2009 (11) TMI 619 - AT - Income Tax

Deduction under s. 80-IB - excise duty refund - CIT(A) has treated the refund of excise duty as revenue receipt but not derived from Industrial Under and denied the benefit of deduction u/s 80IB - Held that:- In the present case, firstly, the assessee collects the excise duty from the customers and after collection it makes the payment, to the Excise Department. In the third step, the Excise Department refunds the excise duty to the assessee - The learned CIT(A), after appreciation of the factual position of the present case and on examination of the scheme applicable to the State of J&K, recorded specific finding that excise duty refund has swelled the profit of the assessee and, thus, rejected the contention of the assessee

Before analyzing s. 80-IB, as a prefactory note, it needs to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of 'profit linked incentives' - According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately - Supreme Court, in the case of Liberty India (2009 -TMI - 34471 - SUPREME COURT ) - held that the incentives under ss. 80-IA and 80-IB of the Act, must be from the generation of profits (operation of profits 'derived from the industrial undertaking) - It was, further, held that the words "derived from" as appearing under s. 80-IB of the Act, are narrower in connotation as compared to the words "attributable to". By using the expression "derived from", Parliament intended to cover sources not beyond the first degree nexus or source

whether the income was 'derived from' industrial undertaking, as against income from other sources irrespective of the question whether such source was inextricably connected with the business activity of the assessee - the expression "derived from" has been judicially defined by the Hon'ble Supreme Court, having regard to the text and context of the statutory provisions of s. 80-IB of the Act. In view of this, expression "derived from" cannot embrace incidental income such as excise duty refund and interest subsidy, as the same do not have first degree nexus with the 'operational profit' derived from the industrial undertaking itself - Held that: the impugned receipts, in the form of excise duty refund and interest subsidy are not eligible for deduction under s. 80-IB - Decided against the assessee