TaxTMI 
TaxTMI 
2021 (1) TMI 196
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....under: " 1) That the order dtd. 04-09-2015 as passed in the appeal No.0252/15-16 by the learned Commissioner of Income Tax- Appeal(CITA) is unjustified, arbitrary, contrary to the facts and bad in law. 2) That the learned CITA is simply influenced by the decision of the learned AO without going through the merits, facts and circumstances of the case. 3) That the addition of Rs. 5,38,860/- made by the learned AO and confirmation of the same by the learned CITA, by disallowing the additional depreciation claimed in the return, is illegal as the same is based on a irrelevant case laws, the facts of which are totally different and the decisions were given in different context. 4) That the learned CITA is totally biased by the decision of the learned AO and completely ignored the submissions of the assessee that it is engaged in the production activities by installing the required plant and machinery in its industrial undertaking and having received registration from various govt, agencies for production/processing activities of exportable prawns and accordingly entitled for additional depreciation. 5) That the decisions of learned CITA and authorities below in disallowing the....
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....ium received for DEPB license. The above action of the Assessing Officer has been upheld by the ld CIT(A) in first appeal. 7. Hence, the assessee is in appeal before us. 8. Ld A.R. of the assessee submitted that the assessee set up a new plant encouraged by Govt of India Ministry for food processing Industries which promised & provided that: "........100% tax exemption for the first five assessment years, beginning with the initial assessment year, a measure which would be available under section 80-IB(11A) of the Income Tax Act, 1961, to undertakings deriving profit from the business of processing, preserving and packaging of fruits or vegetables and new units in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products........... 9. He submitted that with a view to preserving perishable food items like milk, poultry and meat, the Finance (No.2) Act 2009 has amended subsection (11A) of section 80-IB with effect from 01.04.2010 to provide tax holiday in respect of the business of processing, preserving and packaging of meat and meat products and poultry, marine and dairy products for units which begin to operate such....
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....ed or receivable by any person against exports under any scheme of the Government of India should be treated as part of the business profits with retrospective effect from 1.4.1967. Profits on sale of licences granted under the Imports & Exports (Control) Act, 1947 and/or the Foreign Trade Regulation Act, 1993 also have to be regarded as profits of the business under Section 28(iiia) inserted by Finance Act, 1990 w.r.e.f 1.4.1963. Furthermore, the Taxation Laws(Amendment)Act,2005 has inserted in section 28 a new clause (iiid) with retrospective effect from 1st April,1998 to secure that any profit from DEPB Scheme (Duty Entitlement passbook Scheme) or Duty Remission Scheme would also be taxable as business profits. Likewise, the Taxation Laws (Amendment)Act,2005 has amended section 28 to insert a new Clause (iiie) with retrospective effect from 1st April,2001 to secure that any profit on transfer of Duty Free Replenishment Certificate(DFRC) shall be treated as part of business Profits of the exporter. 13. Ld A.R. submitted that in view of the above amendment in the Act, the issue is no longer res integra. He further referred judgment of Hon'ble Supreme Court in Sterling Foods' case....
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....Para- 28 of the Judgement as under: "It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to s. 56 of the IT Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by s. 14 of the IT Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "Income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Sec. 28(iiib) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "Profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "Pro....
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....tly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export On an application of the aforesaid test to the facts of the present case, it can be said that as all the four subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of costs relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of ss. 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business ....
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.... Court in the case of Meghalaya Steel Ltd., (supra). 20. Further drawing our attention towards para 13 of the decision of Hon'ble Supreme Court in the case of Meghalaya Steel Ltd.,(supra), ld CIT DR submitted that Their Lordships has given attention towards judgment of Hon'ble Gujarat High Court in the case of Cambay Electric Supply Industrial Company Limited vs CIT (1978) 2 SCC 644 and contended that there is a distinction between expression "attributable to" and "profit derived from" a business. The earlier expression has wider scope by meaning and latter is having narrow meaning. Therefore, there must be, for the application of the words "derived from" a direct nexus between the "profits and gains and industrial undertaking, which is incidental in the present case. Further drawing our attention to para 14 of said judgment of Hon'ble Supreme Court, ld CIT DR submitted that the Hon'ble Court has also considered its earlier judgment in the case of CIT vs Sterling Foods, (1999) 4 SCC 98, wherein, it was decided that whether income derived by the assessee by sale of import entitlements on export being made, was profit and gain derived from the respondent's industrial undertaking und....
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.... makes no difference between an export sales and domestic sales. The Acts provides sale level of deduction for both kind of sales. Therefore, export is an activity which is different from the scope of works envisaged by statute in section 80 IB(11A) of the Act. Therefore, the AO was right in denying deduction u/s. 80IB(11A) of the Act on account of export sales and consequent sale of DEPB. Therefore, order of the AO may kindly be upheld. 23. Placing rejoinder to above, ld counsel for the assessee drew our attention towards para 28 at pages 31-32 of the judgment of Hon'ble Supreme Court in the case of Meghalaya Steel Ltd., (supra) and submitted that if cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head " income from other sources". Ld A.R. submitted that DEPB credit has direct links with the quantum of export sales. If there is no export sales, then no D....
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....heme,. Therefore, the clear objective behind the scheme was, thus, to reduce the cost of its procurements and to neutralize certain inherent disadvantages attached to such products. Therefore, the assessee was entitled for deduction u/s. 80IB (11A) of the Act in respect of benefits received under VKGUY. 26. Ld A.R. vehemently placing the claim of the assessee u/s. 80IB(11A) of the Act, again drew our attention towards the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd., 196 ITR 188 (SC), wherein, it was held that a provision in a taxing statute granting incentives for promoting industrial and economic growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it, too has to be construed so as to advance the objective of the provision and not to frustrate it. 27. On careful consideration of the rival submissions and on perusal of the relevant assessment order, first appellate order and other materials placed on record and on vigilant consideration of the case laws relied on by both the parties, first of all, we observe that the Assessing Officer has not disputed the....
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.... (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. 2 to 11 ........................... (11A): The amount of deduction in a case of [an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or [meat and meat products or poultry or marine or dairy products or] from] the integrated business of handling, storage and transportation of foodgrains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such busines....
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....j), wherein, it was held that in view of insertion of clause (iiid) in section 28 of the Act by the Taxation Laws (Amendment) Act, 2005, retrospectively w.e.f. 1.4.1998, profits from sale of DEPB licenses are profits derived from eligible business for purposes of deduction u/s. 80IB of the Act. The relevant paras 10 to 13 of this order read as follows: "10. In our view, on a combined reading of s. 80-IB(4) and s. 28(iiid), as introduced, does make clear, that the profit derived on transfer of DEPB licenses, does very much fall within four corners of profits and gains, derived from such industrial undertaking, being assessee, and is capable of being taxed only under s. 28, subject to exemption, as provided in s. 80-IB, and/or other eligible provisions. 11. So far as judgment of Hon'ble Supreme Court in Sterling Foods' case (supra) is concerned, that judgment reported in CIT vs. Sterling Foods (supra) is of the year 1999, at which time, the newly added provision of cl. (iiid) did not exist, which has been inserted, as noticed above, in the year 2005, w.e.f. 1st April, 1998. Likewise, the judgment in Pandian Chemicals Ltd.'s case (supra) is also of the year 2003. Thus, the introdu....
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....reme Court has been based on the newly inserted clauses (iiib) & (iiid) to section 28 of the Act, which cannot be disputed. The legislative intent behind insertion of said two clauses is explicit and ample clear that by way of insertion of clause (iiib) and (iiid), the legislature made it clear that ' cash assistance' by whatever named called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax and as per clause (iiib) & (iiid) to section 28 of the Act, any profit on the transfer of the Duty Entitlement Pass Book Scheme (DPEB), being the Duty Remission Scheme (DRS) under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1922 are to be included and treated as "profit and gains of business or profession. " 35. Ld CIT DR has strenuously contended, by placing reliance on the decision of Hon'ble Gujrat High Court in the case of Banpal Oil Chem (P) ltd vs ACIT (2016) 71 taxmann.com 342 (Gujarat), to submit that when the assessee is having eligible industry and availing deduction u/s. 80IB of the Act, will not be entitled for the....
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....ect as well. " 38. Thereafter, referring to its earlier decisions in the case of Sterling Foods (supra), Pandian Chemicals Limited (supra) and Liberty India (supra) and after perusing rival contentions of both the sides, Their Lordships also referred to the decision of Hon'ble Calcutta High Court in the case of Merino Ply & Chemicals Ltd vs CIT, 209 ITR 508 (Cal) and the decision in the case of CIT vs Andaman Timber Industries Ltd., 242 ITR 204 (Cal) and thereafter held that the judgment of Hon'ble Calcutta High Court in the case of Merino Ply & Chemicals ltd (supra) have correctly appreciated the legal position. Their Lordships also referred to the decision of Hon'ble Delhi High Court in the case of CIT vs Dharampal Premchand ltd., 317 ITR 353 (Del) against which SLP preferred before the Hon'ble Supreme Court was dismissed. In this case, Hon'ble Delhi High Court held that the refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under section 80 IB of the Act. Their Lordships after considering the clause (iiib) to section 28 of the Act held that the income from 'cash assistance', by whatever name called,....
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....receipts from sources other than the actual conduct of the business of generation and distribution of electricity." (Para 8) 14. In Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore, (1999) 4 SCC 98, this Court had to decide whether income derived by the assessee by sale of import entitlements on export being made, was profit and gain derived from the respondent's industrial undertaking under Section 80HH of the Indian Income Tax Act. This Court referred to the judgment in Cambay Electric Supply (supra) and emphasized the difference between the wider expression "attributable to" as contrasted with "derived from". In the course of the judgment, this Court stated that the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Having said this, this Court finally held:- "We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. whereunder the export entitlements become available. Ther....
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....ng 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 and special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Govern....
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....ect nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains" spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derive....
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.... it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error." 22. However, in CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in the present ca....
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.... These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable." 23. We are of the view that the judgment in Merino Ply & Chemicals Ltd. and the recent judgment of the Calcutta High Court have correctly appreciated the legal position. 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....
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....re reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head "income from other sources". 29. For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Fo....
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....ts goods as a percentage amount of export value. Since the availability of these receipts are known to everybody including the international buyers, the export price of the products to be exported are determined after taking into account the value of receipt of DEPB. By referring to provisions of section 28 of the Act, it is stated that these receipts shall be chargeable to income tax under the head " profits and gains of business or profession" and these amounts forms part of the activities of an industrial undertaking without which Central Government would not have sanctioned the same. Hence, it is stated that the amount of DEPB received is directly relatable to export activities of the assessee, which profits are entitled to the benefit u/s. 80IB(11A) of the Act and this amount has to be treated as part of sales realisation and profit and gains derived from operation of such business entitled for deduction u/s. 80 IB(11A) of the Act is also to be considered for calculating the deduction u/s. 80IB(11A) of the Act. Accordingly, the receipts of DEPB be allowed as part of industrial income for calculating deduction u/s. 80 IB of the Act. 42. Thereafter, the AO without recording any....
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....l, we may point out that the legislature has used word in sub-section (11A) of Section 80 IB " profits and gains derived from such undertaking". The provisions of section 80 IB (11A) of the Act cannot be considered and read in isolation by ignoring the newly inserted clauses (iiib) & (iiid) of Section 28 of the Act, which provides that the cash assistance by whatever name called, received or receivable by any person against exports under any scheme of the Government of India and in clause (iiid), any profit from Duty Entitlement passbook Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 are profits and gains of business or profession. These amendments have been inserted w.r.e.f i.e. 1.4.1967 and 1.4.1998, respectively by the Taxation Laws (Amendment)Act,2005. 45. In view of above relevant provisions, when we consider the law rendered by Hon'ble Supreme Court in the case of Topman Exports (supra), then we find that Their Lordships speaking for Hon'ble apex Court after considering the provisions of clause (iiib) and (iiid) of Section 28 of the Act, categorically held that the amount of DEPB ....
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.... ltd (supra)is not available for the revenue as the decision of Hon'ble Supreme Court in the case of Meghalaya Steel (supra) is a supreme precedence which is binding on all the Courts below including this Tribunal. Respectfully following the decision of Hon'ble Supreme Court in the case of Meghalaya Steel (supra), we hold that the DEPB entitlement amount received or receivable by the assessee under the Government of India export promotion scheme is an income includible under the head "profits and gains of business or profession" as per clause (iiib) and (iiid) to Section 28 of the Act. 47. As we have noted above that the AO himself noted, in the middle para at page 25 of the assessment order for A.Y. 2011-12, that "The statute in 80 IB(11A) makes no difference between an export sales and domestic sales, the Act provides same level of deduction for both kind of sales". Thereafter, he noted a complete contradictory finding to his earlier said observations that "export is an activity which is different from the scope of works envisaged by the Statute. Thus, no deduction on account export sales and consequent receipt of DEPB premium can be allowed." As we have noted above at the time....