2013 (7) TMI 962 - AT - Income Tax

Duty drawback received allowed for computing the deduction/exemption under Section 10BA. See M/s. Suraj Exports India And Others Versus Income-tax Officer And Others 2013 (11) TMI 262 - ITAT JODHPUR

Summary

Issues Involved:
1. Applicability of the Supreme Court's decision in Liberty India for disallowing duty drawback under Section 10BA.
2. Determination of whether duty drawback can be considered as business income for the purpose of Section 10BA.

Detailed Analysis:

1. Applicability of the Supreme Court's Decision in Liberty India:
The primary issue revolves around whether the decision of the Hon'ble Supreme Court in the case of Liberty India (317 ITR 218) is applicable for disallowing the duty drawback received by the assessee when computing the deduction under Section 10BA of the Income Tax Act, 1961. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] both relied on this decision to conclude that duty drawback is not derived from industrial undertaking activities and should be assessed as income from other sources.

The CIT(A) upheld the AO's view, emphasizing that export incentives like duty drawback are not derived from manufacturing activities and thus should not be included in the business income for the purpose of Section 10BA. The CIT(A) referenced the Supreme Court's ruling in Liberty India, which held that such incentives are not part of the business income under Sections 80I/80IA, and applied the same reasoning to Section 10BA.

2. Determination of Duty Drawback as Business Income:
The assessee argued that the Liberty India case is not applicable because Section 10BA and Section 80HHC have specific formulas for computing profits derived from exports, unlike Section 80IA. The assessee cited various judgments, including those from the Rajasthan High Court and the ITAT Mumbai Bench, which supported the view that duty drawback and DEPB credits are considered business income under Section 28(iiid) and (iiie).

The ITAT Jodhpur Bench, in a similar case (M/s Suraj Exports India vs. ITO), had previously held that the Liberty India decision does not apply to Section 10BA. The Tribunal noted that Section 10BA and Section 80HHC are more closely related, and the interpretation of "derived from" in Section 80HHC should apply to Section 10BA. The Tribunal cited the Supreme Court's decisions in Topman Exports vs. CIT and ACG Associated Capsules Pvt. Ltd. vs. CIT, which clarified that DEPB credits are considered business income.

The Tribunal also referenced the Mumbai Bench's decision in Arts and Crafts Exports vs. ITO, which held that DEPB and duty drawback are business incomes eligible for deduction under Section 10BA. The Tribunal emphasized that Section 10BA(4) provides a specific method for computing profits derived from exports, which includes business income as defined under Section 28.

Conclusion:
The ITAT Jodhpur Bench concluded that the facts of the present case are similar to those in M/s Suraj Exports India. Following the precedent set in that case, the Tribunal held that the assessee is eligible for deduction under Section 10BA, including the duty drawback as business income. The Tribunal set aside the CIT(A)'s order and directed the AO to allow the assessee's claim.

Result:
The appeal of the assessee was allowed, and the AO was directed to include the duty drawback as business income for the purpose of Section 10BA deduction. The decision was pronounced in the open court on 31/07/2013.