Commissioner Of Income Tax, Ludhiana v. Duke Fashions Pvt. Ltd., Ludhiana

ITA No. 577 of 2007 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 577 of 2007 (O&M) Date of Decision: 4.11.2015 Commissioner of Income Tax, Ludhiana ....Appellant. Versus Duke Fashions Pvt. Ltd., Ludhiana ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE HARI PAL VERMA. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Rajiv Sharma, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.Delay in refiling the appeal is condoned. 2.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 31.8.2006 (Annexure A-III) passed by the Income Tax AppellateTribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as“the Tribunal”) in ITA No. 740/CHD/2004 for the assessment year 2001-02, claiming the following substantial questions of law:- i)Whether on the facts and law, the Hon'bleIncome Tax Appellate Tribunal was justified in holding that insurance claim was not in thenature of 'other receipts' and 90% of suchreceipts could not be reduced from 'profit ofbusiness' under clause (baa) of Explanationbelow section 80HHC(4C) of I.T. Act? ii) Whether on the facts and law, the Hon'bleIncome Tax Appellate Tribunal was correct inholding that the sales tax & CST were notincludible in total turnover for computingdeduction u/s 80HHC of I.T. Act, when the salestax & CST were realized as a part of saleproceeds of the goods manufactured by theRespondent? iii)Whether on the facts and law, the Hon'bleIncome Tax Appellate Tribunal was justified inallowing deduction u/s 80IB on duty drawn backwhen the same was not a profit derived fromindustrial undertaking/specified business u/s80IB of I.T. Act? 3.Put shortly, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filedits return on 25.10.2001 for the assessment year 2001-02 declaringincome at ` 20,87,310/-. The assessment was framed vide order dated30.1.2004 (Annexure A-I) by the Assessing Officer at ` 32,94,380/-.However, deduction under Section 80HHC of the Act was worked outafter reducing 90% of the receipts from 'profits from business' underclause (baa) of Explanation to Section 80HHC(4C) of the Act. Besides ITA No. 577 of 2007 3.Put shortly, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filedits return on 25.10.2001 for the assessment year 2001-02 declaringincome at ` 20,87,310/-. The assessment was framed vide order dated30.1.2004 (Annexure A-I) by the Assessing Officer at ` 32,94,380/-.However, deduction under Section 80HHC of the Act was worked outafter reducing 90% of the receipts from 'profits from business' underclause (baa) of Explanation to Section 80HHC(4C) of the Act. Besides ITA No. 577 of 2007 this, the sales tax and CST amounting to ` 38,15,689/- was included inthe total turnover for computing deduction under Section 80HHC of theAct. The deduction under Section 80IB of the Act was not allowed onthe duty draw back as it was not profit derived from industrialundertaking. Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. TheCIT(A) vide order dated 30.3.2004 (Annexure A-II) partly allowed theappeal and directed the Assessing Officer not to reduce 90% of thereceipts from the 'profits of the business' under clause (baa) ofExplanation to Section 80HHC(4C) of the Act. Further, the AssessingOfficer was directed not to add the sales tax and CST receipts in thetotal turnover for computation of deduction under Section 80HHC of theAct and also to allow deduction under Section 80IB of the Act by treatingduty draw back as part of profits derived from industrial undertaking.Against the order, Annexure A-II, the revenue filed an appeal before theTribunal who vide order dated 31.8.2006 (Annexure A-III) dismissed theappeal on the issue of insurance claim and sales tax and CST followingits own decision in ITA No. 742/CHD/2004 in the case of DCIT v. M/sVerma Fabrics and upheld the order of the CIT(A) in treating the dutydraw back as a part of profit derived from industrial undertaking underSection 80IB of the Act. Hence, the present appeal by the revenue. 4.We have heard learned counsel for the parties. 5.It was not disputed by learned counsel for the parties thatquestion No. (i) is covered by the decision of this Court in ITA No. 165 of2007 (Commissioner of Income Tax-I, Ludhiana v. Venus Fabrics,Ludhiana) decided on 18.7.2013 which was followed in ITA No. 152 of2007 (Commissioner of Income Tax-I, Ludhiana v. M/s Dee Kay Knitwears, Ludhiana) decided on 18.7.2013, wherein it was held asunder:- “We have heard counsel for the parties, perused theimpugned order as well as the relevant statutoryprovisions. Before we answer the question, it wouldbe appropriate to reproduce explanation (baa)appended to Section 80 HHC of the 1961 Act, asfollows:- “(baa) “profits of the business” means the profitsof the business as computed under the head“Profits and gains of business or profession” asreduced by— (1) ninety per cent of any sum referred to inclauses (iiia), (iiib), (iiic), (iiid) and (iiie)] ofsection 28 or of any receipts by way ofbrokerage, commission, interest, rent, chargesor any other receipt of a similar nature includedin such profits; and (2) the profits of any branch, office,warehouse or any other establishment of theassessee situate outside India ;” warehouse or any other establishment of theassessee situate outside India ;” The words “any other receipt of a similar natureincluded in such profits” used in the explanation haveto be read “edjusdem generis” to the preceding words,i.e., “brokerage”, “commission”, “rent”, “charges”. Thewords “similar nature” used before the words “anyother receipt” refers to and alludes to the principle of (1) ninety per cent of any sum referred to inclauses (iiia), (iiib), (iiic), (iiid) and (iiie)] ofsection 28 or of any receipts by way ofbrokerage, commission, interest, rent, chargesor any other receipt of a similar nature includedin such profits; and (2) the profits of any branch, office,warehouse or any other establishment of theassessee situate outside India ;” warehouse or any other establishment of theassessee situate outside India ;” The words “any other receipt of a similar natureincluded in such profits” used in the explanation haveto be read “edjusdem generis” to the preceding words,i.e., “brokerage”, “commission”, “rent”, “charges”. Thewords “similar nature” used before the words “anyother receipt” refers to and alludes to the principle of “edjusdem generis” and in fact leaves no ambiguity asto legislative intent that only such receipts would fallwithin the meaning of sub-clause (1) of theexplanation as would partake the nature of the wordspreceding the expression “receipts of a similarnature”. A claim for insurance arises on account of aspecial loss to an assessee and, therefore, does notrequire any degree of legal acumen or scholarship toinfer that such receipt cannot be included within sub-clause (1) of the aforementioned explanation. Wedraw support for a conclusion from a judgment of thisCourt in CIT Vs. Khemka Containers Private Ltd. (275ITR 559).” The said issue was decided against the revenue.Accordingly, question No. (i) is answered against the revenue and infavour of the assessee. 6.Regarding question No. (ii), again learned counsel for theparties are ad idem that this question is covered by the decisions of thisCourt in Commissioner of Income Tax v. Lakshmi Machine Works(2007) 290 ITR 667 and Commissioner of Income Tax v. VardhmanPolytex Ltd. (2008) 296 ITR 382 wherein it was held that the amount ofsales tax and excise duty for the purposes of computation of deductionunder Section 80HHC of the Act are to be excluded from the totalturnover. Accordingly, question No. (ii) is also answered against therevenue. 7.Adverting to question No. (iii), learned counsel for therevenue has relied upon the judgment of the Apex Court in Liberty India ITA No. 577 of 2007 -6- v. Commissioner of Income Tax (2009) 317 ITR 218 (SC) to urge thatprofit from DEPB and Duty Drawback Scheme are not profits derivedfrom the eligible business under Section 80IB of the Act. It was prayedthat question No. (iii) is, thus, to be answered in favour of the revenue.Learned counsel for the assessee was unable to controvert that thesimilar issue was adjudicated by the Apex Court in Liberty India's case(supra) in favour of the revenue. Accordingly, question No. (iii) isdecided in favour of the revenue and against the assessee. 8.In view of the above, the appeal is partly allowed in theabove terms. (AJAY KUMAR MITTAL) JUDGE November 4, 2015gbs (HARI PAL VERMA) JUDGE