Nahar Spinning Mills Limited V. Commissioner of Income Tax (Central), Ludhiana

ITA/46/2002

AI Insights

The case involves Nahar Spinning Mills Limited, which appealed against the decision of the ITAT regarding the disallowance of deduction for Cash Compensatory Allowance received from the government for exports. The primary legal question was whether such allowances qualify as profits and gains derived from an industrial undertaking under Section 80-I of the Income Tax Act, 1961. The ITAT had previously ruled that there was no direct nexus between the CCA and the industrial undertaking, a decision which was contested by the appellant in the High Court. The High Court, referencing the Supreme Court's decision in Liberty India, affirmed the ITAT's decision, leading to the dismissal of the appeal.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 796999 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 14-12-2009
• Assessment Year: misc
• Other Referred Cases: Liberty India v. Commissioner of Income-Tax (2007) 293 ITR 520, Liberty India v. Commissioner of Income-Tax, (2009) 317 Income Tax Reports 218 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K K MEHTA
• Assessee Lawyers: SANJAY BANSAL; SHWETA MALHOTRA; HARPREET KAUR; PRASHANT BANSAL
• Keywords: Cash Compensatory Allowance; Export; Income tax appellate tribunal; Industrial Undertaking; Tax Exemption
• Section: 260-A; 80-I

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 46 of 2002 DATE OF DECISION : 14.12.2009 Nahar Spinning Mills Limited, Ludhiana .... APPELLANT Versus Commissioner of Income Tax (Central), Ludhiana ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR Present: Mr. Sanjay Bansal, Senior Advocate, with Ms. Shweta Malhotra, Ms. Harpreet Kaur and Mr. Prashant Bansal, Advocates, for the appellant-assessee. Mr. K.K. Mehta, Advocate, for the respondent-revenue. * * * SATISH KUMAR MITTAL , J. The assessee has filed this appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as `the Act'), against the order dated 28.8.2001, passed by the Income Tax Appellate Tribunal, Chandigarh Bench (A), Chandigarh (hereinafter referred to as `the ITAT') in ITA No. 337/Chandi/1992, pertaining to the assessment year 1988-89, raising the following substantial questions of law :- (i) Whether on a proper construction of Section 80-I of the Act and proper understanding of the Supreme Court's ITA No. 46 of 2002 -2- decision reported in ITR 237 Page 579, in the case of Sterling Foods, the ITAT did not err in law in holding that the income received by the assessee by way of CCA did not qualify for exemption from tax to the extent indicated in the said section ? (ii) Whether on the facts and circumstances of the case, the ITAT did not err in law in holding that the income received by the assessee being of very nature, that is additional price for exports could not be said to be income derived from the industrial undertaking of the assessee within the meaning of Section 80-I of the Act? (iii) Whether on the facts and circumstances of the case, the ITAT did not err in holding that profits on sale of import entitlements were of the same nature as CCA received? (iv) Whether the ITAT did not err in holding that only such profits of an industrial undertaking were exempt from tax u/s 80-I as were obtained from sale of manufactured goods? Learned counsel for the appellant states that in this appeal, he is pressing only first three questions. We have heard the learned counsel for the parties. The assessee has raised the aforesaid three questions with regard to the amount received by it on exports as Cash Compensatory Allowance. It is the case of the assessee that it has received the said Cash Compensatory Allowance from the Central Government against its export of goods manufactured by industrial undertaking during the year, therefore, the said Allowance is an additional price received from Government for the exports made and thus is profits and gains derived from the industrial ITA No. 46 of 2002 -3- undertaking. The ITAT has disallowed the said deduction while coming to the conclusion that there is no direct nexus between receipt of Cash Compensatory Allowance and the industrial undertaking. The source of Cash Compensatory Allowance received by the assessee was only a receipt on account of export promotion scheme of the Central Government. But the said receipt has no nexus between profits and gains derived from an industrial undertaking, therefore, the said benefits cannot be permitted to be deducted under Section 80-I of the Act. The similar benefits received by the assessee i.e. DEPB, have been disallowed by this Court in Liberty India v. Commissioner of Income-Tax (2007) 293 ITR 520, which has been affirmed by the Hon'ble Supreme Court in Liberty India v. Commissioner of Income-Tax, (2009) 317 Income Tax Reports 218 (SC). Learned counsel for the appellant could not controvert that the Cash Compensatory Allowance is similar to DEPB, therefore, he could not make out a case for deducting the said amount as eligible deduction under Section 80-I of the Act. Since the controversy is no longer res integra, therefore, no substantial question of law arises in this appeal from the order of the ITAT. Dismissed. ( SATISH KUMAR MITTAL ) JUDGE December 14, 2009 ( MEHINDER SINGH SULLAR ) seema/ndj JUDGE "