TaxTMI 
TaxTMI 
2021 (1) TMI 196
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....Grounds raised in assessment year 2011-12 are as 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. ....
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....g to him to be direct decision on the issue and made an addition of Rs. 7,24,15,518/- on account of premium 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....
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.... He referred to Section 28(iiib) of the Income Tax Act, which provides that cash assistance by whatever name called, received 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 ....
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....C 328 and many other decisions along with the amendment to Section 28 of the Income Tax Laws(Amendment)Act,2005 the court finally concluded at 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 an....
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....motion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly 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 see....
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....ews taken by the Hon'ble Gujarat High Court while considering the duty draw back but this will not fall within the duty as held by the Tribunal and in view of judgment of Hon'ble Supreme 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, ....
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....s are completed, i.e. the goods leave the factory premises the benefit of deduction ends. The point of sale for claim of deduction is the factory gate and not export and the statute in 80IB(11A) 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 busine....
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....uch benefit was in order to compensate high transport cost and to offset other disadvantages in order to make the export of such products viable, Government of India decided to grant under the said scheme,. 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....
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....teness in our order. Section 80IB(11A) 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to [(11), (11A) and (11B) (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....
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....nts. Therefore, the stand of the AO in this regard in the assessment order is correct. 32. At this juncture, it is necessary and relevant to consider the ratio of the decision of Hon'ble Rajasthan High Court in the case of Saraf Seasoning Udyog vs ITO, 219 CTR 0461 (Raj), 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 (supr....
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....istance" receivable by a person against exports under the scheme of Government of India and falls under clause (iiib) of Section 28 and it has to be included and chargeable to tax under the head "profits and gains of business or profession". In our considered opinion, this proposition rendered by Hon'ble Supreme 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....
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....expression "attributable to". Since we are directly concerned with the expression "derived from", this judgment is relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect 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....
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.... may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover 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 t....
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....liament intended to cover sources not beyond the first degree. This Court went on to hold:- "34. On an analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes 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 specifi....
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....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 cost 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 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 rei....
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....High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994], held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:- "We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, 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....
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....ing views:- ".... Similarly, subsidy on power was confined to 'power consumed for production'. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. 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 collect....
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....28. 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 Section 56 of the Income Tax 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 Section 14 of the Income Tax 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. 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....
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....21, we observe that the assessee, replying to the show cause notice issued by the AO, vide letter dated 15.1.2014 stated that DEPB is an assistance given by the Central Government, as compensation towards duty component on procurement of exportable goods which the assessee can import without payment of duty and also meet the high transport cost. The objective of the scheme is to make the cost of exportable goods competitive in the international market so that the units are able to export. Accordingly, the assessee receives the amount on export of its 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 receive....
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.... disallowance by referring to the decision of Hon'ble Supreme Court in the case of Liberty India (supra) and observed that the issue as to whether DEPB receipts can be treated as profits derived from an industrial undertaking for the purpose of claiming deduction u/s. 80IB(11A) of the Act has been settled by Hon'ble Supreme Court, the stand of the AO in this regard in the assessment order is quite in order and correct and the assessee cannot be allowed to calculate the disallowance u/s. 80 IB(11A) of the Act by including DEPB receipts. 44. First of all, 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 Foreig....
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....ndia (supra) to arrive at the opposite conclusion, is held to be wrongly decided. Therefore, in our respectful and humble opinion, the Hon'ble Supreme Court has over-ruled its earlier decision in the case of Sterling Foods (supra) and Liberty India (supra) and now the decision in the case of Meghalaya Steel (supra) holds the field. 46. In view of decision in the case of Meghalaya Steel (supra) and subsequent decision of different High Courts, we respectfully held that the benefit of judgment of Hon'ble Gujarat High Court in the case of Banpal Oil Chem (P) 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 h....
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....ed from its industrial undertaking then in view of subsequent amendment to Section 28 of the Act w.e.r.f by insertion of clauses (iiib) & (iiid) of the Act, DEPB entitlement has to be included and treated as income from " profits and gains of business and profession" and same cannot be treated as " income from other sources". In view of foregoing discussion, we hold that DEPB entitlement amount is having direct nexus with the industrial activities of the assessee, which is export oriented entitled for deduction u/s. 80IB(11A) of the Act, therefore, respectfully following the decision of Hon'ble Supreme Court in the case of Meghalaya Steels Ltd.,(supra), DEPB entitlement amount is an income derived by the assessee from industrial undertaking of the assessee, thus, the same is also entitled for deduction u/s. 80 IB(11A) of the Act. Accordingly, Ground Nos.5,6 & 7 for assessment year 2011-12 are allowed. 49. Ld counsel has placed reliance on the decision of Hon'ble Bombay High Court in the case of Pioneer Foods & Agro Industries vs ITO, (2019) 3 NYPCTR 408 (Bom) and submitted that the assessee is also entitled for deduction u/s. 80 IB(11A) of the Act in respect of benefits under....