2019 (7) TMI 1226 - HC - Income Tax

Court dismisses Income Tax Appeal on duty drawback inclusion in expenses, ruling it doesn't qualify for exemption.

The court dismissed the Income Tax Appeal challenging the inclusion of duty drawback in expenses, ruling that duty drawback does not qualify for exemption ... Exemption of the income arising out of its export business - Whether the duty drawback of Appellant which is included in the purchase of the appellant which forms the part of expenses of the eligible unit ? - HELD THAT:- The case of the assessee seeking exemption of the income arising out of its export business, is squarely covered by the Judgment of the Supreme Court in the case of Liberty India [2009 (8) TMI 63 - SUPREME COURT] since the receipts in question arise out of the duty draw back payment of the Government of India. In Liberty India, as is well known, the Supreme Court had held that the DEPB benefits (similar to the duty draw back payments) would not qualify for exemption from tax since the same are not directly connected to the assessee's export business. Assessee placed reliance on the subsequent decision of the Supreme Court in the case of CIT V/s. Meghalaya Steels Ltd. [2016 (3) TMI 375 - SUPREME COURT] . We are conscious that in such decision, the Supreme Court had granted the benefit of exemption in respect of a subsidy received from the Government. In the process, the Supreme Court had held that the ratio laid down by the Supreme Court in the case of Liberty India (supra) would not apply in such a case. However, we cannot apply the decision of the Supreme Court in the case of Meghalaya Steels Ltd. (Supra) since the case of the present assessee is squarely covered by the decision in the case of Liberty India (Supra). No question of law arises. Issues:1. Challenge to the judgment of the Income Tax Appellate Tribunal regarding duty drawback inclusion in expenses.2. Interpretation of Supreme Court judgments in Liberty India and Commissioner of Income Tax v. Meghalaya Steels Ltd.3. Application of exemption for income arising from export business.Analysis:The appellant filed an Appeal challenging the Income Tax Appellate Tribunal's judgment regarding the inclusion of duty drawback in expenses. The main issue was whether duty drawback, forming part of the appellant's expenses, qualifies for exemption. The case was compared to the Supreme Court judgment in Liberty India, where it was held that DEPB benefits, similar to duty drawback payments, do not qualify for tax exemption as they are not directly connected to the export business.The appellant's counsel relied on the subsequent Supreme Court decision in Commissioner of Income Tax v. Meghalaya Steels Ltd. [2016] 383 ITR 217 (SC), where exemption was granted for a subsidy received from the Government. However, the court held that the appellant's case aligns with the decision in Liberty India, not Meghalaya Steels Ltd. The court emphasized that the appellant's situation is covered by the Liberty India judgment, and thus, the Meghalaya Steels Ltd. decision cannot be applied. Consequently, no question of law arose, and the Income Tax Appeal was dismissed.