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TMI Blog2013 (11) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... come (R)OI), electronically on 28.09.2008. After claiming exemption u/s 10BA of the Act NIL income was declared. During the relevant year this assessee-firm was engaged in the business of manufacturing of wooden articles. The assessee-firm has shown total sales, including duty drawback, at Rs. 9,56,42,648/- and gross profit at Rs. 48,79,954/- giving g.p. rate of 5.10% as against total sales of Rs. 9,59,75,116 giving g.p. rate of 25.29% in the immediately preceding assessment year i.e., 2007-08, and 24.98% on total sales of Rs. 6,02,30,477/- in A.Y. 2006-07. The A.O. has observed that the duty draw back amounting to Rs. 38,37,416/-, which is a part of P & L Account, if excluded then sales of the year will be reduced to Rs. 9,18,05,232/- which will reduce the g.p. rate of 0.01%. Therefore, the A.O. sought explanation to meet this situation, to which the assessee-firm replied as under:- "The assessee firm is manufacturing Timber Handicrafts items on wholesale basis in Head Office and branch office, Jaipur. Total sales are export sales. Margin of profit on export sales are depending on foreign dealers. Foreign dealers purchase the handicraft items on the minimum price of the market af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions of provisions of section 10BA. Thus the amount of Duty Draw Back is exempt u/s 10BA of the I.T. Act 1961. He has also relied some decisions i.e. (i) Hon'bel Supreme Court in the case of B. Desraj Vs. C.I.T. (2008) 301 I.T.R. 439 (Hon'ble Supreme Court), (ii) Hon'ble Rajasthan High Court in the case of Saraf Seasoning Udyog Vs. I.T.O. (2009) 317 I.T.R. 202 (Raj.) and (iii) Hon'ble Supreme Court in the case of C.I.T. Vs. Baby Marine Exports 160 Taxman 160 (Hon'ble Supreme Court) etc." 4. Not agreeing with the above submissions of the assessee the A.O., after relying on the decision of Liberty India 317 ITR 218 (SC), has denied the benefit u/s 10 BA qua the amount of Rs. 38,37,416/- in respect of D.D.B. CIT(A) has also approved the above action of the A.O. Now the assessee is further aggrieved and has raised following grounds in its appeal :- 1. The Learned authorities below erred in disallowing an amount of Rs. 21,144/- out of office expenses. The disallowance was wrong, unjustified and at any rate highly excessive. 2- The Learned authorities below erred in not allowing the exemption u/s 10BA of the balance amount of Duty Draw Back of Rs. 227619/- (3837416 - 3609797) as cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's case for the following reasons:- a. That in case of Liberty India, the Hon'ble Supreme Court has dealt with the provisions of section 80IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking whereas u/s 10BA a formula is provided under subsection (4) of section 10BA as to computation of profits derived by the undertaking from the export. b. That the mode of determination of eligible deduction u/s10BA is similar to the provisions of section 80HHC in as much as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation baa] for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10BA. c. The Hon'ble Supreme Court Recently in the case of Topman Exports vs CIT reported in 67 DTR 185 and ACG Associated Capsules Pvt. Ltd. vs CIT reported in 67 DTR 205 has held "DEPB is chargeable as income under cl. (iiib) of s. 28 in the year in which such person applies for DEPB credit against the exports whereas the profit on transfer of DEPB by that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub section (1) of section 10B refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4] of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. In case of Liberty India (supra), the Hon'ble Supreme Court has dealt with the provisions of section 80-IA of the Act wherein no formula was laid down for computing the profits derived by the undertaking which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he I. T. Act. This issue is squarely covered in favour of the revenue by the decision of Hon'ble Supreme Court in the case of Liberty India 317ITR 218 (SC) wherein Hon'ble Supreme Court defined the term 'derived' in para 14 and said that word 'derived from' is narrower in connotation as compared to the words 'attributable to'. In other words by using the expression 'derived from' Parliament intended to cover sources not beyond the first degree. In para 18, the lordship observed that DEPB/Duty drawback are incentive which flow from the scheme framed by central government or from section 75 of Custom Act, 1962. Hence incentives are not profits derived from the eligible business u/s 80IB. In this regard the Ld. AR, in support of appellant's claim inter-alia has relied upon the decision of the Hon'ble Mumbai ITAT Bench in the case of Art and Crafts Exports Vs. /TO (2011) 45 SOT 415 (Mum), wherein the Hon'bie IT AT Bench, inter- alia held as under :- "Para-V 1.14-As regards deduction u/s 10 BA in respect of DEPB, we find that sub-section (4) of section 10BA defines profits derived from eligible articles. Section 28(iiic), (iiid) and (iiie) provides that these income are profits and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India & others are nothing but speak about its authenticity. Sekhawati Art Exports; The Ld. AR inter-alia has relied upon the decision of the Hon'ble ITAT Special Bench, Indore in the case of Moral Overseas Ltd vs Addl. CIT. 136 ITD 177 (2012), wherein it is claimed that the exemption u/s 10BA has been allowed against the exports incentives. The perusal of same reveals that the ITAT Bench, Indore in the preceding years, in assessee's own case held that after considering the decision of the case of Liberty India it is found that the provisions of section 10B are different from the provisions of section 80IB, wherein no formula has been laid down for computing the eligible business profit. Accordingly the special bench has observed as under- In view of above discussion the question is answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of section 10B (1) read with section 10B (4) of the IT Act. It is pertinent to mention here that the revenue has moved an M.A. in this case & the same is pending for disposals. From the above facts your Honour will notice that ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80IB. Definition of word "derived" cannot be different for different sections of the same Act. 2. What is the difference between section 80AB and section 10BA and also between section 80IB (2) and section 10B (2) of the I.T. Act. There is no difference. 3. Even the provisions of explanation 1 and explanation 2 to subsection (2) of section 801 are applicable to section 10B (2) of the IT. Act. Even the provisions of sub section (8) and sub section (10) of section 801 A apply to the undertaking u/s 10B (7) of IT. Act. 4. The Hon'ble ITAT has not given any reason as to whether premium on import license/duty drawback/ sale of export quota are incentives which flow from the scheme framed by central government or they flow from the manufacturing activity of industrial undertaking. Since the decision of Hon'ble Apex Court in Liberty India is directly applicable in the present case, the same has to be followed according to principle of judicial discipline. This principle is very strongly put by the Hon'ble ITAT, Jodhpur bench while dealing with same issue u/s 10B in the case of V.J. Home (P) Ltd. & Ors 125 TTJ(Jd) 215, which is a decision on section 10BA of the IT. Act where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elatable to an industrial undertaking as the amount which could be understood to be 'derived from' is more than settled not only by the two decisions of this Court, the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Vs CIT-4-13 ITR 84 (SC) as well as of the Privy Council, in CIT Vs. Raja Bahadur Kamakhya Naraiy Sinsh & Co. 14 ITR 738 (B ft 0) What is on record is only an order of enquiry relating to the aspects which are required to be considered obviously as statutory requirements. There is no unsettled position and a reference because of diversion of judicial decisions of other Courts could not be appreciated to be a ground for reference in a situation where the question is decided by this Court as well as by the Supreme Court and by the Privy Council, as stated above" When Hon'ble Apex Court has repeatedly defined the term 'derived from' in the same fashion as in Liberty India, It is not possible to define it in any other way. In case of Gwalior Rayon Silk Mfg. (wvg.) Co. Ltd. 143 ITR 590 (MP) the jurisdictional High Court held that there is no room for including the value of import entitlements in the turnover of exports. This conclusion is fully suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a law declared to have a binding effect as contemplated by article 141 of the constitution. By this definition one would say that Hon'ble Supreme Court has given well reasoned decision discussing each of the relevant issues in case of Liberty India, where all the issues namely word "derived", and nature of export incentives is discussed in details & therefore, it is binding precedent under Article 141 of the Constitution. Mention is also required of the case of Topman Exports ITAT special bench, Mumbai 318 ITR 87 (AT) which is a decision on whether DEPB entitlement is a benefit under section 28 (iiid) wherein it is held that "though DEPB is post-export incentive, but its objective is to counterbalance effect of customs duty included in the cost of purchases. It cannot be seen as an incentive detached from cost of goods purchased. It is only on making an application for DEPB that assessee acquires the right to receive the DEPB and income accrues at that stage. Further in this order following was observed in para 62:- "Thus the incentives though a relevant consideration and initiative in the decision as to the making of exports, cannot be categorized as derived from export of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is clear that merely because the income has been assessed as business income will not automatically confer the benefits of a particular deduction once there is a rider provision that such income should be derived from a particular source. In the case before us admittedly the interest income was generated from interest on FDRs etc., from the surplus funds and, therefore, the same cannot be held to have been derived from the export of income tax services. " Tochenuglee Stationery Mfs. Co. (P) Ltd. ITAT, Chennai 'C Bench (2006) 5 SOT 428 (Chennai):- In this case exactly the same issue of special import license was dealt under section 10B of the IT. Act and following was decided:- "Para 17:- Now coming to the special import license, the assessee received this special import license because of the scheme framed by the Government of India to encourage the export business. It may may be a business income because of s. 28 (iiid) of the IT Act. For the purpose of claiming deduction under s. 108, the income should be derived from export business and form part of export turnover. The immediate source for special import license may be the scheme framed by the Government of India and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rling foods (1999) 237 ITR 579 (SC) and Hindustan lever ltd. (1999) 239 ITR 297(SC). In view of the above discussion the above quest ion is no longer res intergra, as it is settled against assessee and in favour of department. The Ld. A.R. stating that decision in case of Liberty India will not apply to their case as word "derived" as used in section 10B(1) has to be taken as per ratio of calculation of deduction provided u/s 10B(4) of I.T. Act. He further stated that provisions of section 10B (4) are similar to the provisions of section 80HHC (3) of I.T. Act. Circular no. 621 dated 19.12.1991 explained that formula in section 80HHC existing prior to 1991, often used to provide a distorted figure of export profits when receipts like interest, commission etc which did not have an element of turnover were included in the "profits of the business" for section 80HHC would not include receipts by way of brokerage, commission, interest or any other receipts of a similar nature. In fact the issue which is subject matter of debate is not the mathematical formula for calculation of deduction but whether the different types of income are arising to assessee from export or from other inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that section 80HHC is similar to section 10B therefore this judgment is directly applicable in present case. / The provision of section 10BA, inter-alia reads as under. "Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred percent export oriented undertaking from the export of the thrust of entire section is on export and deduction is also available on export income derived by the undertaking. It is dearly given in the formula of section 10B(4) of IT. Act, which is similar to section 80HHC(3) that the "profits of the business of undertaking" will not include income from export incentives coming under (iiia), (iiib), (iiic) of section 28 because they were independent incomes which have no element of export turnover. Here decision of Hon'ble Apex Court in case of K. Ravindranathan Nair (2007) 295 ITR 228 (SC) and Liberty India 317ITR 218 (SC) are directly applicable. Existing as well as subsequent decisions of Supreme Court should be given effect as held in case of Saurashtra Kutch Stock Exchange Ltd. (SC) 305 ITR 227 and CM Mittal Stainless Steel Ltd. (2004) 271 ITR 219 (M.P.) As power of tribunal is restricted to subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proportion as the export turnover in respect of such articles or things bears to the total turnover of the business carried on by the undertaking. The relevant part of section 28 reads as under: 28. The following income shall be chargeable to Income-tax under the head "profits and gains of business or profession". (iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); In the light of above discussion, we find that the assessee is entitled to deduction u/s 10BA on DEPB as in accordance with section 28 of the Act these are business income." 10. This decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of articles or thing means the amount which bears to the profits and gains of the business of the undertaking and not from any other business carried on by the assessee. So, by this amendment only the profits of the business of the undertaking only is to be considered for working out the profits and gains as are derived by an undertaking from export out of India of eligible articles or things. The profits and the gains of the business of the undertaking is to be worked out as per the provisions of section 28(i). This does not include the profits of items does not include the profits of items under s.s. (iiia), (iiib), (iiic), (iiid) and (iiie) etc. Duty Draw Back and any profit on transfer of DEPB. Section 28 itself makes it abundantly clear that the profit on account of Duty Draw Back or on transfer of DEPB will not form part of profit and gains of the business or profession which was carried on by the assessee as discussed above. The plain reading of Section 10BA which deals with export of certain articles or things will make it clear that 'such profits' as are derived from the export out of India shall be allowed from the total income of the assessee. Sub Section (1) of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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