Section 115JB of the Income Tax Act, 1961 [“Act”] and the income subjected to tax was quantified at INR 211,42,99,386/-.
