TMI Blog2022 (7) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... import entitlements which it could thereafter sell. Hence, the same could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export. The judgment of Hon ble Supreme Court in the case of Liberty India [ 2009 (8) TMI 63 - SUPREME COURT ] wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking is very specific to the issue of duty draw back. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB) similar to the facts of the instant case. Hence, keeping in view the judgment of the Hon ble Apex Court, we hereby affirm the order of the ld. CIT(A). Interest on KDR - HELD THAT:- We hold that interest earned out of the fixed deposit made from the surplus funds being not connected to the manufacturing activity and do not form an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective schemes declared. The purpose of subsidy/ incentive schemes varies from development of backward areas to development of a lagging industry or to provide support to existing industries in difficult times of their operations, Whenever a scheme is declared, the purpose of the subsidy/incentive is set out in clear terms in rhc scheme itself. The Government of India in its Foreign Trade Policy 2004 started Special Focus Initiatives with an object to continuously increase out percentage share of global trade and expanding employment opportunities especially in rural and semi-urban areas. Under the mother policy of Special Focus Initiative certain special focus initiatives for market diversification, technological up gradations, support to status holders were Identified for which specific schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS). Technological Upgradation Fund Scheme (TUF5), Status Holders Incentive Scheme (SHIS) were started. In Foreign Trade Policy 2006, under the Special Focus Initiative, Focus Product Scheme (FPS) was introduced with an objective to incentivize export of such products which have high employment intensity in rural .and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of to promoting export of products which have high export intensity/ employment potential, so as to offset infrastructural inefficiencies and other associated costs involved in marketing of these products and hence constituted capital receipt not liable to tax under normal provisions of the Act. In the following decisions, the Tribunal has been pleased to hold incentive received under FPS to be in the nature of a capital receipt not liable to tax: PCT vs. Nitin Spinners Ltd: 1TA 31/2019 (Raj.) CIT vs. Sham Lai Bansal: 200 Taxman 14 (P H) Suvidha Spiners Pvt Ltd vs. DCIT: 1TA Nos.65 and 66/Jodh/2018 (Jodhpur Trib.) Eastman Exports Global Clothing Pvt Ltd vs. JCIT: 2016-ITL4113 (Chennai Trib.) The additional ground of appeal is being raised on the applicant being recently advised of the correct legal position and the omission to raise the aforesaid additional ground of appeal earlier was neither willful nor deliberate. Further, the aforesaid additional ground raises purely a legal issue regarding the character of the incentive received, which has to be decided on the basis of the purpose set out in the Scheme, which is a government/ gaze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. C.I.T. . this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial undertaking. 3. That the CIT(A) erred on facts and in law in not admitting and disregarding the additional evidence placed on record substantiating the contentions raised by the appellant. 4. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in denying deduction under section 80-IC of the Act on interest on KDR amounting to Rs.6,58,683. 5. That the CIT(A) erred on facts and in law in erred on facts and in law in confirming imposition of interest under sections 234B and 234C of the Act. 6. The appellant is a partnership firm engaged in the business of manufacturing and export of home furnishings item like, quilts, bedspread, cushion cover, etc. In the return, the appellant claimed deduction under section 80-IC of the Income-tax Act, 1961 ( the Act ) in respect of profits derived from its manufacturing units in the State of Uttarakhand. Focus Products Scheme: 7. During the year under consideration, the assessee received consideration amounting to Rs.1,91,78,974/- from sale of Focus Scrip/ License received under Focus Products Scheme under the Foreign Trade Policy which was claimed as deduction under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme was launched in 2006 and subsequently, several amendments were made to the scheme by adding more products eligible for export incentives under the scheme and giving different rate of duty credit scrip concessions. 13. Focus Product Scheme (FPS) was first introduced with the objective to incentivize export of such products which have high export intensity/ employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme was launched in 2006 and subsequently, several amendments were made to the scheme by adding more products eligible for export incentives under the scheme and giving different rate of duty credit scrip concessions. 14. The amount of incentive received under Technology Upgradation Fund Scheme (TUFS) was considered as a Revenue subsidy in the following cases: CIT vs. Shyam Lal Bansal 200 Taxman 14 (P H HC) CIT vs. Gloster Jute Mills Ltd. 416 ITR 458 (Cal. HC) Jai Bhagwan Oil Flour Mills vs. Union of India (2009) 14 SCC 63 Shiv Shakti Flour Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The Court also recognized that duty drawback is fundamentally in the nature of refund of 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, though such refund is not arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cummanufacturer. Therefore, the Court concluded, profits derived by wav of such incentives do not fall within the expression profits derived from industrial undertaking in Section 80-IB. (Refer para 17 of the Judgment). To reiterate, it is emphasized that though receipt on account of duty drawback is in principle, not eligible for deduction under section 80-IB of the Act but only profits, if any derived by way of such incentive is required to be excluded for computing eligible profits and not the gross amount of incentives. The aforesaid contention is, fortified by the provisions of section 28(iiid) of the Act, which separately covers profits from transfer of DEPB and not the gross amount of DEPB credits/ i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s derived from business. The difference between profit attributable to and profits derived from a business are examined in detail. It said , 21. A series of decisions have made a distinction between profit attributable to and profit derived from a business. 22. In Cambay Electric Supply Industrial Co. Ltd. v CIT [1978] 113 ITR 84 (SC), the 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 also be subsumed within the meaning of the expression attributable to . 23. The judgment in CIT vs. Sterling Foods, 104 Taxman 204 (SC) laid down a very important test in order to determine whether profits and gains are derived from business of an industrial undertaking. There should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. On an application of the aforesaid test to four subsidies mentioned the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 26. In Pandian Chemicals Ltd. vs. CIT [2003] 262 ITR 278/129 Taxman 539 (SC), the Hon ble 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 the supply of electricity to the appellant's industrial undertaking should be treated as income derived from the industrial undertaking under Section 80HH. It was held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. 27. In the case of Liberty India's the question was whether DEPB credit or Duty draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to import entitlements which it could thereafter sell. Hence, the same could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export. 29. The judgment of Hon ble Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking is very specific to the issue of duty draw back. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB) similar to the facts of the instant case. Hence, keeping in view the judgment of the Hon ble Apex Court, we hereby affirm the order of the ld. CIT(A). Interest on KDR: 30. Heard the arguments of both the parties and perused the material available on record. 31. During the relevant year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) wherein it was held that the question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of electricity to the assessee s industrial undertaking should be treated as income derived from the industrial undertaking under Section 80HH. The Hon ble Court held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. Captivating the same analogy of the Hon ble Apex Court in the case of the assessee, the interest on the fixed deposits kept with the bank though may be required for the purpose of obtaining over draft facility, it can be said that it is a step removed from the business of the industrial undertaking. Hence, we hereby affirm the action of the ld. CIT(A). 37. In the result, the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 30/06/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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