TMI Blog2021 (1) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... o deduction on account export sales and consequent receipt of DEPB premium can be allowed. As we have noted above at the time of passing assessment order, the decisions of Hon ble Supreme Court in the cases of Sterling Foods [ 1999 (4) TMI 1 - SUPREME COURT] and Liberty India [ 2009 (8) TMI 63 - SUPREME COURT] were holding field against the assessee and in favour of the revenue, thus, the AO was bound to follow the same and thus, he denied deduction in respect of DEPB entitlements to the assessee. But thereafter the scenario changed on 9.3.2016, when the Hon ble Supreme Court rendered decision in the case of Meghalaya Steels Ltd [ 2016 (3) TMI 375 - SUPREME COURT] - When the statue in section 80 IB of the Act has not made any distinct between export and domestic sales and the profit arising from both the kind of sales is entitled for deduction, then, the profit earned by the assessee in the form of DEPB entitlement amount, which is directly related and calculated on the amount of export sales, cannot be regarded or tagged as income from other sources to take it out from the benefit of deduction u/s. 80IB(11A) of the Act to the assessee. Thus we hold that DEPB entitleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... govt, agencies for production/processing activities of exportable prawns and accordingly entitled for additional depreciation. 5) That the decisions of learned CITA and authorities below in disallowing the sum of ₹ 5,44,36,164/- being premium received for DEPB license for calculating profit u/s 80IB(11A), are wrong and illegal. 6) That the addition to total income of ₹ 5,44,36,164/- by disallowing the deduction u/s 80IB(11A) of the Income Tax Act 1961, by the learned CITA and authorities below is wrong and is illegal as the same is based on earlier Supreme court decision(Liberty case) and ignoring the subsequent Supreme court decision(Topman Export case). 7) That the circumstances and the business environment for which the decision of the honorable Supreme court made in Liberty case, is changed and since there is a subsequent decision of the honorable supreme court in Topman Export case which beneficial to the assessee should be accepted. 5. At the time of hearing, ld A.R. of the assessee did not press Ground Nos.1 to 4 and Ground No.8. Therefore, these grounds are dismissed as not pressed. 6. Apropos remaining effective Ground Nos.5, 6 7 of appeal, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (11A) of section 80-IB with effect from 01.04.2010 to provide tax holiday in respect of the business of processing, preserving and packaging of meat and meat products and poultry, marine and dairy products for units which begin to operate such business on or after 1st April, 2009. 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 food grains, is 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 profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.. 10. Ld A.R. further submitted that the assessee during the year under consideration ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FRC) shall be treated as part of business Profits of the exporter. 13. Ld A.R. submitted that in view of the above amendment in the Act, the issue is no longer res integra. He further referred judgment of Hon ble Supreme Court in Sterling Foods case (supra) relied by the AO in the assessment order and submitted that this judgment is of the year 1999, at which time, the newly added provision of cl. (iiid) of S. 28 did not exist, which has been inserted, as noticed above, in the year 2005, w.e.f. 1st April, 1998. Again the issue of amendment to Section 28 of the Income Tax Laws(Amendment)Act,2005 was never the subject matter of discussion or decision in the case of Liberty India vs CIT (2009) 183 Taxman 349 (SC). Thus, the introduction of cl. (iiid) of amendment in 2005, w.e.f. 1st April, 1998, has changed the whole scenario, as considered by Hon ble Supreme Court, in the above judgments. The issue of amendment to Section 28 of the Income Tax Laws(Amendment)Act,2005 with respect to DEPB deduction U/s 80IB has been dealt with by the High Court of Rajastan in the case of SARAF SEASONING UDYOG vs. INCOME TAX OFFICER (2008) 219 CTR (Raj) 461 : (2008) 174 TAXMAN 594 (Raj) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts 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 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 business or profession , and not under the head Income from other sources . 15. He further submitted that the Hon ble High Court of Rajashtan in the case of CIT vs Suresh Kumar Bajoria in Income Tax Appeal No-294/2008 decided on 18/05/2017 after due consideration of all the decision of High Courts and Supreme Court rendered in connection to deduction claimed U/s 80IB 80IC with respect to DEPB and/or other incentive relating to export after due consideration of decision of CIT vs. Sterling Foods as well as Liberty India vs. CIT concurred with the decision of the Supreme Court in the case of CIT vs. MEGHALAYA STEELS LTD (2016) 284 CTR (SC) 321: (2016) 383 ITR 217 (SC) and held that DEPB or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of ss. 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 reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The profits and gains spoken of by ss. 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely, profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 17. Ld A.R. after relying on the aforementioned judgments, submitted that the claim of deduction u/s.80IB(11A) may kindly be allowed by reversing the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered its earlier judgment in the case of CIT vs Sterling Foods, (1999) 4 SCC 98, wherein, it was decided that 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 80 HH of the Act and again referring to the judgment of Hon ble Supreme Court in the case of Cambay Electric Supply (supra) emphasised the difference between wider expression attributable to as contrasted with derived from . Therefore, DEPB credit cannot be considered as derived from the industrial activities of the assessee. 21. Ld CIT DR lastly drawn out attention towards para b at page 18 of the assessment order for assessment year 2011-12 dated 24.2.2014 under section 143(3) of the Act and submitted that the assessee earns some import entitlements granted by the Central Government under an Export Promotion Scheme (DEPB), which can be used by the assessee itself or sell the same to other for their use. Ld CIT DR further submitted that the assessee company sold the import entitlements to other for use and earn the impugned amount. Ld CIT DR submitted that the assessee had two streams of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular business would also have to be included under the head profits and gains of business or profession , and not under the head income from other sources . Ld A.R. submitted that DEPB credit has direct links with the quantum of export sales. If there is no export sales, then no DEPB credit or entitlements can be gathered by the assessee from the Government of India and it has direct link and nexus with the activities of the assessee industrial undertaking enabling for deduction u/s. 80IB(11A) of the Act. Ld counsel for the assessee submitted that in absence of DEPB credit, there would be no profit from the industrial undertaking and DEPT credit is given to the assessee for encouraging export activities derived from the business of processing, preservation and packaging of fruits or vegetables or meat and meat products and for DEPB entitlements, the export of said goods is not viable for any exporter including the assessee. Therefore, DEPB credit has to be held as derived by an undertaking from the business of processing, preservation and packaging of various products including marine products as has been done by the assessee in the instant case. 24. Reiterating the empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration of the rival submissions and on perusal of the relevant assessment order, first appellate order and other materials placed on record and on vigilant consideration of the case laws relied on by both the parties, first of all, we observe that the Assessing Officer has not disputed the quantum of claim of DEPB entitlement amount. We also note that there is no dispute by the AO regarding industrial activities of the assessee and its entitlement of deduction u/s 80 IB(11A) of the Act. 28. Since the main bone of contention of the assessee is that the AO has relied on the decision of Hon ble Supreme Court in the case of Liberty India (supra) and Sterling Foods (supra), whereas the Hon ble Supreme Court itself in its subsequent judgment in the case of Meghalaya Steel Ltd,(supra dated 9.3.2016) rendered a final verdict, after referring to its earlier decisions in the case of Liberty India (supra dated 31.8.2009) and in the case of Sterling Foods (supra dated 15.4.2019) . Ld counsel has also contended that the authorities below have miserably failed to understand the legislative intent behind the insertion of clause (iiib) and (iiid) to Section 28 of the Act w.r.e.f 1.4.1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.] Section 28(iib) (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;] Section 28(iiid) [(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);] 31. In the present case, it is not the case of the Assessing Officer that the assessee is not entitled for deduction u/s. 80IB(11A) of the Act in respect of profits and gains from the business of processing, preserving, packaging of marine or sea food products. The only action which is the root of the dispute between the parties is that the Assessing Officer is of the view that the DEPB ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in CIT vs. Sterling Foods (supra) is of the year 1999, at which time, the newly added provision of cl. (iiid) did not exist, which has been inserted, as noticed above, in the year 2005, w.e.f. 1st April, 1998. Likewise, the judgment in Pandian Chemicals Ltd. s case (supra) is also of the year 2003. Thus, the introduction of cl. (iiid) of amendment in 2005, w.e.f. 1st April, 1998, has changed the whole scenario, as considered by Hon ble Supreme Court, in the above two judgments. 12. Learned counsel for the appellant, relied upon a recent judgment of Hon ble Supreme Court in B. Desraj vs. CIT (2008) 301 ITR 439 (SC). This is a judgment rendered on 1st May, 2005 [sic-2008], and deals with identical amendment, introduced by introduction of cl. 28(iiib), having material bearing on s. 80HHC. It was held by Hon ble the Supreme Court, that Department was liable to allow deduction to the assessee. Then, a judgment of this Court, in CIT vs. Sharda Gum Chemicals (2007) 209 CTR (Raj) 143 : (2007) 288 ITR 116 (Raj), has also been cited, which also takes into consideration, the amendment in s. 28, introducing cls. (iiia), (iiib) (iiic), having effect on the provisions of s. 80 HHC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion. 35. Ld CIT DR has strenuously contended, by placing reliance on the decision of Hon ble Gujrat High Court in the case of Banpal Oil Chem (P) ltd vs ACIT (2016) 71 taxmann.com 342 (Gujarat), to submit that when the assessee is having eligible industry and availing deduction u/s. 80IB of the Act, will not be entitled for the same in respect of income from DEPB and DEPB premium. In this decision, the Hon ble High Court has relied on the decision of Hon ble Supreme Court in the case of Liberty India (supra), by stating that the judgment of Hon ble Supreme Court in the case of Topman Export (supra) was not oblivion of its earlier decision in the case of Liberty India (supra) and judgement was neither disapproved and overruled in the case of Toman Exports (supra). 36. After taking respectful cognizance of Hon ble Gujarat High Court in the case of Banpal Oil Chem (P) ltd (supra), we sincerely and vigilantly perused the decision of Hon ble Supreme Court in the case of Meghalaya Steel Ltd., (supra), which was rendered on 9.3.2016, we clearly observe that the Hon ble Supreme Court has not only considered its earlier judgment in the case of Sterling Foods (supra) and Liberty Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court held that the refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under section 80 IB of the Act. Their Lordships after considering the clause (iiib) to section 28 of the Act held that the 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 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 business or profession , and not under the head income from other sources . Relevant paras of the decision of Hon ble Supreme Court in the case of Meghalaya Steels Ltd., (supra) read as follows: 13. A series of decisions have made a distinction between profit attributable to and profit derived from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g said this, this Court finally held:- We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. whereunder the export entitlements become available. There must be for the application of the words derived from , a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking. (Para 13) 15. Similarly, in Pandian Chemicals Limited v Commissioner of Income Tax, 262 ITR 278, this Court dealt with the claim for a deduction under Section 80HH of the Act. The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such Undertakings. (Paras 34,35 and 36) 17. An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Company Limited v Commissioner of Income Tax, Gujarat II, this Court held that since an expression of wider import had been used, namely attributable to instead of derived from , the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in the manufacturing and selling of its products. The profits and gains spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chemicals Limited v Commissioner of Income Tax is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited , by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd . and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held: Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted. He also relied on a judgment of the Supreme court in the case of Libert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas. The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other north- eastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable. (Paras 14 and 15) 25. The decision in Sahney Steel and Press Works Ltd. v. Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular business would also have to be included under the head profits and gains of business or profession , and not under the head income from other sources . 29. For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove. 39. Furthermore, Hon ble Rajasthan High Court at Jaipur in the case of CIT vs. Suresh Kumar Bajoria in D.B. Income Tax Appeal No.294/2008 order dated 18.5.2017 after referring to the decision of Delhi High Court in the case of Dharmam Pal Prem chand Ltd (supra) and the decision of Hon ble Supreme Court in the case of Meghalaya Steels (supra), wherein, it was held that subsidies which go to reimbursement of cost in the production of goods of particular business would also have to be included under the head profits and gains of business or profession and not under the head income from other sources . After referring to above noted decision, The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is amount has to be treated as part of sales realisation and profit and gains derived from operation of such business entitled for deduction u/s. 80 IB(11A) of the Act is also to be considered for calculating the deduction u/s. 80IB(11A) of the Act. Accordingly, the receipts of DEPB be allowed as part of industrial income for calculating deduction u/s. 80 IB of the Act. 42. Thereafter, the AO without recording any observation or findings on the above noted (para 41) explanation of the assessee and without considering and adjudicating the same jumped to record final conclusion by referring to the decision of ITAT Ahmedabad Bench in the case of Bloom D cor Ltd vs DCIT order dated 26.10.2012, decision of Hon ble P H High Court in the case of Jai Bharat Gum Chemicals Ltd vs ACIT, 326 ITR 36 (P H), decision of Hon ble Supreme Court in the case of Sterling Foods (supra) and another decision in the case of Liberty India (supra) recorded his decision for making the impugned disallowance. In the last operating para at page 25, the AO observed that deduction u/s. 80IB(11A) of the Act is for processing, preservation and packaging of marine products. There is no mention of export as in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1.4.1967 and 1.4.1998, respectively by the Taxation Laws (Amendment)Act,2005. 45. In view of above relevant provisions, when we consider the law rendered by Hon ble Supreme Court in the case of Topman Exports (supra), then we find that Their Lordships speaking for Hon ble apex Court after considering the provisions of clause (iiib) and (iiid) of Section 28 of the Act, categorically held that the amount of DEPB entitlements has to be treated as profits and gains of business or profession . At the cost of repetition, it is relevant to mention that the AO for the assessment year 2011-12 passed order on 24.2.2014 and ld CIT(A) confirmed the addition/disallowance by passing the order on 4.9.2015 till that date, the orders of Hon ble Supreme Court in the case of Sterling Foods (supra) dated 15.4.1999 and Liberty India (supra) dated 31.8.2009 were holding field on the issue of allowance deduction in respect of amount of DEPB entitlements received by the assessee against export, which were against the assessee and in favour of the revenue. Thereafter, the decision of Hon ble Supreme Court in the case of Meghalaya Steel (supra) was rendered on 9.3.2016. Thus, as the time of passing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en an export sales and domestic sales, the Act provides same level of deduction for both kind of sales . Thereafter, he noted a complete contradictory finding to his earlier said observations that export is an activity which is different from the scope of works envisaged by the Statute. Thus, no deduction on account export sales and consequent receipt of DEPB premium can be allowed. As we have noted above at the time of passing assessment order, the decisions of Hon ble Supreme Court in the cases of Sterling Foods (supra)and Liberty India (supra) were holding field against the assessee and in favour of the revenue, thus, the AO was bound to follow the same and thus, he denied deduction in respect of DEPB entitlements to the assessee. But thereafter the scenario changed on 9.3.2016, when the Hon ble Supreme Court rendered decision in the case of Meghalaya Steels Ltd (supra). When the statue in section 80 IB of the Act has not made any distinct between export and domestic sales and the profit arising from both the kind of sales is entitled for deduction, then, the profit earned by the assessee in the form of DEPB entitlement amount, which is directly related and calculated on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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