M/S.saktthi Footwear v. The Assistant Commissioner Of Income Tax Business Circle -V Chennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.08.2008 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case(Appeal) Nos.1066 and 1067 of 2008and M.P.No.1 of 2008 M/s.Saktthi Footwear7, Pillayar Koil StreetNesapakkam, Chennai – 600 078now at 47, DRR Avenue2[nd] Main RoadKattupakkam, Chennai.. Appellant in both T.Cs -vs- The Assistant Commissioner of Income TaxBusiness Circle -VChennai – 600 034. .. Respondent in both T.Cs TAX CASES in T.C.(A) Nos.1066 and 1067 of 2008 are filedunder Section 260 A of the Income Tax Act, 1961 against the orderof the Income Tax Appellate Tribunal, Madras 'C' Bench, dated18.1.2008 passed in ITA.Nos. 990 and 991/Mds/2007 for theassessment years 2002-2003 and 2003-2004 respectively against theorder dated 6.2.2007 passed in I.T.A.Nos.27 and 28/2006-07/A.VIIIon the file of the Commissioner of Income Tax (Appeals)-VII,Chennai-34 against the order dated 23.3.2006 in PAN GIRNo. by the Income Tax Officer, Ward V(1), Chennai-34. For Appellant : Mr.R.Venkatanarayanan These are appeals are at the instance of the assessee againstthe order of the Income Tax Appellate Tribunal, Madras 'C' Bench,dated 18.1.2008 passed in ITA.Nos. 990 and 991/Mds/2007respectively. 2. The relevant assessment years are 2002-2003 and 2003-2004.The facts in both the appeals are one and the same in respectof both the assessment years, except the figures. Therefore, thehttps://hcservices.ecourts.gov.in/hcservices/facts as culled from one of the the memorandum of appeal i.e.,T.C.No.1066 of 2008 are stated as follows: The assessee is engaged in the business of manufacture andexport of shoe uppers. For the assessment year 2002-2003, theassessee filed its return of income on 30.9.2002 admitting anincome of Rs.2,40,000/-. Subsequently, the appellant filed arevised return on 15.11.2002 declaring the same income. The returnwas processed under Section 143(1) and refund of Rs.4,83,971/- wasissued on 25.6.2004. Subsequently notice under Section 148 wasissued and assessment under Section 143(3) read with Section 147was completed on 23.3.2006 determining the total income atRs.23,83,500/-. While completing the assessment, the assessingofficer disallowed the claim of deduction under Section 80IB onexport incentives in a sum of Rs.1,45,85,838/- on the premise thatthe claim of the appellant that the duty draw back benefit wasderived from the industrial undertaking. On appeal, theCommissioner of Income-tax (Appeals) confirmed the same. TheIncome-tax Appellate Tribunal also confirmed the order of thelower authorities. The correctness of the said order is nowcanvassed before us in these appeals by by formulating thefollowing common question of law: "Whether on the facts and in the circumstances ofthe case, the Tribunal was right in law in holding thatthe appellant is not entitled to deduction under Section80IB in respect of duty drawback?3. We heard the argument of the learned counsel appearing forthe appellant. 4. In respect of the assessee's own case pertaining to theassessment year 2001-2002, this Court in T.C.(A) No.1252 of 2007dated 7.11.2007, to which one of us (K.Raviraja Pandian,J.) was aparty, held thus: "Whether on the facts and in the circumstances ofthe case, the Tribunal was right in law in holding thatthe appellant is not entitled to deduction under Section80IB in respect of duty drawback?3. We heard the argument of the learned counsel appearing forthe appellant. 4. In respect of the assessee's own case pertaining to theassessment year 2001-2002, this Court in T.C.(A) No.1252 of 2007dated 7.11.2007, to which one of us (K.Raviraja Pandian,J.) was aparty, held thus: "4. As far as the first question is concerned,viz., the deduction under Section 80-I in respect ofduty drawback, the learned counsel for the appellantplaced reliance on the Gujarat High Court decisionreported in (275 ITR 284) (COMMISSIONER OF INCOME TAXVs. INDIA GELATINE & CHEMICALS LTD.), wherein it washeld that duty drawback was "derived from" theindustrial undertaking and, therefore, would be eligiblefor deduction under Section 80-J. The learned counselfor the appellant also pointed out that in the case ofduty drawback, the same was given specifically to reducethe cost of manufacturing the goods. The very scheme ofduty drawback is framed and embodied in the statutoryprovisions in order to relieve the goods to be exportedof the burden of customs duties and excise duties.Referring to the decision of the Gujarat High Court thatthe duty drawback is "derived from" industrialhttps://hcservices.ecourts.gov.in/hcservices/undertaking and eligible for deduction, the learnedcounsel seeks to draw support of the said decision tocontend that the order of the Tribunal holding that the same was not "derived from" industrial activity, couldnot be held to be the correct view. 5. It may be seen that dealing with the inclusionof duty drawback for considering the deduction underSection 80-HH, this Court in the decision reported in246 ITR 97 (CIT Vs. JAMEEL LEATHERS AND UPPERS), held atpage 102 as follows: " The decision of the Karnataka High Court relied onby the learned counsel appearing for the assessee inthe case of Sterling Foods v. CIT [1991] 190 ITR 275(Kar) did not examine the distinction between the terms"derived from" and "attributable to". It only proceededon the basis, that such income being part of thebusiness income, it must follow that the income isderived from the industrial undertaking. " 6. Referring to the decision reported in AIR 1997SC 690 (NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. Vs.COLLECTOR OF CENTRAL EXCISE), the Division Bench heldthat, the Supreme Court held the word "derived" isusually followed by the word "from", and it means : getor trace from a source; arise from, originate in; showthe origin or formation of. The Division Bench alsofollowed the decision of this Court reported in 233 ITR497 (CIT Vs. PANDIAN CHEMICALS LTD.). 6. Referring to the decision reported in AIR 1997SC 690 (NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. Vs.COLLECTOR OF CENTRAL EXCISE), the Division Bench heldthat, the Supreme Court held the word "derived" isusually followed by the word "from", and it means : getor trace from a source; arise from, originate in; showthe origin or formation of. The Division Bench alsofollowed the decision of this Court reported in 233 ITR497 (CIT Vs. PANDIAN CHEMICALS LTD.). 7. In the said decision, this Court held thatprofits or gains eligible for deduction under Section 80HH must be derived from the actual conduct of thebusiness. This Court further held that the mandate oflaw is that unless the source of the profit is theundertaking, the assessee is not eligible to claimdeduction under Section 80 HH; that mere commercialconnection between the income and the industrialundertaking would not be sufficient. This Court heldthat profits and gains derived from industrialundertaking denotes that the immediate and effectivesource of income eligible for the grant of relief underSection 80 HH must be the industrial undertaking itselfand not any other source. The said decision wasaffirmed by the Apex Court in the decision reported in262 ITR 278 (PANDIAN CHEMICALS LTD. Vs. CIT (SC)),wherein the Supreme Court held that the rules ofinterpretation would come into play only if there is anydoubt with regard to the express language used. Wherethe words are unequivocal, there is no scope forimporting the rule of liberal construction. In thecircumstances, the Apex Court held that the interestderived by the industrial undertaking of the assesseehttps://hcservices.ecourts.gov.in/hcservices/on deposits made with the Electricity Board for thesupply of electricity for running the industrialundertaking could not be said to flow directly from industrial undertaking itself and was not profits andgains derived by the undertaking for the purpose ofspecial deduction under Section 80HH. The Apex Courtheld that the words "derived from" in Section 80-HH mustbe understood as something which has a direct orimmediate nexus with the industrial undertaking. Havingregard to the language of Section 80-I, in the face ofthe decisions of the Apex Court which were consistentlyfollowed by this Court, we do not find any ground toadmit the appeal on the first ground, viz., entitlementof the appellant to deduction under Section 80-I inrespect of duty drawback. 5. Therefore, following the above said judgment, theseappeals are dismissed. Consequently, the connected M.P.No.1of2008 is also dismissed. usk Sd/- Assistant Registrar / True Copy / Sub. Assistant Registrar To 1.The Assistant Registrar, Income-Tax Appellate Tribunal, IIIFloor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records fivecopies). 2.The Secretary, Central Board of Revenue, New Delhi (3 copies).3. The Commissioner of Income Tax (Appeals) VIII, Chennai – 34.4. The Income-tax Officer, Ward V(1), Chennai – 600 034. ssv (co)dv/21.8. T.C(A) Nos.1066 and 1067 of 2008