COMMISSIONER OF INCOME TAX JALANDHAR V. M/S F.C.SONDHI AND COMPANY (P) LTD.

ITA/299/2010

AI Insights

The case involves the Commissioner of Income-tax as the appellant and M/s F.C. Sondhi & Company (P) Ltd. as the respondent. The core issue was whether the income from DBK, DEPB, and DFRC should be considered as business income for the purpose of deductions under Section 80HHC of the Income Tax Act, 1961. Initially, the ITAT upheld the assessee's view based on a judgment from the Mumbai ITAT Special Bench. However, this was contested by the revenue following a reversal of that judgment by the Bombay High Court. The Punjab and Haryana High Court, after hearing the arguments, concurred with the Bombay High Court's decision and remanded the case back to the ITAT for re-evaluation based on the correct interpretation of the law.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 719484 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 16-08-2010
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Kalpataru Colours and Chemicals
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PANKAJ JAIN
• Assessee Lawyers: VIVEK SETHI
• Keywords: Business income; DBK; Deduction; DEPB; DFRC; Duty Draw Back; Duty entitlement pass book; Duty Free Remission Scheme; Income tax appellate tribunal
• Section: 80HHC; 260A; 28 (iiid); 28(iiie)

Judgement Text

"ITA No. 299 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 299 of 2010 Date of Decision: 16.8.2010 Commissioner of Income-tax ....Appellant. Versus M/s F.C. Sondhi & Company (P) Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Vivek Sethi, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. ADARSH KUMAR GOEL, J. 1. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against order dated 23.9.2009 of the Income Tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as “the ITAT”) passed in ITA No. 124(ASR)/2009 for the assessment year 2003-04, proposing to raise the following substantial questions of law:- “I. Whether on the facts and circumstances of the case the ITAT was right in law in not holding that the total sale consideration inclusive of face value of DEPB and premium amount received thereof represents profit chargeable ITA No. 299 of 2010 -2- under sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961? II. Whether on the facts and circumstances of the case the ITAT was right in law in not holding that profit on transfer of DEPB entitlement represents the entire amount inclusive of premium of sale of such DEPB? III. Whether on the facts and circumstances of the case the ITAT was right in law in holding that the word “profit” referred to in section 28(iiid) and 28(iiie) of Income Tax Act, 1961 means the difference between the sale price of DEPB and the face value of DEPB ignoring the fact that the entire amount represents the profit in the hands of assessee? IV. Whether on the facts and circumstances of the case the ITAT was right in law in deducting the face value of DEPB from sale price of DEPB for calculating profit under section 28(iiid) and 28(iiie) of Income Tax Act, 1961 as if the face value is the cost incurred by the assessee to acquire the DEPB? V. Whether on the facts and circumstances of the case the ITAT was right in law in holding that the word profit referred to in sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961 ITA No. 299 of 2010 -3- requires any artificial cost to be interpolated to the extent that the face value of DEPB/DFRC should be deducted from the sale proceed for the purpose of determination of deduction under section 80HHC of the Income Tax Act, 1961?” 2. The assessee is an exporter and while claiming deduction under Section 80HHC of the Act, the assessee did not include the entire income from Duty Draw Back (DBK), Duty Entitlement Pass Book (DEPB) and Duty Free Remission Scheme (DFRC) which was business income under Sections 28(iiid) and 28(iiie). The Assessing Officer made calculation after treating the said amount as business income. On appeal, the said view was upheld but on further appeal to the ITAT, following the judgment of the Special Bench, Income Tax Appellate Tribunal, Mumbai, the view of the assessee was upheld. 3. We have heard learned counsel for the parties. 4. Learned counsel for the appellant states that the view taken by the Income Tax Appellate Tribunal, Mumbai was reversed by the Bombay High Court in Commissioner of Income Tax v. Kalpataru Colours and Chemicals, (2010) 42 DTR (Bom) 193. 5. Learned counsel for the assessee does not dispute the fact that the view taken by the Income Tax Appellate Tribunal, Mumbai which has been followed by the ITAT in the present case has since been reversed by the Bombay High Court. 6. After hearing learned counsel for the parties, we are in agreement with the view taken by the Bombay High Court and are of ITA No. 299 of 2010 -4- the view that the income from DBK, DEPB and DFRC has to be treated as business income and has to be taken into account for deduction under Section 80HHC. The questions proposed are answered accordingly and matter is remanded to the ITAT for fresh decision in accordance with law. 7. Parties may appear before the Tribunal for further proceedings on December 20, 2010. (ADARSH KUMAR GOEL) JUDGE August 16, 2010 (AJAY KUMAR MITTAL) gbs JUDGE "