C.I.T. I JODHPUR vs. M/S SUNCITY ART EXPORTERS, JODHPUR

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ITA/139/2013HC RajasthanRJHC01027072201325 January 20187 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the view taken by the Supreme Court in CIT Vs. Sterling Foods and Liberty India is applicable. The Court noted that Section 10BA provides for deduction on profits and gains derived from the business of an undertaking manufacturing or producing eligible articles or things, with a condition that 90% or more of its sales are by way of exports. However, DEPB and DDB are export incentives and not directly derived from the profits and gains of the industrial undertaking or business itself. They are considered as income under Section 28(iii)(b) as cash assistance or subsidies received against export, chargeable to income tax under the head 'profits and gains of business or profession'. The Court found that the Gauhati, Calcutta, and Delhi High Courts had correctly construed Sections 80-IA and 80-IC (and by extension, 10BA), while the Himachal Pradesh High Court's contrary view was wrongly decided. The matter was remitted back to the Assessing Officer to decide in light of the Supreme Court decisions in Liberty India and Topman Exports, and other cited case laws, recalculating the income accordingly. The Court explicitly stated it had not expressed anything on merits.

What were the facts?

The Revenue (Commissioner of Income-Tax, Jodhpur) appealed against an order of the Income Tax Appellate Tribunal (ITAT) that allowed deductions under Section 10BA of the Income Tax Act, 1961, on receipts from DEPB (Duty Exemption Pass Book) and DDB (Duty Drawback). The assessee is M/s Suncity Art Exporters, Jodhpur. The core of the dispute revolves around whether these incentives, which are export promotion schemes, qualify for deduction under Section 10BA, which pertains to profits and gains from certain undertakings engaged in manufacturing or producing eligible articles or things for export. The Revenue contended that these incentives are not derived from the business of the undertaking itself and thus not eligible for deduction under Section 10BA.

What were the issues?

1. Whether the learned Tribunal was justified in directing to allow the deduction under Section 10BA on the receipts of DEPB and DDB, considering there is no specific proviso in Section 10BA making these receipts eligible for deduction, unlike in Section 80HHC. - Assessee: Not explicitly recorded. - Revenue: Argued that DEPB and DDB receipts are not eligible for deduction under Section 10BA as there is no specific provision for it, unlike Section 80HHC. 2. Whether the learned Tribunal was justified in directing to allow the deduction under Section 10BA on the receipts of DEPB and DDB, ignoring the preliminary conditions laid down in sub-sections (3) and (4) of Section 10BA. - Assessee: Not explicitly recorded. - Revenue: Argued that the preliminary conditions in sub-sections (3) and (4) of Section 10BA were ignored. 3. Whether the learned Tribunal was justified in directing to treat the DEPB and DDB deduction as income from export of eligible articles or things, ignoring the ratio laid down by the Hon'ble Apex Court in CIT Vs. Sterling Foods. - Assessee: Not explicitly recorded. - Revenue: Argued that the deduction should not be treated as income from export of eligible articles, citing CIT Vs. Sterling Foods.

Which sections of the Income-tax Act were involved?

Section 10BA,Section 80HHC,Section 80IA,Section 28(iii)(b),Section 56

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Income Tax Appeal No. 139 / 2013 Commissioner of Income-Tax,-1- Jodhpur Versus M/S Suncity Art Exporters, Jodhpur (Rajasthan) , ., " %I -s , p4 1 #+->? ,~ * *,A" $2. ----Respondent 14,,%,< ~".clt j!h%vs. e k 1.r- . %._p ,6.sb~ f"% .& '62. $ &-\,, ~*,...?*?> 6 .

s.t.. 7r", s~ qke. ,;96jve, a For ~ppellagtcs)' .r 61 : Mr.K.K.Bissa s,&b ,& ~. " $ ,;<:+' For R ~ ~ ~ & $ & ~ ~ ( ~ ) : r." ; . . * $

,-y Mr.Anil Bhansali, Mr.Bhagirath P&~$~I$J- .L'.C\,,*~.a " S *< i*, i -ifJ*\& "?' -:* iallenged the 18.02.2015, of the case, the learn ed.t~n~~ib.u$a/..l$s ?i&uS&~$i,d in directing to ;?$,;i..,.-."B$&~.,8.":..g .p&$lrlP,*ac# .' 13 '' ,*?2>:" l t r $ $ci.pS '*,%& 4 *">$ * allow the dedudion "ndei ~ecfion IOBA on the receipts of the DEPB and DDB despite the fact that there is no specific proviso in Section 1 OBA like in the case of Section 80 HHC, making the receipts of DEPB and DDB eligible for deduction under Section 1 OBA? ,-

2.

Whether on the facts and circumstances of the case, the learned 'Tribunal is justified in directing to allow the deduction under Section IOBA on the receipts of the DEPB and DDB ignoring the preliminary (Uploaded on 18/07/2024 at 11:00:28 AM)

conditions laid down in sub-section (3) and (4) of Section 1 OBA ?"

3.

Whether on the facts and circumstances of the case, the learned Tribunal is justified in directing to treat the DEPB and DDB deduction as income from export of eligible articles or things ignoring the ratio laid down by the Hon'ble Apex Court in the case of CIT Vs. Sterling Foods? 3. ~isi.on of this Court .-.% -. @'- \ *h ,.A'. ,d # =* $ >*\, rendered .. st3 rz Jaipur Bench, Jaipur in Ranjana,4ohari Vs. .. . - 9 . .&,C& ~ssist@n& *-- Commissioner of Income Tax, Circle-6,,2Jaipur . 2 (D.B. Income 23/f0/20f7), paras "

3.

While c observed a 12. We have " ii . , material on recordi he i'%8n $/~[h:su~reme Court in $ 2 : * i j .ti' pi $ ) $j!> the case of Liberty ~~nni/iala~(~~~;~a)j:'has ; ji;illtB$,28 ,' . . ,( ;%. considered the ,&; j"*&%&$$ $j &jJ$ issue of D EPB an@fdutfi8,d:a sn~Jd ,&yj9$~ i+..4ekzyt: w.l:ba~k-~a:n,d 56 : :\.l;>~ ; with reference p.&.$A $*5, &.$?. $.;7&z9.*:>i*;@\;?:i>+3'2 to section 8 O I A ~ ~ @ $ B - . ~ ~ / ~ < < ~ & $ ~ , ~ D ~ P ~ ~ ~ ~ Q ' ~ dra w back ::.:.a . .; .iv::.3:c. 4 ,!,, ii :3hjk r,$b rxir +pj -" ,\\%*I,l, ' ,i.i!.& benefit would t q ; ~ & , ~ ; ~ ~ ~ ~ ! . c : p a , ~ i . & &eghet profit, The \;Ij9'kr,~$$$+~&. >:$.I,) .%&?? 2pt.* P^, t@X6d *:.< .: <.-L~2~~~~g*q3~~~~$$~ section 80IA and 88FBid:@&.ct1:o~mi"1~ pro vided by the '=% I' Statute for in d u ~ & ~ ~ a / - i ~ n d e ~ ~ & ~ n n i:.i:~i$h d profit & gains rMq /%.:;?A yn * *md i c;Y gsq gl ak, Q q* %j , $ y derived from any business o f ' an industrial undertaking a certain percentage deduction be allowed for number of assessment years specified under the law. Whereas in section 8018 deduction is allowed to certain industrial undertaking other than infrastructure development undertaking from the profit and gains derived from any business referred to in sub section (3) to (I I), (I IA) and 1 I B) as such (Uploaded on 18/07/2024 at 11:00:28 AM)

business being referred to as the eligible business on certain percentage basis and for such number of assessment years specified under the law. Section IOBA also provides special deduction of such profit of eligible article or things. This section applies to any undertaking which fulfill the following' conditions, namely, (a)It manufactures or produces the eligible articles or things without the u s e - ~ ~ i m ~ ~ o H e ~ ; - r a . , & ,! w materials ; : 2 &:k :,.* .* ,.: i* ' ,.& .A,. : i.i ??"I.\ 1, ?X,G A 2) !%*%$ j;<,fy (d) Ninety- .-+-- . per S cent or more of ~ t s "sa.:lesii;during the -,- L r y "& %L 26F-k p r e v ( p 6 ~ y ~ r r relevant to the assessment ye3ywye %.:, .. by P, &? wa'y-o f exports of the eligible articles or things. k.fl:& @-&d ,T -i J. R Besides these, other conditions provided in clausg (b), (c) and (e) are ,#yJ Lo % bg, y.a.,+ fulfilled for claiming 7 ed$+ deduction. The suB'se~t~~oW~ ".\ 49 .= L- (%9.i3!of -2 h).yct~ ,qction I OBA reads . , , ?

as under :- ~ @ - ~ $ ~ ~ ~ ~ c v v p@$:+a .& 2 L $2 cg&y{k> .$&*,* * $-$ " -$yj%?8 &:?P;5='"+h% f%--.'%% 1;*m2**,s~q LJ vr <.g <?:$- 7,,,: *,., * 'k,-> :+ y& A \ %,yf,yyt+Q** +S~:~ZZ?~.!>;%.,{ ,$- *,2.>z ., -& -4:;s S@Sj- ('5hf> 'P j* c;) ,":i.g"rr .. ; , ,s,.;o..t< 4 <@$$- Sub Section ,,(~~i.i;jj~I& .the $p&=poses 0 f sub - l&"q > , :??, ,"." 5: 4%. ::.:;.>&;+&' ~.'..*:*i , !, i > p ;?%f+)4;j:",;y.;* ;$v'$$ :,$$ section (I), the '.vdb ; i.pr~ff~s~&~e~~;~e~df~ffib'm :y,:.t$.-b. +. . i , ,, 4 d , ; ' c : export out of h. ,, :.i2{, ?;+ ,$& + G*\..\ >! (,[;;,pe$*N8$~" .. s 8 ; :/ India of the e/igl~~@:art,~/& ,> . .!=;I T+(,i5+ff,* ;$@&fiihgs -.. i..G-$mg shall be the '," {ry Gap$ p -@$ amount which bear!$ * ? to\ th&*jbr&h& of the business of .-' ?&I 4 ! $ $ 21 1 $*fg &J5i the undertaking, tee same e~ap&$ion Eb;,\, I! L‘ as the export ). 5;: .::;; z:.;,>f.r, ,.< $ &*J ..!.*.A & turno ver in respe*q$ ~&~gq@b~~>a&@/e%ar things bears to ,' t; .; . $ x ~ ~ % ~ P ~ S ~ X ,:*- .,=@*.? . -. ?. ' 3 , ..*;'. $is,, j* .J ..set- .-.a .;: i, \L\tf~>:'\:", \,- i~th the total turno ve :!:' fi 8% $@;e;&&s.~~,e~ ga,rried on by the J -.+ ?Qfi?c. cJ ,; - , 4 3; .. 3 .. 2; '" @ ': ,,," <%&$$it th+,rl. $6, %4j 18 undertaking. .i! f$$:F:a:. % ., , GqGA$&$~~>&?s~?fq~[d~~~ T7 .,,& -~~$~,'\;~~~5gx&;$pf~&2.~*~2>>~~~;: :,; 5 ~.+p* ';_&$gfg;3a-3yfi.<:rcr> 2,. ) As per sub-secT1~n--("6j-~f-- ,= section x% 1 OBA, the - *. .-. . -4zqv7? -"+-;*a%+* .%Pnaypsc?:x< :tttt* ,-"4& , subsection (8) a@.qi:zsU@=,se:~tjo~i g .' ~.-- '.. f.j . ;)-'of : section 8 OIA also applicable in relation to the undertaking referred to in this section as they apply for the purpose of undertaking referred to in section 80IA. Section 1 OBA was inserted by the Finance Act, 2003 with effect from 1.4.2004 whereas section 80IA was inserted by the Finance Act,l999 with effect from 1.4.2000. Originally section 80IA was inserted by the Finance Act, 1991 with effect from 1.4.1991. The (Uploaded on 18/07/2024 at 11:00:28 AM)

languages of both the sections are same but the effective dates are different. Therefore, findings of IYon'ble Supreme Court in the case of Liberty India squarely are applicable in case of deduction claimed by the assessee under section IOBA and credited duty draw back and DEPB in the Profit & Loss Account, but is not derived income from undertaking. Therefore, we reverse the order of Id. CIT (A) to that extent. Y& ",.& 'a x F 3 , 4 ,.-, % 0 ,&?j f , * r " "BJ$ ....) t 12.1, uo wevery ', B&n7'ble suprems ' ~ & @ t & n ~ t h ~ 4 case of ;;xeii.r::. - 2' 1 TO^ ma $ &w3i~Jp w o rts (supra) h eld tha t n r e sale tL d &, f,. % pro.cAe+eBs not to be treated as profits buf.dnly *l.>9. C "t .;F&$ ,dI"@erence between sale value and face value@ oG;% %?$: .&P 2, credit - DEPB credit chargeable as income under sferred. The Id AR has also assesse e 3 a pp %~&T~Gbbp~Econsii$g~5~~g th e Hon 'ble 6 , >&% , ' i'" + .$ <*.y; '?:,.;a $?'$ Supreme Court de$sto*n m 'the "cdkb' of Liberty India and Topman Exports (supra). We have considered the assessee's submission but fact of both the cases are not verifiable from the submissions made by the assessee, therefore the Assessing Officer is directed to considering the order of the Hon'ble Supreme Court in the case of Topman Exports (supra) and case laws referred by the assessee i.e. decision of (Uploaded on 18/07/2024 at 11:00:28 AM)

ITAT Jodhpur Bench, Jodhpur in the case of Angira Art Exports and Suraj Exports India and others and ITAT Mumbai Bench decision in the case of Arts & the case of Commissioner of Income-Tax V/s 217 (SC) wherein 1ine~;a;l;o does not help Revenue. What this ~ o u h > ~ & ~ s P% $$ tF&43 *c@:erned 2* with was an export incentive, whichn yw ia, very far removed from reimbursement of an element of cost. A D on to export at is after it manufactures or therefore its entitlement, as n e u tra lize th e in c ~ ~ ~ e , ~ ~ c ~ e ~ ~ ~ ~ ~ c u s ~ o m s ~ ~ u y 6G pa ym en t on p p kd& - ~.$,*3 v*{ 4 %*,$ 3 pa the import c~nt&nt'~oP M e " expbtf 'p"roduct which is provided for by credit to customs duty against the export product. I n such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself. "

28.

It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the (Uploaded on 18/07/2024 at 11:00:28 AM)

subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed , , "., "'". ,<*-%~% !/ &P3--%?; tk &?+ -.k$ l "~21 B 8 2 . , , - p. .& on the incu~~i'n4 t!> of-costs re7araliI.e. .fi~+q - 8 b usin ess, are I' 3$ - I. . < ,-?. .;':- under @&de;d "income from other souhce~~~";., which ,* ~V xh&uL";Pm'*l;c* is ,a,.'>$&duary ,-. -.> .+ head of income that can be availed 'I.<* k2k J'.. ,,$\ J , un1pif income does not fall under any of the o.ttiefik k - --- '.. ,9f j. four heads of income. Section 28(iii)(b) specifically W?.. ?- -, ---c .. 1 \ states that income gffi@:mi$$cash assistance, by ,.+-2k .*~k25>~;~ 4&$8 A$%&y A? <.. $;2&-$ yx-,. *.>@ $2 ,+-, /$ 3%. whatever nam~gq${l$@j~$$ge~~~~ao:r ~ e ~ e i v a ble by any ~;$~d~2~4fl~k-&?&w*4: ("*:$ t.*d&"vy-?, t::n~?: )*-$:.:~-*&*$:, .+\ i"^a .i*r: \ person againutgexp o@s%!u~~de$'~~~pjgS;gh em e of th e "$1 4 $ ,$?$--J&~$%& h 4~ r i. I T ,.r5,.i :q+/ p& 2 .+ \I,&:'$.!j""$l; -. 'I' 6.'; " : <"\&& " Government of Igdt~~~~$il~~$;t2A'C:0.me <<. .-,?2,cy$ chargeable to -2." s&,i ,:,>.- (2 ?. .Jdj 2&>,*a , :.a$. ,"' ~ ~ P Y i * & ~ P ~ $ l t * ,{* ' * 6 income tax un d e , ~ <L ,:$o,c!h(:.h . .?,, ?-dsrrd,,g%.?. e,a'di.~.:h~@~~:fi~ts ,' r ,.,::+ and gains of 4 +>,~ +&&,?y#$ j;,,p,'4y$ -,,3?..,>& . . <.* $*&JL ,*,\ "$;*$<*>'% fin :( J'P business or p r o f e ~ s ~ ~ F ~ ; ~ 3 ~ ~ ~ r : ~ ~ ~ ~ j p ~ f l > ~ z a ~ ~ i ~ t a j, ',;9 ‘", w( ! n ce received * 'r""'.* " , 8 . , P'y p . , or receivable agai$$t !$x@b~$s'sbsc$emes I"i .!:! are included fi , Q./ <?$' \f# g.3. y:;-+. I! as being income un,@efiWe +.i"i:..c&..:.;/ head &i:Qijs ?profits and gains of 8 r $.,. 22" '". f;f ., .,:"8%3 .K&, ,< $.,* -5 ;{:$-p.$f+ ?*J!!& J$+3L "&%"&* business or profe@slpn:gy$~tj:o~f@k,yiyus that subsidies F *. . 12 - * ', . n ,> 'l " <%\ > ,?.< 3, a zk " E:t 4 &"d$>>&<(&i *:?:efqi$-p<' {. $ which go to reig@i.@s~n.e~:&~~o~ $,?:$) , -... ;iq@\p-~pth e pro duction $ j ' ~ ' . " ~ ' . ~ , <% .%,?# 5 \. fi*C: G: qT*;!i: a$ tgn ; .;':<;p:%.i""r, * % 5. $/? of goods of a pa@t~g&~&b;bs1~es~.~i~6&ld --"-& ,&&4.3gi2.-?2~ . . k.j~.~~+Ge also have to :* c ~ $ ~ ~ > y $ 2 y = cs:ji j*??&@j >- = '--- "...." be included under treyhead "profits and gains of "., i T : ~ " ~ ' = ' ~ S ' ~ > ~ ~ ~ , ~ ~ * g

w!:i*~&-~%-%'%:~s z. i& , , $

s: i:, p b p- business or p r o ~ s s ~ o ~ + ~ '% ., ,? f@~nd3?ii48$~inder the head "income from other sources".

29.

For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80- I 5 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 (Uploaded on 18/07/2024 at 11:00:28 AM)

held to be wrongly decided for the reasons given by 0 5 us hereinabove.

4.

The same view was followed by this Court in the case of CiT Jaipur V/s Suresh Kumar Bajoria in D. B. income Tax Appeal No. 294/2008 decided on 18.05.2017. The said decisions have not been taken into consideration by the authority.

5.

Therefore, the matter is remitted back to the A 0 to decide the saqe ?;n 1igh.t 6f:af~~esaid decisions. , 4 : . 4 'i a $~< 8% ,fM $%*;p It is made:clear:that cz-2& :*b we have not exprgss.gd,anything ii L 'i- ,;p\- on m:g6ts;;d 8 & > '&,,An;.' 9- ,/#" ,;:' b. 6. ?hecappeal stands accordingly disposed of."" ,= " >A 'a .*., ..'E .+~ %*-. Q -2 - 'p. 4. ent, the present appeal stands dispo while remitting the matter back to the he light of aforesaid decisions. It is ma expressed anything on merits. (DR. PUSHPEND Skant/-64 Powered by TCPDF (www.tcpdf.org) (Uploaded on 18/07/2024 at 11:00:28 AM)

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