Section 80-IB of Income Tax Act

FACTS The assessee-company claimed deduction under section 80-IB on custom duty drawback. The Assessing Officer declined to grant the deduction by relying upon the decision of the Su­preme Court in case of CIT v. Sterling Foods [1999] 237 ITR 579/104 Taxman 204 which related to import entitlement under the Export Promotion Scheme of the Government of India and was on the interpretation of section 80HH. The Commissioner (Appeals) set aside the order of the Assessing Officer holding that case of Sterling Foods (supra) did not apply to the facts of the instant case and the language used in section 80HH was materially different from the language used in section 80-IB. The Tribunal dismissed the revenue’s appeal. On appeal : HELD A perusal of the provisions of section 75 of the Customs Act, 1962 shows that an exporter is entitled to drawback on the duty of customs chargeable under the 1962 Act on any imported materials if those imported materials have been used in the manufacture or processing of goods for export. Of course, this is subject to a notification issued by the Central Government with respect to the goods of any class or description. [Para 11] In other words, duty drawback is in the nature of the reimburse­ment of the customs duty that an exporter has paid on imported goods, which are subjected to a manufacturing process and then exported. In that sense, the export has a direct nexus with the industrial undertaking itself. [Para 12] That apart, section 80-IB does not use the expression ‘Profits and gains derived from an industrial undertaking’ as used in section 80HH, but uses the expression ‘Profits and gains derived from any business referred to in sub-sections (3) to 11(1), 11A(1) and 11B(1)’. A perusal of section 80-IB would show that there is a material difference between the language used in section 80HH and section 80-IB. While section 80HH requires that the profits and gains should be derived from the industrial undertaking, section 80-IB requires that the profits and gains should be derived from any business of the industrial undertaking. In other words, there need not necessarily be a direct nexus between the activity of an industrial undertaking and the profits and gains. [Para 13] It is crucial to appreciate the difference in language in section 80HH, section 80-I and section 80-IB. While the language used in sections 80HH and 80-I is similar, there is a clear departure in the language used in section 80-IB and it is this choice of words that makes all the difference. [Para 20] The duty drawback is profit or gain derived from the business of an industrial undertaking. The language used in section 80-IB is not as broad as the expression ‘attributable to’ referred to by the Supreme Court in Sterling Foods’ case (supra) nor is it as narrow as the expression ‘derived from’. The expression ‘derived from the business of an industrial undertaking’ is somewhere in between. [Para 21] Consequently, the source of the duty drawback is the business of the industrial undertaking which is to manufacture and export goods out of raw material that is imported and on which customs duty is paid. The entitlement for duty drawback arises from section 75(1) of the Customs Act, 1962, read with the relevant notification issued by the Central Government in that regard. [Para 22] In view of the law laid down and explained by various decisions, no substantial question of law arose for consideration. [Para 24]