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2023 (4) TMI 420 - SC - Income TaxDeduction u/s 80-IB - receipts under the Duty Drawback Scheme (Duty Drawback) and on transfer of Duty Entitlement Pass Book Scheme (DEPB) - business of manufacturing and exporting wooden handicraft items - income taxable u/s 28(iiic) and 28(iiib) of the Act, 1961 - HELD THAT - Section 80-IB provides for deductions in respect of profits and gains from certain industrial undertakings. Therefore, as such for claiming deductions under Section 80-IB, it must be on the profits and gains derived from industrial undertakings mentioned in Section 80-IB. An identical question came to be considered by this Court and, more particularly, with respect to the profit from DEPB and Duty Drawback Schemes, in the case of Liberty India 2009 (8) TMI 63 - SUPREME COURT . Following the law laid down by this Court in the case of Sterling Foods, Mangalore 1999 (4) TMI 1 - SUPREME COURT and Liberty India 2009 (8) TMI 63 - SUPREME COURT . as such, no error has been committed by the High Court in holding that on the profit from DEPB and Duty Drawback claims, the assessee shall not be entitled to the deductions under Section 80-IB as such income cannot be said to be an income derived from industrial undertaking and even otherwise as per Section 28(iiid) and (iiie), such an income is chargeable to tax. In view of the above and for the reasons stated above, the High Court has rightly held that the respondent assessee is not entitled to the deductions under Section 80-IB on the amount of DEPB as well as Duty Drawback Schemes. We hold that on the profit earned from DEPB / Duty Drawback Schemes, the assessee is not entitled to deduction under Section 80-IB of the Act, 1961. Any contrary decision of any High Court is held to be not good law. Decided in favor of the Revenue.
The issues involved in the judgment are:
1. Whether the assessee is entitled to deduction under Section 80-IB of the Income Tax Act, 1961, for income received from DEPB and Duty Drawback Schemes. 2. Interpretation of the term "derived from" in Section 80-IB in relation to DEPB and Duty Drawback income. Issue 1: Entitlement to Deduction under Section 80-IB for DEPB and Duty Drawback Income The Supreme Court examined whether income from DEPB and Duty Drawback Schemes qualifies for deduction under Section 80-IB of the Income Tax Act, 1961. The High Court had previously ruled against the assessee, stating that such income does not qualify for the deduction. The assessee argued that the meaning of "derived from" under Section 80-IB, as interpreted in the Liberty India case, had been expanded by the Meghalaya Steels Limited case to include such income. The Revenue contended that the Liberty India and Sterling Foods cases clearly established that DEPB and Duty Drawback incomes do not qualify for the deduction under Section 80-IB. Issue 2: Interpretation of "Derived From" in Section 80-IB The Court analyzed the relevant sections of the Income Tax Act, particularly Sections 28 and 80-IB, and reviewed previous judgments, including Liberty India and Sterling Foods. The Court reaffirmed that DEPB and Duty Drawback incomes are incentives from government schemes and not profits directly derived from industrial undertakings. These incentives are considered ancillary profits and do not meet the "first degree" connection required for deductions under Section 80-IB. The Court also distinguished the Meghalaya Steels Limited case, noting that it dealt with subsidies directly affecting manufacturing costs, which have a direct nexus with profits and gains of the undertaking. In contrast, DEPB and Duty Drawback are export incentives, not directly related to the manufacturing or selling process within the industrial undertaking. Conclusion The Supreme Court upheld the High Court's decision, confirming that the assessee is not entitled to deductions under Section 80-IB for income from DEPB and Duty Drawback Schemes. The Court reiterated that such income is not "derived from" the industrial undertaking as required by Section 80-IB. The appeal was dismissed with no order as to costs.
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