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Issues: Whether profits from Duty Entitlement Pass Book Scheme and Duty Drawback Scheme are profits derived from an industrial undertaking so as to qualify for deduction under Section 80-IB of the Income-tax Act, 1961.
Analysis: The relevant scheme of Section 80-IB allows deduction only for profits and gains derived from the eligible industrial undertaking. Receipts under Duty Drawback and DEPB are statutorily brought to tax under Section 28(iiid) and Section 28(iiie), but they remain incentives flowing from the export incentive scheme and from Section 75 of the Customs Act, 1962. The controlling decisions on the expression "derived from" hold that a direct nexus with the industrial undertaking is required, and that an incidental or one-step-removed connection is insufficient. The later decision concerning subsidies did not displace this position for DEPB and Duty Drawback receipts.
Conclusion: Profits from DEPB and Duty Drawback Schemes are not profits derived from the industrial undertaking and do not qualify for deduction under Section 80-IB; the conclusion is in favour of Revenue and against the assessee.
Final Conclusion: The claim for deduction on DEPB and Duty Drawback receipts fails, and the appeal does not succeed.
Ratio Decidendi: For deduction under Section 80-IB, the receipt must arise directly from the industrial undertaking itself; export incentives such as DEPB and Duty Drawback, though taxable as business income, are independent and ancillary sources and lack the required direct nexus.
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