COMMISSIONER OF INCOME TAX, KARNATAKA versus STERLING FOODS, MANGALORE

Citation: [1999] 2 S.C.R. 699 · Decided: 15-04-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

COMMISSIONER OF INCOME TAX, KARNA T AKA 
A 
v. 
STERLING FOODS, \.1ANGALORE 
APRIL 15, 1999 
[S.P. BHARUCHA AND R.C. LAHOTI, JJ.] 
B 
Income Tax Act, 1961 
Section 80HH and 28-Deduction-Profits and gains derived from an 
industrial undertaking-Firm engaged in processing sea food-Sale proceeds C 
from import entitlements-Claim/or relief including income derived from sale 
of import entitlements-Permissibility of-Held, the sale proceeds from import 
entitlements do not constitute profit and gain derived from the assessees' 
industrial undertaking-Thus, not entitled to claim relief in respect of sale 
proceeds from import entitlements. 
Section 28 (as amended in 1990)-Applicability of 
Practice & Procedure 
D 
Binding precedent-Division Bench of High Court-Judgment-Later 
co-ordinate Bench not following the Judgment-Held, not justified. 
E 
Words & Phrases 
'Derived from '-Meaning of in the context of section 80HH of Income 
Tax Acl; 1961. 
Assessee firm was engaged in processing pr~wns and other sea food 
F 
for export. It earned certain import entitlements granted by the Central 
Government under an Export Promotion Scheme, and sold them to others. 
Subsequently, while claiming relief under Section 80HH of the Income Tax 
Act, 1961, it included the sale proceeds deri~ed from import entitlements. G 
The Tribunal rejected the said claim of the assessee. When an identical 
issue arose for an earlier assessment year, High Court rejected the claim 
of the assessee. However, on Reference in the instant case, High Court 
relying upon the amended provisions in Section 28 of the Act allowed the 
'Claim of the assessee. It did,not follow the earlier binding judgment of the 
High Court. Hence the present-appeal. 
H 
699 
700 
SUPREME COURT REPORTS 
[1999] 2 S.C.R. 
A 
Allowing the appeal and setting aside the order of High Court, this 
B 
Court 
HELD: 1.1. Assessee firm is not entitled to claim relief under Section 
80HH of the Income Tax Act, 1961 in respect of sale proceeds derived from 
import entitlements. [705-B] 
1.2. Under Section 80HH of the Income Tax Act, 1961 an assessee is 
entitled to deduction from the profits and gains derived from an industrial 
undertaking. There must be, for the application of the words "derived from", 
a direct onus between the profits and gains and the industrial undertaking. 
C In the instant case, the nexus is not direct but only incidental. The industrial 
undertaking exports processed sea food. By reasons of such export, the 
Export Promotion Scheme applies. Thereunder, the assessee is entitled to 
import entitlements, which it can sell. The sale consideration therefrom 
cannot be held to constitute a profit and gain derived from the assessees' 
industrial undertaking. [702-E; 705-C-D] 
D 
Bombay Electric Supply Industrial Co. Ltd v. CIT, 113 ITR 84, referred 
to 
Commissioner of Income Tax, Madras-Iv. Wheel and Rin company of 
E India Ltd., 107 ITR 168, distinguished 
National Organic Chemical Industries Ltd. v. Collector of Central 
Excise, Bombay, 106 STC 467, held inapplicable. 
2. The amended provisions of Section 28 of the Act have no relevance 
F to the point in issue and the High Court was in error in relying thereon and 
not following the earlier judgment. 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2390-91 of 
1996. 
G 
From the Judgment and Order dated 22/29.11.90 of the Karnataka High 
Court in l.T.R.C. Nos. 33 and 62of1984. 
Ranbir Chandra, T.C. Sharma, S. Rajappa and S.K. Dwivedi for the 
Appellant. 
H 
Dhruv Mehta, S.K. Mehta and Ms. Shoba for the Respondent. 
C.l.T. v. STERLING FOODS [BHARUCHA, J.] 
701 
The Judgment of the Court was delivered by 
BHARUCHA. J. The Judgment and order under appeal (190 ITR 274) 
was pronounced by a Division Bench of the Kamataka High Court on a 
reference made by the assessee, and the Revenue is in appeal. The High 
Court answered in favour of the assessee the following question: 
"Whether, on the fact and circumstances of the case, the Tribunal was 
justified in law in holding that the receipt from the sale of import 
entitlements could not be included in the income of the assessee for 
the purpose of computing the relief under Section 80HH of the Income-
tax Act, 1961 ?" 
The identical question had arisen in respect of the same assessee for 
an earlier year and the High Court had then answered the question against 
A 
B 
c 
the assessee (150 ITR 293). The assessee had not carried the matter further. 
Ordinarily, therefore, the Divisi

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