Does income derived from sale of export incentive qualify for deduction under section 80-IB?

CIT Vs. Jaswand Sons (2010) 328 ITR 442 (P&H) – On this issue, the High Court held that income derived from sale of export incentive cannot be said to be income ‘derived from’ the industrial undertaking and therefore, such income is not eligible for deduction under section 80-IB.

HIGH COURT OF PUNJAB & HARYANA

COMMISSIONER OF INCOME TAX

Vs.

JASWAND SONS

IT Appeal No. 91 of 2010- Asst. Year 2005- 06

Date of Decision- 29th September, 2010

JUDGMENT

Adarsh Kumar GoeL, J. :

This appeal has been preferred by the Revenue under s. 260A of the IT Act, 1961 (in short “the Act”) against the order of the Income-tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”) passed in ITA No. 622/Chd/2008, date 27th Feb., 2009 for the asst. yr. 2005- 06, proposing following substantial questions of law : “1. Whether on the facts and circumstances of the case, the Hon’ble Tribunal was right in holding that the CIT(A) was justified in deduction under s. 80-IB of the IT Act, 1961 on a sum of Rs. 2,30,85,177 received by assessee from export house as DEPB considering it to be a part of sales made by the assessee ? Whether on the facts and circumstances of the case the Hon’ble Tribunal erred in not holding the DEPB of Rs. 2,30,85,117 received from the export house as not derived from the industrial undertaking eligible for deduction under s. 80-IB of the IT Act, 1961 ? Whether on the facts and circumstances of the case the Hon’ble Tribunal has erred in law in not holding the DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purpose of s. 80-IB ? Whether on the facts and circumstances of the case the Hon’ble Tribunal has erred in not following the decision of the Hon’ble Punjab & Haryana High Court in the case of Liberty India vs. CIT (2007) 207 CTR (P&H) 243 : (2007) 293 ITR 520 (P&H) which has been upheld by the Hon’ble Supreme Court ?”

The assessee is a manufacturer and exporter of hosiery goods. During the assessment, a claim for deduction under s. 80-IB was made in respect of income derived from sale of export incentives. The said claim was rejected as not falling under s. 80-IB not being income derived from industrial undertaking. On appeal, the CIT(A) upheld the plea of the assessee on the ground that part of sales of the assessee were to an export house. The said view has been affirmed by the Tribunal.

We have heard learned counsel for the parties. Learned counsel for the Revenue submits that the Tribunal erred in allowing the claim under s. 80-IB only on the ground that part of sales of the assessee were to an export house which has no relevance to the question of deduction under s. 80-IB. The income derived from export incentive was not eligible for deduction under s. 80-IB, not being income derived from the industrial undertaking as held by the Hon’ble Supreme Court in CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) and this Court in Liberty India vs. CIT (2007) 207 CTR (P&H) 243 : (2007) 293 ITR 520 (P&H).

The same view has been taken by this Court in the cases of the assessee in ITA No. 301 of 2007 Jaswand Sons vs. CIT decided on 17th Sept., 2007 and Jaswand Sons vs. CIT (2010) 326 ITR 39 (P&H).

In view of the above, the questions raised by the Revenue have to be decided in its favor. Accordingly, the appeal is allowed.