M/S Shiv Shakti Rice Mills, Taraori, Karnal v. Assistant Commissioner Of Income Tax, Karnal Range, Karnal

ITA No. 261 of 2008 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 261 of 2008 (O&M) Date of Decision: 30.11.2015 M/s Shiv Shakti Rice Mills, Taraori, Karnal ....Appellant. Versus Assistant Commissioner of Income Tax, Karnal Range, Karnal ...Respondent. CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. 1.Whether the Reporters of the local papers may be allowed to see the judgment? 2.To be referred to the Reporters or not? 3.Whether the judgment should be reported in the Digest? PRESENT: Ms. Munisha Gandhi, Senior Advocate with Ms. Salina Chalana, Advocate for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of a bunch of six appeals bearingITA Nos. 261 to 266 of 2008 as according to learned counsel for theappellant, similar questions of law are involved in all the appeals. Forbrevity, the facts are being extracted from ITA No. 261 of 2008.2.ITA No. 261 of 2008 has been filed by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 13.4.2007 passed by the Income Tax Appellate Tribunal,Delhi Bench “E”, New Delhi (hereinafter referred to as “the Tribunal”) inITA No. 993(Del)/2006 for the assessment year 2004-05, claiming the ITA No. 261 of 2008 following substantial questions of law:- i.Whether the DEPB income is eligible as adeduction u/s 80HHC being an export incentivegranted for promotion of export?deduction u/s 80HHC being an export incentivegranted for promotion of export? ii.Whether the Taxation Amendment Act, 2005introduced with effect from 1.4.1998 can beused to deny a benefit accruing to the assesseeon account of incentives earlier granted andwhether the amendment would be hit by theprinciple of Promissory estoppel?introduced with effect from 1.4.1998 can beused to deny a benefit accruing to the assesseeon account of incentives earlier granted andwhether the amendment would be hit by theprinciple of Promissory estoppel? iii.Whether the exclusion of FDR interest from thebusiness income under section 80HHC of theIncome Tax Act is justified particularly in thelight of the fact that the issue is to be finallydecided by the Supreme Court of India?business income under section 80HHC of theIncome Tax Act is justified particularly in thelight of the fact that the issue is to be finallydecided by the Supreme Court of India? 3.Put shortly, the facts necessary for adjudication of thepresent appeal as narrated therein are that the assessee is engaged inthe business of rice shelling and derives income from export of rice aswell as sale in the domestic market. The assessee filed its return ofincome on 13.9.2004 for the assessment year 2004-05 declaring incomeat ` 13,65,930/-. The case was processed on returned income andsubsequently was taken up for scrutiny. Notices under Sections 143(2)and 142(1) of the Act were issued on 21.2.2005. The Assessing Officerconsidered the interest on FDRs as income from other sources and notas a business income and held that the FDR interest was not eligible fordeduction under Section 80HHC of the Act. Further, it was held that theDuty Entitlement Pass Book (DEPB) income of ` 10,95,440/- was not eligible for deduction under Section 80HHC of the Act in view of thejudgment of the Delhi High Court in CIT v. Ritesh Industries (192 CTR81) which held that the DEPB is not an income derived from industrialundertaking. Accordingly, the Assessing Officer vide assessment orderdated 22.3.2005 (Annexure A-1) assessed the income of the assesseeat ` 17,76,120/-. Feeling aggrieved, the assessee filed an appeal beforethe Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”].The CIT(A) vide order dated 19.1.2006 (Annexure A-2) upheld the orderof the Assessing Officer and dismissed the appeal. The CIT(A) deniedthe FDR interest to the assessee holding that the same has been settledby the jurisdictional High Court in favour of the revenue in the case ofRani Paliwal v. CIT (2004) 268 ITR 220. Still dissatisfied, the assesseefiled an appeal before the Tribunal, who vide impugned order dated13.4.2007 remanded the issue relating to eligibility of deduction of DEPBincome under Section 80HHC of the Act in view of the amendment toSection 28 of the Act with retrospective effect from 1.4.1998. TheTribunal also upheld the view of the CIT(A) that the FDR interest couldnot be taken into consideration for allowing deduction under Section80HHC of the Act. Hence, the present appeal. 4.We have heard learned counsel for the appellant-assessee. 5.Question Nos. (i) and (ii) being inter-connected are taken uptogether. The Tribunal held that as per clause (iiid) and (iiie) of Section28 of the Act, any profit on transfer of DEPB scheme was to beconsidered as profits and gains of business or profession. It was furthernoticed that an assessee having export turnover exceeding ` 10 crores,the profits computed under sub-section (3) of Section 80HHC of the Actshall be further increased by amount which bears to 90% of the sum ITA No. 261 of 2008 referred in clause (iiid) and (iiie) of Section 28 of the Act, the sameproportion as the export turnover bears to the total turnover.Accordingly, the Assessing Officer was directed to re-compute thededuction under Section 80HHC as amended by Taxation Laws(Amendment) Act, 2005 with retrospective effect from 1.4.1998. Since,the matter has been remitted back to the Assessing Officer forrecomputation, therefore, question Nos. (i) and (ii) do not survive forconsideration. 6.Adverting to question No.(iii), it may be noticed that theSupreme Court in M/s Liberty India v. Commissioner of Income Tax, Karnal (2009) 317 ITR 218 (SC) while drawing distinction between“profits derived from an industrial undertaking” as against “profitsattributable to industrial undertaking” had categorically held thatdeduction was admissible only where the profits were derived fromindustrial undertaking. In other words, it was that the profits should haveresulted from industrial activity carried on by the assessee. 7.Further, a Division Bench of this Court in Sneh Lata Jain v. Income Tax Officer, Ward No. II, Ambala and another, ITA No. 615 of 2006 decided on 27.9.2007 to which one of us (Ajay Kumar Mittal, J)was a member, where Fixed Deposit Receipts were used as security orcollateral security to obtain various loans from the banks in the form ofcar loan, machinery loan, miscellaneous loan etc., it was held that itcould not be construed to have direct nexus with the profits and gains ofthe industrial undertaking derived from export business activity whichcould be taken into account for calculating the deduction admissibleunder Section 80HHC of the Act. The relevant observations read thus:- “We have given our thoughtful consideration to the 7.Further, a Division Bench of this Court in Sneh Lata Jain v. Income Tax Officer, Ward No. II, Ambala and another, ITA No. 615 of 2006 decided on 27.9.2007 to which one of us (Ajay Kumar Mittal, J)was a member, where Fixed Deposit Receipts were used as security orcollateral security to obtain various loans from the banks in the form ofcar loan, machinery loan, miscellaneous loan etc., it was held that itcould not be construed to have direct nexus with the profits and gains ofthe industrial undertaking derived from export business activity whichcould be taken into account for calculating the deduction admissibleunder Section 80HHC of the Act. The relevant observations read thus:- “We have given our thoughtful consideration to the submissions of the learned counsel for the assesseeand do not find merit in the same. The Tribunal whiledeciding the controversy had placed reliance upon theApex Court decisions in Commissioner of Income-tax v. Sterling Foods [1999]237 ITR 579, PandianChemicals Ltd. v. Commissioner of Income Tax,[2003] 262 ITR 278 and also of the jurisdictional HighCourt in Liberty Footwear Co. v. Commissioner ofIncome Tax, [2006] 283 ITR 398 and had concludedthat the words “derived from” used in Section 80 HHCof the Act should have a direct nexus between theprofits and gains and the industrial undertaking andsince the interest of Rs.7,22,106/- which was earnedon fixed deposit receipts which were used as securityor collateral security to obtain various loans from thebanks i.e. car loan of Rs.7,93,115/-, machinery loan ofRs.1,26,357/-, miscellaneous loan of Rs.31,38,892/- and CC loan of Rs.13,95,990/- could not beconstrued to have direct nexus with the profits andgains of the industrial undertaking from exportbusiness activity and on that basis the same was nottaken into account for the purposes of calculation ofdeduction under Section 80 HHC of the Act.” 8.Examining the factual matrix herein, it may be noticed thatthe Tribunal had concluded that interest on Fixed Deposits had accruedon the fixed deposits pledged with FCI and also with the Sales TaxDepartment. The interest on FDRs did not have an immediate nexus ITA No. 261 of 2008 -6- with the export business and, therefore, had to be necessarily treated asincome from other sources and not business income derived from exportbusiness activity. Once that was so, question No. (iii) is decided against the assessee. 9.The substantial questions of law are answered accordingly.Finding no merit in the appeals, the same are hereby dismissed. (AJAY KUMAR MITTAL)JUDGE November 30, 2015 gbs (RAMENDRA JAIN)JUDGE