Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 463 - GUJARAT HIGH COURT

2016 (7) TMI 463 - GUJARAT HIGH COURT - TMI - Deduction under Section 80IB - income from DEPB and DEPB premium - non entitlement to deduction as per ITAT - Held that:- Principle of netting while excluding certain sum from the claim of assessee for deduction under section 80IB of the Act is neither new nor unfamiliar. Such principle however, cannot be applied in the present case since this very issue of exclusion of the entire amount of DEPB from the profit eligible for deduction under section 80 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

JJ. FOR THE APPELLANT : MR TUSHAR P HEMANI, ADVOCATE FOR THE RESPNDENT : MR NITIN K MEHTA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The assessee is in the appeal against the judgement of the Income Tax Appellate Tribunal dated 17.9.2010. At the time of admission, following substantial question of law was framed : "Whether the Tribunal below committed substantial error of law in holding that the assessee was not entitled to deduction under Section 80IB of the Inco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

claim, the Assessing Officer noticed that the claim included income of Duty Entitlement Pass Book ( DEPB for short) of ₹ 17.72 lacs (rounded off) and DEPB premium income of ₹ 2.96 lacs. Along with other sundry receipts, the Assessing Officer disallowed the deduction qua these incomes holding that the same cannot be stated to be derived from the eligible business of the industrial undertaking. 3. The assessee carried the matter in appeal. CIT(Appeals) reversed the view of the Assessin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this point was reversed. It is this judgement the assessee has challenged in the present appeal. 5. Learned counsel for the appellant contended that though the Supreme Court in case of Liberty India (supra), held and declared that the income from DEPB cannot be stated to have been derived from the export business of the assessee, had no occasion to consider the question as to what would form the income from DEPB. He submitted that it is not the whole face value of the DEPB which can be stated to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat was the issue before the Court and what was actually decided. Counsel submitted that while eliminating any sum from the deduction under section 80IB of the Act, it is the net of the receipt and not the gross receipt which should be excluded. This principle has been laid down by the Supreme Court in case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income tax reported in (2012) 343 ITR 89(SC) in context of deduction under section 80HHC of the Act. This Court in case of Commissioner .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d 80I, 80IA, 80IB etc. are vastly different. Observations of the Supreme Court in case of Topman Exports (supra), were made in context of provisions contained in section 80HHC of the Act which provides for a formula for computing the deduction in case of an assessee who is engaged in export business alongside other businesses. He submitted that the decision in case of Liberty India (supra) was rendered in the background of deduction under section 80IB of the Act. Such decision holds the field. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to in subsections (3) to (11C), 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. Subsection( 2) of section 80IB lays down the conditions for an industrial undertaking to claim deduction under the said section. Subsection (3 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f DEPB and duty drawbacks. The Assessing Officer had denied deduction on the ground that such benefit constituted export incentives and does not represent profit derived from industrial undertaking. This issue ultimately reached the Supreme Court in which it was held that the deduction under section 80IB of the Act was profit linked deduction. Each of the eligible businesses in subsection( 3) onwards of section 80IB constitutes a standalone item in the matter of computation of profits and sectio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntially, 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.. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lary profits of such Undertakings. 17. The next question is what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 18. Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/ Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in Section 80IB The Supreme Court thus went on to examine accounting treatment that these incentives would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

They should be treated as separate items of revenue or income and accounted for accordingly (see: page 44 of Indian Accounting Standards & GAAP by Dolphy D'souza). Therefore, for the purposes of 23 AS2, Cenvat credits should not be included in the cost of purchase of inventories. Even Institute of Chartered Accountants of India (ICAI) has issued Guidance Note on Accounting Treatment for Cenvat/Modvat under which the inputs consumed and the inventory of inputs should be valued on the basi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

debited in the Profit & Loss account for purposes of Sections 80IA/ 80IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 23. We are of the view that Department has correctly applied AS2 as could be seen from the following Expenditures Amount (Rs.) Income Amount (Rs.) Opening Stock 100 Sales 1,000 Purchases (including customs duty paid) 500 Duty Drawback received 100 Manufacturing overhead .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

certain industrial undertakings other than infrastructure development undertakings. The industrial undertaking eligible for such deductions have been specified in subsection (3) to subsection (11C) of the said subsection and provides incentives for variety of industries. For example, under subsection( 4) of section 80IB in case of an industrial undertaking in an industrially backward State specified in the Eight Schedule, deduction of 100% of the profits and gains derived from such industrial u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

exports made by the industry of its goods so manufactured by an industry covered under any of the subsections of section 80IB of the Act. It can be seen that a manufacturer of goods who sales his product in India would receive no benefit of DEPB while another manufacturer of the same product and exports such product, would receive export incentive in the nature of DEPB scrips at a specified percentage of the FOB value of the export. This value of DEPB with premium if so sold at a premium, would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a was considered as not having been derived from the activity carried on by the eligible industry. 10.Section 80HHC of the Act on the other hand pertains to deduction in respect of profits retained for export business. Under subsection( 1) of section 80HHC where an assessee, being an Indian company or a person resident in India, is engaged in the business of export out of India of any of the goods or merchandise to which the section applies, there would be in computing of the total income of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d or processed by the assessee, the profits derived from such export shall be the amount which bears to the profit of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. This provision in mathematical terms is expressed as under : Profits derived from exports = profits of the busines x export turnover Total Turn over 11. Section 80HHC contains an explanation clause defining various terms such as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ommission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India; 12. It is as per this definition of profits of the business that the question of eliminating 90% of the DEPB or duty draw back from the numerator of the said formula arises. 13. In essence, this formula enables us to ascertain the assessee's profit relatable to its export bu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the formula. This section, as noted, provides for deduction in respect of profits retained for export business. It was in background of this specific statutory provision that the Supreme Court in case of Topman Exports (supra) came to the conclusion that when DEPB is transferred by a person, the entire sum received by him on such transfer does not become his profits. It is only the amount that he receives in excess of the DEPB which represents his profits on transfer of the DEPB. The Supreme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lation to DEPB benefits should also be changed. First and foremost, as noted, the decision in case of Liberty India (supra) and Topman Exports (supra), were rendered in the background of entirely different statutory provisions. Section 80IB of the Act grants deductions to eligible industries and has nothing to do with the export of a product. If therefore, an industry eligible for deduction under section 80IB also exports the product, the DEPB benefits are seen in addition to and not as having b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ra), the Supreme Court had quoted a hypothetical example in which the assessee had opening stock of ₹ 100, had incurred expenditure of ₹ 1000 and on the credit side it had shown sales of ₹ 1000, duty draw back of ₹ 100 and closing stock of ₹ 200 and that is how claimed net profit of ₹ 200. The department however, recognised deduction under section 80IB of the Act on the profit of ₹ 100, ignoring the duty drawback of ₹ 100 received by the assessee. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version