IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.08.2008 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case(Appeal) Nos.1066 and 1067 of 2008 and M.P.No.1 of 2008 M/s.Saktthi Footwear 7, Pillayar Koil Street Nesapakkam, Chennai – 600 078 now at 47, DRR Avenue 2nd Main Road Kattupakkam, Chennai .. Appellant in both T.Cs -vs- The Assistant Commissioner of Income Tax Business Circle -V Chennai – 600 034. .. Respondent in both T.Cs TAX CASES in T.C.(A) Nos.1066 and 1067 of 2008 are filed under Section 260 A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench, dated 18.1.2008 passed in ITA.Nos. 990 and 991/Mds/2007 for the assessment years 2002-2003 and 2003-2004 respectively against the order dated 6.2.2007 passed in I.T.A.Nos.27 and 28/2006-07/A.VIII on the file of the Commissioner of Income Tax (Appeals)-VII, Chennai-34 against the order dated 23.3.2006 in PAN GIR No.AAMFS6245C by the Income Tax Officer, Ward V(1), Chennai-34. For Appellant : Mr.R.Venkatanarayanan C O M M O N J U D G M E N T (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN,J) These are appeals are at the instance of the assessee against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench, dated 18.1.2008 passed in ITA.Nos. 990 and 991/Mds/2007 respectively. 2. The relevant assessment years are 2002-2003 and 2003- 2004.The facts in both the appeals are one and the same in respect of both the assessment years, except the figures. Therefore, the facts as culled from one of the the memorandum of appeal i.e., T.C.No.1066 of 2008 are stated as follows: https://hcservices.ecourts.gov.in/hcservices/ The assessee is engaged in the business of manufacture and export of shoe uppers. For the assessment year 2002-2003, the assessee filed its return of income on 30.9.2002 admitting an income of Rs.2,40,000/-. Subsequently, the appellant filed a revised return on 15.11.2002 declaring the same income. The return was processed under Section 143(1) and refund of Rs.4,83,971/- was issued on 25.6.2004. Subsequently notice under Section 148 was issued and assessment under Section 143(3) read with Section 147 was completed on 23.3.2006 determining the total income at Rs.23,83,500/-. While completing the assessment, the assessing officer disallowed the claim of deduction under Section 80IB on export incentives in a sum of Rs.1,45,85,838/- on the premise that the claim of the appellant that the duty draw back benefit was derived from the industrial undertaking. On appeal, the Commissioner of Income-tax (Appeals) confirmed the same. The Income-tax Appellate Tribunal also confirmed the order of the lower authorities. The correctness of the said order is now canvassed before us in these appeals by by formulating the following common question of law: "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the appellant is not entitled to deduction under Section 80IB in respect of duty drawback? 3. We heard the argument of the learned counsel appearing for the appellant. 4. In respect of the assessee's own case pertaining to the assessment year 2001-2002, this Court in T.C.(A) No.1252 of 2007 dated 7.11.2007, to which one of us (K.Raviraja Pandian,J.) was a party, held thus: "4. As far as the first question is concerned, viz., the deduction under Section 80-I in respect of duty drawback, the learned counsel for the appellant placed reliance on the Gujarat High Court decision reported in (275 ITR 284) (COMMISSIONER OF INCOME TAX Vs. INDIA GELATINE & CHEMICALS LTD.), wherein it was held that duty drawback was "derived from" the industrial undertaking and, therefore, would be eligible for deduction under Section 80-J. The learned counsel for the appellant also pointed out that in the case of duty drawback, the same was given specifically to reduce the cost of manufacturing the goods. The very scheme of duty drawback is framed and embodied in the statutory provisions in order to relieve the goods to be exported of the burden of customs duties and excise duties. Referring to the decision of the Gujarat High Court that the duty drawback is "derived from" industrial undertaking and eligible for deduction, the learned counsel seeks to draw support of the said decision to contend that the order of the Tribunal holding that the https://hcservices.ecourts.gov.in/hcservices/ same was not "derived from" industrial activity, could not be held to be the correct view. 5. It may be seen that dealing with the inclusion of duty drawback for considering the deduction under Section 80-HH, this Court in the decision reported in 246 ITR 97 (CIT Vs. JAMEEL LEATHERS AND UPPERS), held at page 102 as follows: " The decision of the Karnataka High Court relied on by the learned counsel appearing for the assessee in the 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 proceeded on the basis, that such income being part of the business income, it must follow that the income is derived from the industrial undertaking. " 6. Referring to the decision reported in AIR 1997 SC 690 (NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. Vs. COLLECTOR OF CENTRAL EXCISE), the Division Bench held that, the Supreme Court held the word "derived" is usually followed by the word "from", and it means : get or trace from a source; arise from, originate in; show the origin or formation of. The Division Bench also followed the decision of this Court reported in 233 ITR 497 (CIT Vs. PANDIAN CHEMICALS LTD.). 7. In the said decision, this Court held that profits or gains eligible for deduction under Section 80 HH must be derived from the actual conduct of the business. This Court further held that the mandate of law is that unless the source of the profit is the undertaking, the assessee is not eligible to claim deduction under Section 80 HH; that mere commercial connection between the income and the industrial undertaking would not be sufficient. This Court held that profits and gains derived from industrial undertaking denotes that the immediate and effective source of income eligible for the grant of relief under Section 80 HH must be the industrial undertaking itself and not any other source. The said decision was affirmed by the Apex Court in the decision reported in 262 ITR 278 (PANDIAN CHEMICALS LTD. Vs. CIT (SC)), wherein the Supreme Court held that the rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing the rule of liberal construction. In the circumstances, the Apex Court held that the interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from https://hcservices.ecourts.gov.in/hcservices/ industrial undertaking itself and was not profits and gains derived by the undertaking for the purpose of special deduction under Section 80HH. The Apex Court held that the words "derived from" in Section 80-HH must be understood as something which has a direct or immediate nexus with the industrial undertaking. Having regard to the language of Section 80-I, in the face of the decisions of the Apex Court which were consistently followed by this Court, we do not find any ground to admit the appeal on the first ground, viz., entitlement of the appellant to deduction under Section 80-I in respect of duty drawback. 5. Therefore, following the above said judgment, these appeals are dismissed. Consequently, the connected M.P.No.1of 2008 is also dismissed. usk Sd/- Assistant Registrar / True Copy / Sub. Assistant Registrar To 1.The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records five copies). 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 https://hcservices.ecourts.gov.in/hcservices/