2016 (7) TMI 463 - HC - Income Tax

Deduction under Section 80IB - income from DEPB and DEPB premium - non entitlement to deduction as per ITAT - Held that - Principle of netting while excluding certain sum from the claim of assessee for deduction under section 80IB of the Act is neither new nor unfamiliar. Such principle however, cannot be applied in the present case since this very issue of exclusion of the entire amount of DEPB from the profit eligible for deduction under section 80IB of the Act is well entrenched since long by virtue of judgement of the Supreme Court in case of Liberty India (2009 (8) TMI 63 - SUPREME COURT ) wherein held Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB of the 1961 Act. Question is answered against the assessee and in favour of the department.

Summary

Issues Involved:
1. Entitlement to deduction under Section 80IB of the Income Tax Act, 1961 for DEPB and DEPB premium income.
2. Interpretation and application of Supreme Court decisions in Liberty India v. Commissioner of Income Tax and Topman Exports v. Commissioner of Income Tax, Mumbai.
3. Distinction between deductions under Section 80IB and Section 80HHC of the Income Tax Act.

Detailed Analysis:

1. Entitlement to Deduction under Section 80IB:
The primary issue was whether the assessee was entitled to a deduction under Section 80IB of the Income Tax Act, 1961, in respect of DEPB (Duty Entitlement Pass Book) and DEPB premium income. The assessee claimed such deduction, but the Assessing Officer disallowed it, stating that the income from DEPB and DEPB premium could not be derived from the eligible business of the industrial undertaking.

2. Interpretation and Application of Supreme Court Decisions:
The Tribunal applied the Supreme Court decision in Liberty India v. Commissioner of Income Tax, which held that DEPB benefits are incentives and not profits derived from the eligible business under Section 80IB. The assessee contended that the Supreme Court in Liberty India did not consider the nature of DEPB income and that only the premium received on DEPB should be considered as income. The assessee relied on the Supreme Court's decision in Topman Exports, which clarified that only the premium on DEPB should be considered as income. However, the Revenue argued that the scheme of Section 80IB and Section 80HHC are different and that the Liberty India decision should apply.

3. Distinction between Section 80IB and Section 80HHC:
Section 80IB pertains to deductions in respect of profits and gains from certain industrial undertakings, while Section 80HHC pertains to deductions in respect of profits retained for export business. The Supreme Court in Liberty India held that DEPB benefits are export incentives and not profits derived from the industrial undertaking. The Court noted that Section 80IB provides deductions for eligible industries and is not related to export incentives. On the other hand, Section 80HHC directly correlates to the export business and provides a formula for computing export profits, which was the context in Topman Exports.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that DEPB benefits do not qualify for deduction under Section 80IB of the Income Tax Act. The Court distinguished between the provisions of Section 80IB and Section 80HHC, emphasizing that the Liberty India decision applies to Section 80IB and that the Topman Exports decision, which pertains to Section 80HHC, does not alter the interpretation of Section 80IB. The appeal was dismissed, and the question was answered against the assessee and in favor of the department.