2018 (5) TMI 1782 - HC - Income Tax

Exemption under section 10BA to a trading and export firm which was not involved in manufacturing or production of eligible artistic articles - Held that - The issue involved in this case is squarely covered by the decision of this Court in the case of Ranjana Johari Vs. Assistant Commissioner of Income Tax, Circle-6, Jaipur 2015 (10) TMI 2557 - ITAT JAIPUR as held as per sub-section (6) of section 10BA, the sub-section (8) and sub-section (1) of section 80IA also applicable in relation to the undertaking referred to in this section as they apply for the purpose of undertaking referred to in section 80IA. Section 10BA was inserted by the Finance Act, 2003 with effect from 1.4.2004 whereas section 80IA was inserted by the Finance Act, 1999 with effect from 1.4.2000. Originally section 80IA was inserted by the Finance Act, 1991 with effect from 1.4.1991. The languages of both the sections are same but the effective dates are different. Therefore, findings of Hon ble Supreme Court in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT squarely are applicable in case of deduction claimed by the assessee under section 10BA and credited duty draw back and DEPB in the Profit & Loss Account, but is not derived income from undertaking. Therefore, we reverse the order of ld. CIT (A) to that extent. Entire sale proceeds not to be treated as profits but only difference between sale value and face value of credit DEPB credit chargeable as income under section 28(iiib) in year in which applied for against exports. Further, profit on transfer of credit chargeable under section 28(iiid) in year in which transferred. In view of above, the matter is hereby remitted to the Assessing Officer and it will open for both the parties to raise their contentions before the Assessing Officer.

Summary

Issues Involved:
Interpretation of Section 10BA and Section 80IA/80IB for deduction eligibility based on export sales and DEPB/duty draw back benefits.

Analysis:
The High Court considered the decision in the case of "Ranjana Johari Vs. Assistant Commissioner of Income Tax, Circle-6, Jaipur" where it was clarified that DEPB/duty draw back benefits do not form part of net profit for deductions under Section 80IA/80IB. The Court referred to the Supreme Court's rulings in the cases of Liberty India and Topman Exports to determine the treatment of DEPB credits. It was emphasized that DEPB entitlement is not directly related to the business of an industrial undertaking until the product is exported. The Court directed the Assessing Officer to recalculate income based on these principles.

In another judgment, the Supreme Court's decision in the case of Commissioner of Income-Tax V/s Meghalaya Steels Ltd. was cited, highlighting that DEPB benefits are not derived from profits and gains of the business itself. The Court clarified that subsidies reimbursed against business costs fall under the head of "profits and gains of business or profession" and not "income from other sources." The Court also referenced decisions from Gauhati, Calcutta, and Delhi High Courts to support this interpretation. The matter was remitted back to the Assessing Officer for further consideration in line with the mentioned decisions.

The Court also mentioned a previous case, CIT Jaipur V/s Suresh Kumar Bajoria, where similar principles were applied. The decisions in this case were not considered by the authority, leading to the remittance of the matter back to the Assessing Officer for a fresh decision. It was clarified that no opinion on merits was expressed, and both parties were allowed to present their contentions before the Assessing Officer.

Therefore, the High Court disposed of the income tax appeal by remitting the matter to the Assessing Officer for reconsideration in light of the relevant legal interpretations and judgments cited in the case.