[1] IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- (1) INCOME TAX APPEAL No. 76 of 2006 M/S SARAF SEASONING UDYOG V/S I.T.O.WARD 2 CHURU (2) INCOME TAX APPEAL No. 77 of 2006 M/S SARAF SEASONING UDYOG V/S I.T.O.WARD 2 CHURU Mr. SURESH OJHA, for the appellant / petitioner Mr. KK BISSA, for the respondent Date of Order : 21.8.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. ORDER BY THE COURT (PER HON'BLE GUPTA, J.) These two appeals have been filed by the assessee, seeking to challenge, the judgment of the Tribunal dated 10.02.2006, deciding two appeals, relating to Assessment Years 2003-04, and 2004-05. Appeals were admitted on 11.09.2006, by framing the following substantial question of law :- “Whether in the facts and circumstances of the case and considering the fact that clause (iiid) was inserted in Sec.28 of the Income Tax Act, 1961 retrospectively w.e.f. 1.4.1998 vide Taxation Law Amendment Act, 2005, the Tribunal was justified in holding that the income derived by the assessee from the sale of DEPB licenses was not the profit [2] and gains from the industrial undertaking which was held to be eligible for claiming deduction under Sec.80-IB of the Act, 1961 otherwise?” The controversy, lies in a very narrow compass, inasmuch as, the Assessing Officer noticed, during the assessment proceedings, in respect of that assessee, that the assessee has shown income from sale of import entitlements (income from sale of DEPB licenses), in its profit and loss account, and claimed deduction, in respect of that amount, under Sec.80IB, as profits and gains, derived from the industrial undertaking. The Assessing Officer, in the light of the judgment of the Hon'ble Supreme Court, in the case of CIT Vs. Sterling Foods, reported in 237 ITR 579, issued show cause notice, as to why deduction in respect of this amount be not disallowed, by treating it as income from other sources. The assessee, contested the notice, and submitted, that the licence has been received, in respect of the sales effected, therefore, consideration/income on the sale of DEPB licenses, has been treated as income/profit, derived from industrial undertaking, and as such, within the meaning of Sec.28, the income is to be considered, as export income, and not income from other sources. It was also contended, that since 100% deduction is admissible under Sec.80IB, the assessee is entitled to the same deduction on the income earned from sale of DEPB licenses. The Assessing Officer, vide order dated 30.03.2005, disallowed the deduction. [3] This was challenged in appeal, and the learned Commissioner upheld the disallowance, again relying on the judgment in Sterling Foods' case. The learned Tribunal, also, in turn, dismissed the appeal, relying upon the same judgment in Sterling Foods' case, and in addition, also held, that in view of the judgment of Hon'ble Supreme Court, in Pandian Chemicals Ltd. Vs. CIT, reported in 262 ITR 278, the income to be eligible for exemption, should be the income derived from, and not attributable to, the undertaking. It is contended, by learned counsel for the appellant, that after passing of the assessment order, the provisions of Income-Tax Act have undergone change, inasmuch as, Taxation Law (Second Amendment) Bill was introduced in Lok Sabha on 06.12.2005, and was passed as Taxation Laws (Second Amendment) Act, 2005, and was brought into force on 31.10.2005. By Sec.3 thereof, Sec.28 of the Income Tax Act was amended by inserting clause (iiid), after existing clause (iiic), w.e.f. 01.04.1998, which clause (iiid), reads as under :- (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme being Duty Remission Scheme, under the export and import policy, formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992(22 of 1992) Likewise, Sec.(iiie)was also added w.e.f. 1st April 2001. [4] In the present case, we are concerned, only with the provisions of clause (iiid). Thus, a look at clause (iiid), as newly introduced, makes it clear, that by legal fiction, introduced in 2005, with retrospective effect from 1st April 1998, that any profit on the transfer of Duty Free Replenishment Certificate, being Duty Remission Scheme, under the export and import policy, formulated and announced under section 5 of the Foreign Trade Act, became chargeable to tax, under the head Profits and Gains of business or profession. Obviously, it is to be chargeable as profits and gains of the business, or profession of the assessee. Sec.80IB, which provides for exemption, also reads as under :- Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. 80-IB (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub- sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. x x x x (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth [5] Schedule shall be hundred per cent, of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty five per cent (or thirty per cent, where the assessee is a company) or the profits and gains derived from such industrial undertaking. x x x x Thus, according to this Section, the profits and gains derived from specific industrial undertaking, is exempt for specific period. Admittedly, the assessee industry does not fall within any of the exceptions provided in the various provisions, so as to render it ineligible to the exemption. In our view, on a combined reading of Sec. 80IB(4) and Sec.28(iiid), as introduced, does make clear, that the profit derived on transfer of DEPB licenses, does very much fall within four corners of profits and gains, derived from such industrial undertaking, being assessee, and is capable of being taxed only under Sec.28, subject to exemption, as provided in Sec.80IB, and/or other eligible provisions. So far as judgment of Hon'ble Supreme Court in Sterling Foods' case is concerned, that judgment reported in 237 ITR 579 is of the year 1999, at which time, the newly added provision of clause {iiid) did not exist, which has been inserted, as noticed above, in the year 2005, w.e.f. 01.04.1998. Likewise, the judgment in Pandian [6] Chemicals Limited's case is also of the year 2003. Thus, the introduction of clause (iiid) of amendment in 2005, w.e.f. 01.04.1998, has changed the whole scenario, as considered by Hon'ble Supreme Court, in the above two judgments. Learned counsel for the appellant, relied upon a recent judgment of Hon'ble Supreme Court in B. Desraj Vs. Commissioner of Income-Tax, reported in 301 ITR 439. This is a judgment rendered on 01.05.2005, and deals with identical amendment, introduced by introduction of clause 28(iiib), having material bearing on Sec.80 HHC. It was held by Hon'ble the Supreme Court, that department was liable to allow deduction to the assessee. Then, a judgment of this Court, in CIT Vs. Sharda Gum & Chemicals, reported in 288 ITR 116, has also been cited, which also takes into consideration, the amendment in Sec.28, introducing clause (iiia), (iiib) & (iiic), having effect on the provisions of Sec.80 HHC, and holding the assessee to be entitled to exemption. In our view, in view of the above, the question, as framed, is required to be, and is, answered in favour of the assessee, and against the revenue, in the manner, that the Tribunal was not justified in holding, that the income derived by the assessee from the sale of DEPB licenses, was not profit and gain from industrial undertaking, which was held to be eligible to claim deduction under Sec.80IB of the Income-tax Act, 1961 otherwise. [7] Consequently, the appeal is allowed, impugned orders are set aside, and the appellant is held entitled to deduction under Sec.80IB, for both the years. The parties shall bear their own costs of this appeal. (KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J. jpa/