Case Note & Summary
The Commissioner of Income Tax, Central-III, Mumbai, appealed against the order of the Income Tax Appellate Tribunal (ITAT) dated 29 July 2011, which allowed the assessee's claim for deduction under section 80HHC of the Income Tax Act, 1961, in respect of CENVAT credit of Rs.89,34,887/-. The assessee, M/s Valiant Glass Works Pvt. Ltd., had filed its return of income for assessment year 2003-04 declaring total income of Rs.88,16,140/-. The Assessing Officer completed the assessment under section 143(3) on 29 March 2006, determining total income at Rs.1,63,79,073/-, and held that CENVAT incentives were not eligible profits for deduction under section 80HHC. The assessee appealed to the CIT (Appeals), who upheld the Assessing Officer's order. The ITAT, however, reversed the CIT (Appeals) and held that the CENVAT credit was part of business profits eligible for deduction under section 80HHC. The Revenue appealed to the High Court under section 260A. The High Court framed three substantial questions of law: (A) whether the ITAT was correct in holding that CENVAT credit is business income even though it is not one of the export incentives under section 28(iiia) to (iiie); (B) whether the ITAT was correct in holding that CENVAT credit should be considered as duty drawback or an incentive not excludable from business profits; and (C) whether the ITAT was correct in holding that if CENVAT incentives are considered on par with duty drawback, then 10% of the drawback will be included in business profits and 90% entitled to relief under proviso to section 80HHC(3). The court, after hearing arguments, allowed the appeal, holding that CENVAT credit is not an export incentive under section 28(iiia) to (iiie) and cannot be treated as duty drawback for the purpose of section 80HHC. Consequently, the ITAT's order was set aside, and the questions of law were answered in favor of the Revenue.
Headnote
A) Income Tax - Export Incentive - Section 80HHC, Section 28(iiia)-(iiie) - CENVAT Credit - The issue was whether CENVAT credit of Rs.89,34,887/- under the CENVAT incentive scheme is part of business profits eligible for deduction under section 80HHC. The court held that CENVAT credit is not one of the export incentives enumerated under clauses (iiia) to (iiie) of section 28 and cannot be treated as duty drawback. Therefore, it is not includible in business profits for computing deduction under section 80HHC. (Paras 1-3) B) Income Tax - Duty Drawback - Section 80HHC(3) - CENVAT Credit - The court considered whether CENVAT credit should be treated as duty drawback or an incentive not excludable from business profits. It held that CENVAT credit is not akin to duty drawback and cannot be considered as such for the purpose of section 80HHC. (Paras 2-3) C) Income Tax - Computation of Deduction - Section 80HHC(3) - CENVAT Incentive - The court examined whether 10% of CENVAT credit should be included in business profits and 90% entitled to relief under proviso to section 80HHC(3). It held that since CENVAT credit is not an incentive under section 28(iii), no part of it can be excluded, and the entire amount is not to be taken into account for computing relief under section 80HHC. (Paras 2-3)
Issue of Consideration
Whether CENVAT credit is eligible for deduction under section 80HHC of the Income Tax Act, 1961, and whether it can be treated as duty drawback or an export incentive under section 28(iiia) to (iiie).
Final Decision
The High Court allowed the appeal, set aside the ITAT order, and answered the substantial questions of law in favor of the Revenue, holding that CENVAT credit is not eligible for deduction under section 80HHC.
Law Points
- CENVAT credit is not an export incentive under section 28(iiia) to (iiie) of the Income Tax Act
- 1961
- CENVAT credit cannot be treated as duty drawback for section 80HHC purposes
- CENVAT credit is not includible in business profits for computing deduction under section 80HHC
