2009 (11) TMI 59 - HC - Income Tax

Export incentives not deductible under Section 80-IB: High Court decision

The High Court ruled that Duty Draw Back and Duty Entitlement Pass Book Scheme (DEPB) are not eligible for deduction under Section 80-IB of the Income Tax ... Deduction u/s 80IB – Duty draw back – Duty Entitlement Passbook DEPB - the assessee, who derived income from manufacturing of handloom goods and its export, claimed deduction on the business profit, which included the amount of export incentives received on account of the Duty Draw Back and the Duty Entitlement Pass Book Scheme (hereinafter referred to as `DEPB') under Section 80-IB of the Act. The Assessing Officer, vide his order dated 31.3.2008, while following the decision of the Supreme Court in CIT v. Sterling Foods – held that - decision of this Court in the case of Liberty India has been affirmed by the Hon'ble Supreme Court in Liberty India v. Commissioner of Income-Tax, wherein while dismissing the appeal of the assessee, it has been concluded that Duty Draw Back and DEPB are incentives, which flow from the schemes framed by the Central Govt. or under Section 75 of the Customs Act, 1962 and these incentive profits do not fall within expression “profits derived from industrial undertaking in Section 80-IB of the Act. Therefore, Duty Draw Back and DEPB do not form part of net profits of the industrial undertaking for the purposes of Section 80-IB of the Act. – Deduction not be allowed - Decided against the assessee Issues:1. Whether Duty Draw Back received is eligible for claim u/s 80-IB of the Income Tax ActRs.2. Whether Duty Entitlement Pass Book Scheme received is eligible for claim u/s 80-IB of the Income Tax ActRs.Analysis:The High Court judgment addressed Income Tax Appeals concerning the eligibility of export incentives, specifically Duty Draw Back and Duty Entitlement Pass Book Scheme (DEPB), for deduction under Section 80-IB of the Income Tax Act, 1961. The assessee, engaged in manufacturing handloom goods for export, claimed deduction on business profit, including export incentives. The Assessing Officer, following precedents, denied the deduction, stating that these incentives were not derived from an industrial undertaking eligible for Section 80-IB deduction. This decision was upheld by the Commissioner of Income Tax (Appeals) and subsequently by the Income Tax Appellate Tribunal (ITAT).The Court referenced the Supreme Court's decision in Liberty India v. Commissioner of Income-Tax, affirming that Duty Draw Back and DEPB are incentives under government schemes and do not constitute profits derived from an industrial undertaking as per Section 80-IB of the Act. Consequently, the Court concluded that these incentives do not form part of the net profits of the industrial undertaking for Section 80-IB purposes. As a result, the Court found no substantial question of law arising from the ITAT's order and dismissed both appeals.In summary, the judgment clarified that Duty Draw Back and DEPB are not eligible for deduction under Section 80-IB of the Income Tax Act as they do not qualify as profits derived from an industrial undertaking. The decision was based on established legal precedents and the interpretation of relevant provisions.