2017 (10) TMI 1215 - HC - Income Tax

Deduction u/s 10BA - income from the duty draw back and sale of export license qualification as profit derived by an undertaking from the export out of India of eligible articles or things - Held that - The view taken by the Supreme Court in the case of Commissioner of Income-Tax V/s Meghalaya Steels Ltd. 2016 (3) TMI 375 - SUPREME COURT held that Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head income from other sources , which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head profits and gains of business or profession . If cash assistance received or receivable against exports schemes are included as being income under the head profits and gains of business or profession , it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head profits and gains of business or profession , and not under the head income from other sources . For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80- IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove. Therefore, the matter is remitted back to the AO to decide the same in the light of aforesaid decisions. It is made clear that we have not expressed anything on merits.

Summary

Issues:
1. Challenge to Tribunal's judgment and order regarding income qualification for deduction u/s 10BA of the Act.
2. Vitiating factors in the Tribunal's order.
3. Treatment of DEPB and duty drawback benefits in profit calculations.
4. Interpretation of DEPB scheme and its relation to industrial undertakings.
5. Classification of subsidies received against exports under income heads.
6. Consideration of previous court decisions in similar cases.

Analysis:

1. The appellant challenged the Tribunal's order on income qualification for deduction u/s 10BA of the Act. The Tribunal considered the issue in light of the Supreme Court's decision in Liberty India case, emphasizing that DEPB and duty drawback benefits do not form part of net profit for deduction purposes under sections 80IA/80IB. The Tribunal highlighted the conditions for claiming deductions under section 10BA, emphasizing the proportionality of export turnover to total turnover for profit calculation.

2. The Tribunal's order was questioned for apparent inconsistency in reversing the CIT(A)'s order while setting aside the ground of appeal to the Assessing Officer. The appellant contended that the Tribunal's decision was not consistent with the Supreme Court's ruling in Topman Exports case and other ITAT decisions. Consequently, the Assessing Officer was directed to recalculate income based on relevant case laws.

3. The Supreme Court's judgment in Commissioner of Income-Tax v. Meghalaya Steels Ltd. clarified the treatment of DEPB benefits, stating that such schemes are not directly related to the business of industrial undertakings. The Court emphasized that DEPB entitlement arises post-export and is aimed at neutralizing customs duty payment, not derived from the business's profits and gains. The judgment also addressed the classification of subsidies received against exports under the head of "profits and gains of business or profession."

4. The Court referred to previous decisions, including CIT Jaipur v. Suresh Kumar Bajoria, to support the interpretation of income tax provisions related to subsidies and export incentives. The matter was remitted back to the Assessing Officer for reconsideration in light of the court's rulings, without expressing any opinion on the merits of the case.

By analyzing the issues raised in the appeal and the Tribunal's order, the Court provided a detailed interpretation of relevant legal provisions and precedents to guide the recalculations by the Assessing Officer. The judgment underscored the nuanced distinctions in income classification concerning export benefits and subsidies, ensuring a comprehensive review of the case in line with established legal principles.