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TMI Blog2018 (12) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... igible for section 10B of the Act. - ITA No.61/Kol/2016, 1830-1831/Kol/2018 - - - Dated:- 30-11-2018 - Shri S.S.Godara, Judicial Member And Shri M. Balaganesh, Accountant Member For the Assessee : Shri Dilip S Damle, FCA For the Revenue : Shri Saurabh Kumar, Addl. CIT-SR-DR ORDER PER S.S.GODARA, JUDICIAL MEMBER:- These three Revenue s appeals for assessment year 2011-12 arise against the Commissioner of Income Tax (Appeals)-4 Kolkata s separate orders; all dated 30.10.2015 in case No.(s) 857/CIT(A)-4/Cir-10/2014-15; 1573/CIT(A)/4/Cir-10/2014-15 385/CIT(A)-4/Cir-10/2014-15 respectively. The relevant proceedings in first appeal u/s 143(3) of the Income Tax Act, 1961; in short the Act as against the sec.154/143(3) in latter two cases; respectively. Heard both the parties. Case file(s) perused. 2. We proceed appeal-wise for the sake of convenience and brevity. The Revenue s sole substantive ground in its first appeal ITA No.61/Kol/2016 is that the CIT(A) has erred in law as well as on facts in holding assessee s duty drawback and interest subsidy of ₹3,97,78,960/- and ₹66,888/-; respectively to be eligible for sec. 10B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible. According to AO the language used in Section 10B(1) was similar to the language employed in Section 80HH or 80lA and therefore it was necessary for the assessee to establish the direct or immediate nexus between the operations of the 100% export oriented undertaking and export incentives interest subsidy. Referring to the judgment of the apex court in the case of Liberty India (supra) the AO pointed out that in the said judgment the Supreme Court specifically negated the assessee's claim for deduction u/s 801B, 801, 80lA of the Act with reference to export incentives on the ground that the source of such receipts was the relevant Government Schemes for promoting exports which per se did not have direct nexus with the operation of the industrial undertaking. The AO also relied on judgment of the Supreme Court in the case of CIT Vs Sterling Foods (237 ITR 579) wherein similar view was taken. In view of the judgments of the Supreme Court the AO held that the assessee was not eligible for deduction u/s 10B of the Income Tax Act in respect of its income by way of duty draw back interest subsidy. 4.4 Per contra the A/R of the assessee however placed heavy reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Sterling Foods (supra) and Liberty India (supra) as also the language employed in sub secs. (1) (4) of Section 10B of the I. 1. Act, the Special Bench of the ITAT ultimately held that Section 10B(4) of the Act stipulated specific formula for computing the profit derived by the undertaking from export. Section 10B(4) mandated that the deduction under that Section should be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover to the total turnover. In the circumstances, even though Section 10B(1) referred to profits gains derived by a 100% EOU, the manner of determining the eligible profits was statutorily defined in sub Section (4). The Tribunal held that sub Section (1) (4) of Section 10B were required to be read together for computing amount of eligible deduction u/s 10B of the Act. For that purpose the specific formula incorporated in Section 10B(4) could not be ignored. According to ITAT as per the formula laid down; the entire profits of the business are to first be determined these were to be multiplied by the ratio of export turnover to the total turnover of the business. The ITAT further took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) any duty of customs or excise repaid as draw back to a person against exports under Customs Central Excise Duties Draw Back Rules, 1971 is deemed to be profits gains of business. The said provision has to be given full effect and this means and implies that the duty draw back or duty benefits would be deemed to be part of the business income. Thus, will be treated as profit derived from business of the undertaking. This cannot be excluded. Even otherwise when we apply sub Section (4) to Section 10B the entire amount received by way of duty draw back could not become eligible for deduction/exemption. The amount quantified as per the formula would be eligible and qualified 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 4.7 I also find that the identical view was expressed by the Karnataka High Court in its judgment dated 11.12.2013 in the case of CIT Vs Motorola India Electronics Pvt Ltd (46 Taxman.com 167) wherein the High Court held that for the purpose of Section 108 of the Income Tax Act profits of the business of the undertaking interalia in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was one and the same; the interest subsidy was eligible for 100% deduction u/s 10B of the I. T. Act The AO is accordingly directed to allow the deduction permissible u/s 10B with regard to interest subsidy as well. [Ground Nos. 1 to 3 are therefore allowed]. 3. Learned Departmental Representative vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in holding both this head of income to be qualifying the impugned deduction. We find no merit in Revenue s either of the two arguments. This tribunal s coordinate bench s decision in M/s Hindustan Gum Chemical Ltd. vs. DCIT ITA No.1410 1601/Kol/2016 decided on 14.02.2018 has rejected Revenue s identical contentions as follows:- 6. Disallowance of other income while computing the deduction u/s 10B of the Act. Ground nos. 1 and 2 of revenue appeal The brief facts of this issue is that the assessee is having a 100% EOU at Viramgram. The assessee company claimed deduction u/s 10B of the Act to the tune of ₹ 6,25,86,299/-. The ld. AO had gone through the profit and loss account of the said EOU unit and observed that the income of the assessee includes a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insurance claims realized 36,390 Excess liabilities no longer required 8 Miscellaneous income receipts (including Duty Drawback of ₹ 20,64,901) 20,69,044 Interest received (net) (-) 2,91,053 ------------------ 18,20,101 The ld AO held that the aforesaid incomes were not derived from the export of articles or things and accordingly denied the exemption u/s 10B of the Act on the same. In support of his contention, he placed reliance on various decisions. The ld CITA granted the exemption u/s 10B of the Act and gave relief to the assessee by following the co-ordinate bench decision of this tribunal in assessee s own case for the Asst Years 2003-04 and 2004-05 vide order dated 28.12.2007 in ITA No.s 150 and 277 (Kol) of 2007 and ITA Nos. 5678 and 580/Kol/2009 respectively. Aggrieved, the revenue is in appeal before us on the following ground:- 1. That is the facts and in law of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for exemption u/s 10B in terms of section 10B(4) of the Act. He further stated that the decision of Hon ble Apex Court in Liberty India case supra and other decisions relied upon by the ld AO were all rendered in the context of deductions under sections 80HH / 80HHC / 80IA / 80IB etc and hence the same cannot be used for section 10B where the language of the statute is covered and exemption is to be reckoned as per computation mechanism provided in section 10B(4) of the Act. He placed reliance on the decision of the Hon ble Calcutta High Court in assessee s own case in ITA 666 of 2008 with GA No. 3269 of 2014 ITAT 159 of 2014 dated 30.6.2016 where the similar issue was held in favour of the assessee by following the provisions of section 10B(4) of the Act. He accordingly prayed for non-interference of the order of the ld CITA. 5.3. We have heard the rival submissions and perused the materials available on record. The details of other income to the tune of ₹ 18,20,101/- as detailed hereinabove pertains to 100% EOU as could be evident from the segmental profit and loss account of 100% EOU furnished by the assessee before the lower authorities. Hence the entire ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal erred in law in directing the Assessing Officer to treat the interest income of ₹ 28,74,473/- as part of the profits of business of the 100% E. O. U. eligible for deduction under Section 10B of the Income Tax Act, 1961 and compute deduction accordingly without appreciating the fact that the said interest income was not profit from the business but accrued on fixed deposit kept by the assessee in bank? A bare reading of sub-section (1) suggests that 100 % export oriented undertakings are entitled to a deduction of profits and gains derived from the export of articles for a period of 10 years. The aforesaid entitlement is, however, subject to the provisions of Section 10B. In other words, subject to the provisions contained in the other parts of the Section 10B, the benefit is available to an assessee. It was not disputed that the only relevant provision to be taken into account is subsection (4) which we already have quoted. Sub-section (4) provides the quantum of deduction which can be availed by an assessee. The quantum of deduction is dependent upon the total turnover of the business of the undertaking and the export turnover of the undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, which is permissible in law. Now the question is whether the interest 6 received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profits and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of income from Profits and Gains incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA No. 428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No. 447/2007 is answered in favour of the assessee and against the revenue. In the light of the aforesaid findings, the second question of law in both the appeals d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. Keeping in view the above decision and the decision of the Tribunal, we are of the considered opinion that the assessee has to succeed. The Assessing Officer is directed to treat the interest of ₹ 28,74,473/- as part of the profits of the business of the 100% EOU eligible for deduction under section 10B and compute the deduction accordingly. The Assessing Officer should deduct the sum of ₹ 8,01,30,294/- (Rs. 7,72,54,821/- + ₹ 28,74,473/-) and not only ₹ 7,72,54,821/- from the profit as per profit and loss account for the purpose of separate consideration under section 10B Ground Nos. 3,4 and 5 of the assessee s appeal are thus allowed. We are of the opinion that the Tribunal was right in the view they took for the reasons discussed by us. In that view of the matter, the question no. 1 is 9 answered in the negative and in favour of the assessee. The appeal is, therefore, dismissed. 5.3.1. We also agree with the argument of the ld AR that the decisions relied upon by the ld AO and ld DR were rendered in the context of deductions u/s 80HH / 80HHC / 80IA / 80IB of the Act and the words used thereon cannot be imported into section 10B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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