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TMI Blog2012 (9) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from the Industrial Undertaking and therefore were eligible for deduction under section 80IB of the Income-tax Act, 1961. 3. Any other ground that may be urged at the time of hearing of the appeal. 3. Briefly stated the facts are the assessee is engaged in the business of manufacturing and sale of biscuits. Besides its sales in the domestic market, the assessee had also exported its finished product i.e., biscuits outside the country. For the assessment year under dispute the assessee filed its return of income declaring total income of Rs. 90,72,873 after claiming the deduction for an amount of Rs. 38,88,375 u/s 80IB of the Act. In course of assessment proceedings, the Assessing Officer found from the books of the assessee that the total receipt shown in the Profit and Loss A/c. includes other income of Rs. 7,27,91,007 constituted of the following receipts: a. DFRC sales - Rs. 1,27,91,007 b. DFIA sales - Rs. 1,34,00,211 c. Interest receipts - Rs. 1,64,593 d. Conversion charges - Rs. 5,30,06,031 4. The Assessing Officer was of the opinion that the aforesaid receipts cannot form part of business income for the purpose of claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entitled for deduction u/s. 80IB of the Act. 5. The Assessing Officer after considering the explanation submitted by the assessee was of the view that the aforesaid receipts are not directly derived from manufacturing activity and, therefore, cannot be treated as income derived from industrial undertaking for the purpose of claiming deduction u/s. 80IB of the Act. The Assessing Officer following the judgement of the Hon'ble Supreme Court in the case of Liberty India vs. CIT reported in 317 ITR 218 finally came to hold that the incentive profit from sale of DFRC and DFIA being in the nature of export incentives like DEPB cannot be treated as profits derived from the eligible business u/s. 80IB of the Act as they belong to the category of ancillary profit of the industrial undertaking. 6. So far as conversion charges of Rs. 5,30,06,031 are concerned the Assessing Officer found from the Profit and Loss A/c. that it has been shown as other income by the assessee. From the TDS certificate submitted by the assessee, the Assessing Officer found that the contract receipts were received from ITC Ltd. The Assessing Officer came to a conclusion that the assessee has only done job work wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us that the object of the duty exemption scheme is to reimburse the exporters for tariff paid on the imported raw materials, intermediates paid on domestically produced goods which are exported. The schemes have been framed basically to assist the exporters for neutralising the escalation in their cost attributable to the inputs. The schemes have been introduced so that the raw materials, chemicals, ingredients and packing materials could be imported without paying any duty or tax. In a case where the manufacturer is not able to import the same ingredients by way of licences could be sold in the market as a commodity. It was contended by the learned AR that the sale consideration received by sale of licences, therefore, had to be considered as arising out of the business of the industrial undertaking. The learned AR contended that the nomenclature of "other income" given in the Profit and Loss A/c. in no way suggests that the receipts are not from the business of the industrial undertaking. In this context the learned AR relied on the following decisions of the Hon'ble Supreme Court: a. Vikas Kalra vs. CIT (2012) 205 Taxman 135 b. ACG Associated Capsules Pvt. Ltd. vs. CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liberty India while considering the claim of deduction u/s. 80IB vis-a-vis DEPB observed in the following manner: "13. Before analyzing Section 80-IB, as a prefatory 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". Therefore, when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract Section 80-IB(6). It is the profits arising from the business of a ship which attracts sub-section (6). In other words, deduction under sub-section (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking. The Hon'ble Supreme Court held that DEPB or similar incentive which flows from the scheme framed by the Central Government or from section 75 of the Customs Act, 1962 are only incentive profits and are not profits derived from eligible business u/s. 80IB of the Act. They belong to the category of ancillary profits of such undertaking. The Hon'ble Supreme Court held in the following manner: "Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 13. From the decisions of the Hon'ble Supreme Court relied upon by the learned AR in support of his contention it is seen that the decisions were rendered in the context of deduction claimed u/s. 80HHC. As has been held by the Hon'ble Supreme Court in the case of Liberty India (supra), sections 80IB and 80IA are a code by themselves as they contained both substantive as well as procedural provisions. Therefore, the judgements ..... X X X X Extracts X X X X X X X X Extracts X X X X
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