2019 (4) TMI 1490 - HC - Income Tax

Deduction u/s 80IB(4) in relation to subsidies - to compensate high transport costs and to offset other disadvantages under VKGUY Scheme - HELD THAT - Government of India realized that the products such as agricultural produce, minor forest produce and Gram Udyog products as also forest based products would have high transport cost and would be accompanied by various other disadvantages. In order to make the export of such products viable, the Government of India decided to grant certain incentives under the said scheme. The clear objective behind the scheme was, thus, to reduce the cost of its procurements and to neutralize certain inherent disadvantages attached to such products. Clearly, thus, the case was covered by the decision of the Supreme Court in the case of Meghalaya Steels Ltd 2016 (3) TMI 375 - SUPREME COURT extensive reference to which has been made earlier. This is not a case akin to export incentives such as DEPB which the Supreme Court in case of Liberty India 2009 (8) TMI 63 - SUPREME COURT held was a benefit far removed from the assessee s business of export. Question is answered in favour of the appellant - assessee

Summary

Issues:
- Claim of deduction under Section 80IB(11A) of the Income Tax Act in relation to benefits received under VKGUY scheme for export of agro products.

Analysis:
1. Background: The appellant, a partnership firm engaged in manufacturing and exporting honey, challenged the Income Tax Appellate Tribunal's judgment disallowing certain claims related to export benefits.

2. Key Claims: The appellant claimed deductions under Section 80IB(11A) for benefits received under VKGUY scheme, additional receipts due to foreign exchange rate fluctuation, and Duty Entitlement Pass Book benefits.

3. Tribunal's Decision: The Tribunal accepted the appellant's case regarding foreign exchange rate fluctuation but disallowed claims related to VKGUY Scheme and DEPB benefits.

4. Legal Question: The substantial question of law framed was whether the Tribunal was correct in rejecting the deduction claim under Section 80IB(11A) for benefits under VKGUY scheme.

5. Precedent: The Supreme Court's decision in the case of CIT Vs. Meghalaya Steels Ltd highlighted the distinction between benefits derived from activities like manufacturing and those far removed like export incentives.

6. Supreme Court's Analysis: The Supreme Court's ruling emphasized that subsidies directly reducing production costs are eligible for deductions under Section 80IB(4), unlike export incentives which are not closely related to the business activity.

7. Transport Subsidy Scheme: The Court referenced the Jai Bhagwan case to illustrate the nature of a transport subsidy scheme aimed at promoting economic development in remote areas by reducing transportation costs for industries.

8. VKGUY Scheme: The VKGUY scheme, part of the Foreign Trade Policy, aimed to promote exports of various products by compensating high transport costs and offsetting disadvantages, aligning with the objective of reducing procurement costs and neutralizing inherent disadvantages.

9. Conclusion: The Court found that the benefits under the VKGUY scheme were directly linked to reducing costs and offsetting disadvantages associated with exporting specific products, unlike export incentives, thus ruling in favor of the appellant and reversing the Tribunal's decision.

10. Judgment: The Court allowed the appeals, answering the legal question in favor of the appellant and reversing the Tribunal's decision to disallow the deduction claim under Section 80IB(11A) for benefits received under the VKGUY scheme.