2025 (2) TMI 1423 - AT - Income Tax

Duty drawback receipts and export turnover treatment: tribunal rules drawback is an independent income source, denying 10AA benefit

Duty drawback receipts are treated as remission of duty constituting an independent source of income and therefore do not form part of 'export turnover' ... Addition made on account of export incentives of the assessee which is exempt u/s 10AA - Quantification the amount of addition made and basis of the quantum - basic concept of remission of duty draw back Assessee has claimed to have received export incentives by way of duty drawback which has been clubbed with the total turnover for the purpose of claiming deduction under the provisions of section 10AA - Claim disallowed by the AO due to the reasons that Duty Draw Back receipts (DDB ) cannot be considered as eligible for benefit u/s 10AA, as they do not form part of profits and gains derived from export HELD THAT:- As decided in M/s Saraf Exports [2023 (4) TMI 420 - SUPREME COURT] as explaining the basic concept of remission of duty draw back, the source of which, flows from various Government schemes and / or statutory provisions of the Customs Act ’62, we hold that the same would constitute an independent source of income. Definition of “Export turnover” within the meaning of the explanation 1(a) of Section 10AA - We find that it is an inclusive definition and for all logical purpose, the words consideration, here, means sales consideration and the same is to be derived from export of articles or things received in, or brought into India by the assessee. In the instant case the duty drawback received or receivable, cannot be bracketed in the same category as sales consideration from export of articles or things or services (so as to be covered under the above explanation). No hesitation in holding that, in the instant case, the duty drawback received or receivable by the assessee, cannot be considered to be profits and gains derived from the export of articles because it does not form part of “export turnover” as per the above explanation. Decided against assessee. Issues: (i) Whether duty drawback receipts/exports incentives received by the assessee constitute 'export turnover' or 'profits and gains derived from export' for the purposes of Section 10AA of the Income-tax Act, 1961 and are therefore eligible for deduction under Section 10AA.Analysis: Section 10AA provides a specific method for computing deduction based on profits of the business of the undertaking apportioned to export turnover as defined in Explanation 1(a) to Section 10AA. The definition of 'export turnover' is an inclusive definition referring to consideration in respect of export received in or brought into India. Judicial precedents distinguishing 'derived from' and 'attributable to' have held that incentives such as duty drawback arise from statutory schemes (Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944) and constitute incentives or remissions under government policy rather than sales consideration. The Supreme Court has held that duty drawback and similar incentives constitute independent or ancillary sources of income beyond the first degree nexus with the industrial undertaking and do not form part of net profits derived from the undertaking for purposes of deduction provisions such as Section 80IB. The authority of the Supreme Court in Saraf Exports (order dated 10.04.2023) and Liberty India was applied to the present provision, noting that Section 10AA's apportionment mechanism does not convert statutory incentives into sales consideration when the statutory source and policy-character of the receipts distinguish them from export sale consideration.Conclusion: Duty drawback receipts/exports incentives do not qualify as 'export turnover' or as 'profits and gains derived from export' for the purpose of Section 10AA and are not eligible for deduction under Section 10AA; the appeal is dismissed and the order below is upheld against the assessee.