2011 (1) TMI 203 - HC - Income Tax

DEPB - Additional depreciaition - Deduction u/s.80IA - - it was imperative that on and after 01.04.2003, the claim of the appellant made under Section 32(1)(iia) of the Act, had to be necessarily assessed by applying the second proviso to Section 32(1) of the Act - Therefore, when there was statutory stipulation providing for restriction to 50% of the amount allowable under Section 32(1)(iia) of the Act, no fault can be found with the conclusion of the Assessing Authority as well as that of the Appellate Authority and the Tribunal in having affirmed the action of the Assessing Authority - Decided against the assessee whether the export incentives earned by the appellant under the DEPB Scheme was allowable as deduction under Section 80IA of the Act - the remission of duty is on account of the statutory/policy provisions in the Customs Act/Schemes(s) framed by the Government of India - profits derived by way of such incentives do not fall within the expression profits derived from industrial undertaking in s.80-IB. - Appeal is dismissed

Summary

Issues:
1. Entitlement to additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961.
2. Entitlement to deduction under Section 80IA on export incentives from DEPB Scheme.

Analysis:

Issue 1: Entitlement to Additional Depreciation
The primary issue in this case revolved around the entitlement of the assessee to additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961. The appellant contended that the Assessing Authority wrongly restricted the depreciation to 50% of the amount permissible under the said section by applying the second proviso to Section 32(1) of the Act. The appellant argued that since it met all conditions under the provisos to Section 32(1)(iia), the restriction imposed was unjust. However, it was highlighted that the insertion of Clause (iia) itself by the Finance Act 2002 mandated the application of the second proviso to Section 32(1) of the Act from 01.04.2003 onwards. Therefore, the Assessing Authority's decision to limit the depreciation to 50% was in line with statutory requirements. The Appellate Authority and the Tribunal upheld this decision, emphasizing compliance with the law. Consequently, the court dismissed the appeal, ruling no scope to entertain the question of law.

Issue 2: Deduction under Section 80IA on Export Incentives
The second issue pertained to the allowance of export incentives earned by the appellant under the DEPB Scheme as a deduction under Section 80IA of the Act. The appellant sought to challenge the decision based on a recent ruling by the Supreme Court in Liberty India vs. Commissioner of Income-tax. The Supreme Court's decision highlighted that deductions under Section 80IA are linked to profits, not investment, and must be restricted to profits derived from the industrial undertaking. The court clarified that incentives like DEPB did not fall under "profits derived from industrial undertaking" as per the statutory provisions. Citing this precedent, the Tribunal's decision to affirm the Assessing Officer's order was deemed appropriate. Consequently, the court dismissed the appeal, citing the absence of substantial questions of law and awarded no costs.

In conclusion, the judgment addressed the issues of entitlement to additional depreciation and deduction on export incentives, emphasizing compliance with statutory provisions and relevant judicial precedents to uphold the decisions made by the lower authorities.