AI Drafter 
TaxTMI 
TaxTMI 
2017 (5) TMI 1630
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....e also under challenge before the Hon'ble High Court? (ii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction u/s 80IB of Rs. 21,76,234/- on interest earned on FDRs, inspite the fact that interest income is not a business income and certainly not derived from the business of the industrial undertaking?" 2.2 Appeal No.12/2010 admitted on 11.1.2010 "(1) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction of Rs. 79,52,247/- u/s 80IB on the amount of duty drawback which is admittedly not an income derived from industrial undertaking, simply by relying upon its own order, which are also under challenged before this Hon'ble High Court? (2) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction u/s 80IB on interest earned on FDRs, inspite the fact that interest income is not a business income and certainly not derived from the business of the industrial undertaking?" 3. Counsel for the appellant Mr. Singhi has taken us to the judgment of the Supreme Court in Liberty India vs. Commissi....
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.... 23. We are of the view that Department has correctly applied AS-2 as could be seen from the following illustration: Expenditure Amount(Rs.) Income Amount(Rs.) Opening Stock Purchases (Incouding Customs duty paid) Manufacturing overheads Administrative, setting and distribution exp. 100 500 300 200 Sales Duty Drawback received Closing Stock 1,000 100 200 1,300 1,300 In the circumstances, we hold that Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80IA/80IB of the 1961 Act. 4. However, counsel for the respondent has taken us to the provision of Section 28 (b, c, d) and (iii) of the Income Tax Act reads as under:- 28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- (i)........... (ii)........... (a)........... (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection....
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....xport product. Under the Duty Entitlement Passbook Scheme (DEPB), an exporter may supply for credit, as a specified percentage of FOB value of exports, made in freely convertible currency. The credit shall be available against such export products and at such rates as may be specified by the Director General of Foreign Trade by way of public notice issued in this behalf, for import of raw materials, intermediates, components, parts packing material etc. The holder of Duty Entitlement Passbook Scheme (DEPB) shall have the option to pay additional customs duty, if any, in cash as well. Validity 7.15. The DEPB shall be valid for a period of 12 months from the date of issue. 7.16 The DEPB and/or the items imported against it are freely transferable. The transfer of DEPB shall however be for import at the port specified in the DEPB which shall be the port from where exports have been made. However, imports from a port other than the port of export shall be allowed under TRA facility as per the terms and conditions of the notification issued by Department of Revenue. 7.38 (i) An application for grant of credit under DEPB may be made to the lic....
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....nce (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;) (iiic) .... (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992). 12. It will be clear from the aforesaid provisions of Section 28 that under clause (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India is by itself income chargeable to income tax under the head "Profits and Gains of Business or Profession". DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receivable once exports are made and an applicat....
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....f the DEPB will fall under Clause (iiid) of Section 28 of the Act and the High Court was not right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB. 15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that Clause (iiia) of Section 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under Clause (iiia) of Section 28 and thus there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under Clause (iiia) of Section 28 of the Act. In taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is n....
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....ecomes eligible on satisfying Sub-section(2), would be entitled to deduction Under Sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, Sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 35. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty an....
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.... derived from profits and gains made by the industrial undertaking or business itself. 24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under: The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas. The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, ind....
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.... profession", and not under the head "income from other sources". 5.2 And also judgment in ACG, Associated Capsules (P) Ltd. vs. Commissioner of Income Tax (2012) 247 CTR 372 wherein it has been held as under:- 13. The view that we have taken of Explanation (baa) to Section 80HHC is also the view of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) and the Tribunal in the present case has followed the judgment of the Delhi High Court. On appeal being filed by the Revenue against the order of the Tribunal, the High Court has set aside the order of the Tribunal and directed the Assessing Officer to dispose of the issue in accordance with the judgment of the Bombay High Court in Commissioner of Income-Tax v. Asian Star Company Ltd. (supra). We must, thus, examine whether reasons given by the High Court in its judgment in Commissioner of Income-Tax v. Asian Star Company Ltd. (supra) were correct in law. 14. On a perusal of the judgment of the High Court in Commissioner of Income-Tax v. Asian Star Company Ltd. (supra), we find that the reason which weighed with the High Court for taking a different view, is that rent, commissio....
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....exclude items which were unrelated to the export turnover from the computation of deduction and while excluding such items which are unrelated to export for the purpose of Section 80HHC, Parliament has taken due note of the fact that the exporter Assessee would have incurred such expenditure in earning the profits and to avoid a distorted figure of export profits, ninety per cent of the receipts like brokerage, commission, interest, rent, charges are sought to be excluded from the profits of the business. In our considered opinion, it was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section 80HHCwas clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an Assessee could be deducted under Clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee. 16. In the result, we allow the appeal and set aside the impugned ord....
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....g the subsidy payable to the assessee but the subsidy was provided for dealing with the problems created by reluctance of entrepreneurs to set up industries in undeveloped and underdeveloped areas and the industries were concentrating only in urban areas. Urbanization created several problems such as pollution, growth of slums, etc. and it was also necessary to have balanced growth of industry in different regions. Hence, the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilise such cash subsidy for any purpose connected with the establishment of industries in the backward areas and once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such subsidy. One of the recognised methods of working out such cash subsidy is on the basis of the amount invested by an entrepreneur in acquiring capital assets and the Government specified a ....
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.... way of reimbursement of such duties is inextricably linked with the cost of production which has to be reflected in the profit and loss account of the assessee and, therefore, the revenue's argument cannot be accepted. In view of the above discussion, we are of the view that while cash compensatory support (cash assistance) received by the assessee would not constitute income "derived from" an industrial undertaking and, therefore, the same is not eligible for relief under Section 80J of the Income Tax Act, 1961, but in case of duty drawback, the same is "derived from" the industrial undertaking and, therefore, eligible for relief under Section 80J of the Income Tax Act, 1961. 8. He has also relied upon the decision of this court in D.B. ITA No.580/2008 (K.G. Petrochem Ltd. vs. CIT) decided on 7.12.2016 wherein it has been held as under:- Mr. Sanjay Jhanwar has relied upon para 40 of Full Bench decision of this court in D.B. Income Tax Appeal No. 13/2002 (supra) which reads as under:- In commissioner of Income-Tax Vs. Shri Ram Honda Power Equip (Supra), the Delhi High Court held that the word "interest" in Clause (baa) of the Explanation to Sectio....