2015 (10) TMI 1009 - HC - Income Tax

Deduction u/s 10B - exclusion of duty draw back in the form of DEPB benefits - Held that - As per Section 28, clause (iii-c), any duty of customs or excise repaid or repayable as drawback to a person against exports under Customs and Central Excise Duties Draw Back Rules, 1971 is deemed to be profits and gains of business or profession. The said provision has to be given full effect to and this means and implies that the duty draw back or duty benefits would be deemed to be a part of the business income. Thus, will be treated as profit derived from business of the undertaking. These cannot be excluded. Even otherwise, when we apply Sub-section (4) to Section 10B, the entire amount received by way of duty draw back would not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualify for deduction/exemption. The position is somewhat akin or close to Section 80HHC of the Act, which also prescribes a formula for computation of deduction in respect of exports. See Commissioner of Income Tax, Central Circle versus Motorola India Electronics (P) Ltd. 2014 (1) TMI 1235 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Issues:
1. Challenge to orders by Income Tax Appellate Tribunal for assessment years 2008-09 and 2009-10.
2. Interpretation of Section 10B(4) for computing profits derived by a 100% Export Oriented Undertaking (EOU).
3. Eligibility of claim for deduction on export incentive received.
4. Treatment of duty draw back in the form of DEPB benefits.
5. Application of Sub-section (4) of Section 10B for computing eligible profits.
6. Comparison with Section 80HHC in determining eligible business profit.

Analysis:
1. The High Court addressed the challenge by the Revenue against the orders of the Income Tax Appellate Tribunal regarding assessment years 2008-09 and 2009-10. The Tribunal had followed a decision in the case of Maral Overseas Ltd., emphasizing the interpretation of Section 10B(4) for computing profits derived by a 100% EOU.

2. The Court delved into the interpretation of Section 10B(4), highlighting that the formula provided in this section determines the eligible profits for deduction under Section 10B. It was emphasized that once an income forms part of the business of the eligible undertaking, it cannot be excluded from the eligible profits for computing the deduction under Section 10B.

3. Regarding the eligibility of claim for deduction on export incentive received, the Court affirmed that the assessee was entitled to the claim of deduction on export incentive in line with the provisions of Section 10B(1) read with Section 10B(4) of the Act. This decision was supported by a previous judgment of the Court in a similar context.

4. The issue of duty draw back in the form of DEPB benefits was addressed, stating that such benefits are deemed to be part of the business income as per Section 28, clause (iii-c). The Court clarified that the duty draw back or benefits are to be treated as profit derived from the business of the undertaking and cannot be excluded.

5. The application of Sub-section (4) of Section 10B was crucial in determining the eligible profits derived from exports. The Court emphasized that the formula provided in Sub-section (4) must be applied to compute the profits derived from exports, ensuring that the amount quantified as per the formula qualifies for deduction or exemption.

6. Lastly, the Court compared the provisions of Section 10B with Section 80HHC concerning the computation of eligible business profit. It was noted that while Section 80HHC contains specific provisions for excluding certain incomes, Section 10B does not have such provisions, making Sub-section (4) a comprehensive mechanism for computing eligible profits.

In conclusion, the Court dismissed the appeal, upholding the decisions based on the interpretation of Section 10B(4) and the treatment of duty draw back benefits, in line with the statutory provisions and previous judicial precedents.

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