1

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3142 OF 2009 (Arising out of SLP(C) No.22604 of 2007)

CHHOTALAL SAMJI       ...APPELLANT (S)

VERSUS

INCOME TAX OFFICER     ...RESPONDENT(S)       

O R D E R

Leave granted.

This civil appeal pertains to assessment year 2001-02.

By  the  Finance  Act,  1990,  Section  28  of  the  Income-tax  Act,  1961  has  been  

amended by inserting therein, clauses (iiia), (iiib) and (iiic) with retrospective effect with a  

view to ensure that cash compensatory support (CCS), duty drawback (DD) and profit on  

sale of import entitlement licences (IL) shall be taxable under the head “Profits and Gains  

of Business or Profession”.  In view of this amendment, the above three export incentives  

have got to be included in the profits of the business for computing the deduction under  

Section 80HHC.

In this case we are only concerned with two out of three above-mentioned export  

incentives, namely, duty drawback and profits arising from sale of DEPB licence. We quote  

hereinbelow Section 28(iiia) and (iiic) of the 1961 Act which read as under:

“Profits and gains of business or profession.

28. The  following  income  shall  be  chargeable  to  income-tax  under the head “Profits and gains of business or profession”-

(iiia) profits  on  sale  of  a  licence  granted  under  the  Imports  (Control) Order, 1955, made under the Imports and Exports (Control)

2

Act, 1947 (18 of 1947); …

(iiic) any  duty  of  customs  or  excise  re-paid  or  re-payable  as  drawback  to  any  person  against  exports  under  the  Customs  and  Central Excise Duties Drawback Rules, 1971.”

According to the A.O., under Section 28(iiia) of the said Act, profits on sale of a  

licence granted under Imports (Control) Order, 1955, made under the Import and Exports  

(Control) Act, 1947 and duty drawback repayable against exports under the Customs and  

Central  Excise  Duties  Drawback  Rules,  1971,  are  alone  includible  in  the  profits  of  a  

business for computing the deduction under Section 80HHC.  However, according to the  

A.O., in the present case, the assessee claims to have earned profits on the sale of DEPB  

licence  under  Foreign  Trade  (Development  and  Regulation)  Act,  1992  and  not  under  

Imports (Control) Order, 1955, made under the Import and Exports (Control) Act, 1947  

and,  therefore,  such  profits  were  not  includible  in  business  profits  for  computing  the  

deduction under Section 80HHC of the said Act.  Similarly, according to the A.O., in this  

case, the assessee has earned duty drawback under Customs and Central Excise Duties  

Drawback Rules,  1995.   It  has not  earned duty drawback under Customs and Central  

Excise Duty Drawback Rules, 1971 and, therefore, the assessee was not entitled to include  

such incentives in the business profits for computing the deduction under Section 80HHC.  

One more finding has been given by the A.O., namely, that the assessee was not entitled to  

claim the benefit under Section 80HHC because the assessee during the assessment year in  

question has derived negative profits (loss) from export of trading goods.  

None  of  the  above  questions  have  been  decided  by  the  High  Court.   In  the  

circumstances, we set aside the impugned order and restore Tax Appeal No.1127 of 2006  

for de novo consideration by the High Court in accordance with law.

Accordingly, the civil appeal stands allowed with no order as to costs.

3

....................J. [ S.H. KAPADIA ]

New Delhi, ....................J April 30, 2009 [ AFTAB ALAM ]  

4

ITEM NO.3                  COURT NO.4                  SECTION IIIA

           S U P R E M E   C O U R T   O F   I N D I A                          RECORD OF PROCEEDINGS                      Petition(s) for Special Leave to Appeal (Civil) No(s).22604/2007

(From the judgment and order dated 21/03/2007 in TA No. 1127/2006   of The HIGH COURT OF GUJARAT AT AHMEDABAD)

CHHOTALAL SAMJI                                      Petitioner(s)

                     VERSUS

INCOME TAX OFFICER                                   Respondent(s)

(With appln(s) for permission to place addl. documents on record and prayer for interim relief)

Date: 30/04/2009  This Petition was called on for hearing today.

CORAM :         HON'BLE MR. JUSTICE S.H. KAPADIA         HON'BLE MR. JUSTICE AFTAB ALAM

For Petitioner(s)    Mr. Ramesh P. Bhatt, Sr.Adv.                      Mr. Dattatray Vyas, Adv.                      Mr. Manish Sharma, Adv.                      Mr. Chirag M.Shroff,Adv.

For Respondent(s)    Mr. Radha Krishnan, Sr.Adv.       Mr. Navin Prakash, Adv.

                    Mr. Kul Bharat, Adv.                      Mr. B.V. Balaram Das,Adv.

      UPON hearing counsel the Court made the following                            O R D E R  

Leave granted.

The appeal is allowed with no order as to costs.

         (S. Thapar)         PS to Registrar

(Madhu Saxena) Court Master

5

The signed order is placed on the file.