2017 (5) TMI 1215 - AT - Income Tax

Deduction u/s. 10B computation - sale of DEPB licence - Held that - Special Bench in the case of M/s. Maral Overseas Ltd. 2012 (4) TMI 345 - ITAT INDORE held Once an income forms part of the business of the income of the eligible undertaking of the assessee the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. As per the computation made by the Assessing Officer himself there is no dispute that export incentive incomes have been treated by the Assessing Officer as business income. - the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) read with Section 10B(4) of the Act Sub-section (4) of section 10A/10B of the Act is a complete code providing mechanism for computing the profit of the business eligible for deduction u/s. 10B - Decided in favour of assessee.

Summary

Issues Involved:

1. Applicability of CBDT Circular No. 21/2015 regarding low tax effect.
2. Eligibility for exemption under Section 10A of the Income Tax Act for blending of tea.
3. Treatment of profit from the sale of DEPB licenses as income from regular business and eligibility for exemption under Section 10A/10AA.

Detailed Analysis:

1. Applicability of CBDT Circular No. 21/2015 regarding low tax effect:

The revenue's appeal for AY 2009-10 falls under the purview of CBDT Circular No. 21/2015, which directs the department to withdraw or not press appeals if the tax effect is less than ?10 lakhs before the ITAT. The tribunal noted that the Circular applies retrospectively to pending appeals and is binding on tax authorities, as confirmed by the Supreme Court in Commissioner of Customs vs Indian Oil Corporation Ltd (267 ITR 272 SC). Since the tax effect in this case is below ?10 lakhs, the appeal was dismissed in limine without considering the merits. The revenue can move an application to recall the order if it later finds the tax effect exceeds ?10 lakhs.

2. Eligibility for exemption under Section 10A of the Income Tax Act for blending of tea:

The revenue challenged the CIT(A)'s decision to allow exemption under Section 10A for blending tea, arguing it constitutes processing, not manufacturing, as per the Supreme Court's decision in CIT Vs. Tara Agencies (292 ITR 444 SC). The tribunal referred to the Special Bench decision in the assessee's own case for AY 2004-05, which considered the Kerala High Court's rulings in Girnar Industries Vs. CIT (338 ITR 277 Ker) and Tata Tea Ltd. Vs. ACIT (338 ITR 285 Ker). These rulings held that blending and packing of tea qualify as manufacturing under Section 10AA, and the definition of 'manufacture' in the SEZ Act, 2005, applies to Section 10A as well. The Special Bench concluded that blending of tea entitles the assessee to exemption under Section 10A. The tribunal upheld this view, dismissing the revenue's appeals for AYs 2010-11 and 2011-12.

3. Treatment of profit from the sale of DEPB licenses as income from regular business and eligibility for exemption under Section 10A/10AA:

For AY 2011-12, the CIT(A) treated the profit from the sale of DEPB licenses as income from regular business, eligible for exemption under Sections 10A/10AA. The CIT(A) noted that DEPB licenses are incentives for exporters to neutralize customs duty, and whether used for import or sold, they contribute to business profits. The Supreme Court in Topman Exports vs CIT (342 ITR 49 SC) held that income from the sale of DEPB licenses is regular business income eligible for exemption under Section 80HHC. The tribunal referred to the Special Bench decision in M/s. Maral Overseas Ltd. (136 ITD 177 Ind SB), which held that under Section 10B(4), the entire business profits, including export incentives, are eligible for exemption. The tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Conclusion:

The tribunal dismissed all the revenue's appeals, affirming the CIT(A)'s orders based on the applicability of CBDT Circular No. 21/2015, the established legal precedent for blending tea as manufacturing under Section 10A, and the treatment of DEPB license sale profits as regular business income eligible for exemption.