Saraf Exports Vs CIT,Jaipur

Case snapshot

Sections / provisions: 80-IB

Questions before the Court / Tribunal

• Section 80-IB export incentives: whether duty drawback/DEPB is profit derived from industrial undertaking.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Judicature for Rajasthan at Jaipur dated 04.02.2016 in D.B. Income Tax Appeal No. 7 of 2014 by which the High Court has allowed the said appeal preferred by the Revenue and has held that the assessee is not entitled to the deduction under Section 80-IB of the Income Tax Act, 1961 (hereinafter referred to as “Act, 1961”) with respect Signature Not Verified

(hereinafter referred to as “Duty Drawback”) and on transfer of Duty Entitlement Pass Book Scheme (hereinafter referred to as “DEPB”), the assessee has preferred the present appeal.

2.1 The assessee, a partnership firm, was engaged in the business of manufacturing and exporting wooden handicraft items. For the Assessment Year (A.Y.) 2008- 09, the assessee filed its return on 30.09.2008 declaring its income as nil, claiming deduction of Rs. 70,197/- on account of DEPB and of Rs. 76,27,636/- on account of receipts under the Duty Drawback.

2.2 The assessee credited the receipts of the aforesaid amounts into the Profit & Loss Account and claimed the same as “Profit / gains of business / profession” under Sections 28(iiic) and 28(iiib) of the Act, 1961. The assessee was issued a notice under Section 143(2) of the Act, 1961.

order of the Deputy Commissioner disallowing the exemption as claimed, came to be upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (ITAT) allowed the appeal preferred by the assessee vide order dated 17.12.2013 by inter alia observing that the decision of this Court in the case of Liberty India Vs. Commissioner of Income Tax, (2009) 9 SCC 328 : (2009) 317 ITR 218 (SC) can be said to be per incuriam and allowed the deductions as claimed on the receipts of amount under DEPB Scheme and Duty Drawback Scheme.

Appellant / assessee submissions

3. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Commissioner of Income Tax Vs. Meghalaya Steels Limited, (2016) 6 SCC 747 : (2016) 383 ITR 217 (SC),

3.1 It is submitted that the meaning of “derived from” under Section 80-IB as laid down in Liberty India (supra) has been widened by this Hon’ble Court in the case of Meghalaya Steels Limited (supra).

3.2 It is further submitted that the conclusion of Liberty India (supra) is based on the finding that “derived from” under Section 80-IB requires a “first degree” connection with the business of the industrial undertaking whereas the source of DEPB / Duty Drawback are incentives given under the Duty Exemption Remission Scheme / Section 75 of the Customs Act, 1962. That applying the test of “first degree”, this Court in the case of Liberty India (supra) held that receipts from DEPB / Duty Drawback cannot be deducted under Section 80-IB.

3.3 It is next submitted that, however, subsequently, in the case of Meghalaya Steels Limited (supra), the issue before this Court was whether transport, interest and

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

pertained to three subsidies, namely, a) Transport Subsidy, b) Interest Subsidy and c) Power Subsidy. That this Court held that since these subsidies directly affect the cost of manufacturing, they have a direct nexus between the profits and gains of the undertaking. Since these subsidies have a direct nexus, they can be said to be derived from the industrial undertaking. It is submitted that though in the said decision, this Court has not held the decision in the case of Liberty India (supra) to be bad in law, in para 20, this Court has also observed that since if there is no export, there is no DEPB entitlement. Therefore, its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. That it is observed that the object behind the DEPB entitlement, as has been held by this Court, is to neutralise the incidence of customs duty payment on the import content of the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself. It is submitted that, therefore, in light of the above, the decision in the case of…

Operative decision and relief

though binding, the ITAT did not follow the decisions of this Court in the case of Liberty India (supra) and Sterling Foods, Mangalore (supra), and, therefore, the High Court has rightly set aside the order passed by the ITAT following the decisions of this Court in the case of Liberty India (supra) and Sterling Foods, Mangalore (supra). It is submitted that therefore, the impugned judgment and order passed by the High Court is not required to be interfered with.

4.9 Making above submissions, it is prayed that the present appeal be dismissed.

45. 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 80- I/80-IA/80-IB of the 1961 Act. The appeals are, accordingly, dismissed with no order as to costs.”

8. In view of the above and for the reasons stated above, the High Court has rightly held that the respondent – assessee is not entitled to the deductions under Section 80-IB on the amount of DEPB as well as Duty Drawback Schemes. We hold that on the profit earned from DEPB / Duty Drawback Schemes, the assessee is not entitled to deduction under Section 80-IB of the Act, 1961. Any contrary decision of any High Court is held to be not good law. Present appeal deserves to be dismissed and is accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.

Ratio and legal principle

• The packaged judgment addresses Section 80-IB export incentives: whether duty drawback/DEPB is profit derived from industrial undertaking. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with section 80-ib export incentives: whether duty drawback/depb is profit derived from industrial undertaking. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 80-IB - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Bridge India Fund, New Delhi v. ACIT - ITAT Mumbai - I Bench
• SECUNDRABAD CLUB VS. C.I.T.-V - Supreme Court of India
• PCIT v. Indravadan Jain, HUF - Court / Tribunal to be verified

Different outcome / possible distinction

• ACIT CIR 6(1) VS ASAHI INFRA & PROJECTS LIMITED - Remanded / restored
• ITO 32(2)(3) VS MAYUR R KAMDAR - Dismissed

Full judgment and source control

Read / download packaged judgment record

Source class: OFFICIAL_PRIMARY_DIGITALLY_SIGNED_AUTHENTICATED · Repository status: HOLD_SOURCE_OR_LATER_HISTORY