C.I.T. II JODHPUR vs. M/S BHARAT ART and CRAFTS

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ITA/110/2013HC RajasthanRJHC01026046201324 January 20188 pages
AI SummaryRemanded

What did the High Court hold?

The High Court, in its judgment dated January 24, 2018, considered the common questions of law and fact. It noted that the Supreme Court in the case of Sterling Foods had held that DEPB/duty drawback benefits would not form part of the net profit for the purpose of Section 80IA and 80IB deductions. The Court reasoned that these benefits are provided to neutralize the incidence of customs duty payment on the import content of export products and are not derived from the profits and gains made by the industrial undertaking or business itself. The Court also referred to the Supreme Court's decision in Topman Exports, which held that DEPB credit is chargeable as income under Section 28(iiib) in the year it is applied for against exports. The Court found that the Tribunal's decisions were not in line with these Apex Court pronouncements. Consequently, the High Court allowed the appeals, quashed the impugned orders of the Tribunal, and remitted the matters back to the Assessing Officer for decision in light of the aforementioned Supreme Court decisions.

What were the facts?

The appeals before the Rajasthan High Court at Jodhpur involved common questions of law and fact concerning the deductibility of Duty Entitlement Pass Book (DEPB) and Duty Drawback (DDB) amounts under Section 10BA of the Income Tax Act, 1961. The Revenue (Commissioner of Income Tax) was the appellant, and various entities like Shekhawati Art Exports, M/s Aztec Shiva Handicrafts & Art Pvt. Ltd., M/s Corn I Chowk, and M/s Bharat Art & Crafts were the respondents. The core dispute revolved around whether these benefits, intended to neutralize the incidence of customs duty on imports for export products, constituted income derived from the eligible business for the purpose of deduction under Section 10BA, or if they should be treated as income from other sources. The Tribunal's decisions allowing these deductions were under challenge.

What were the issues?

1. Whether, on the facts and circumstances of the case, the learned Tribunal was justified in directing to allow the deduction under Section 10BA of the Income Tax Act, 1961, on the receipts of DEPB and DDB, despite the absence of a specific proviso in Section 10BA similar to Section 80HHC, which would make such receipts eligible for reduction? (Assessee's contention: Yes, relying on Supreme Court decisions. Revenue's contention: No, due to lack of specific provision and distinction from Section 80HHC). 2. Whether, on the facts and circumstances of the case, 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 of the Act? (Assessee's contention: Yes. Revenue's contention: No). 3. Whether, on the facts and circumstances of the case, the learned Tribunal is justified in treating 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? (Assessee's contention: Yes, the benefits are derived from export. Revenue's contention: No, they are not derived from the business itself but are reimbursement of duties).

Which sections of the Income-tax Act were involved?

Section 10BA,Section 80HHC,Section 80IA,Section 80IB,Section 28(iiib),Section 28(iiid),Section 56,Section 14

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. income Tax Appeal No. 116 / 2013 Commissioner of Income Tax-I, Jodhpur Versus Shekhawati Art Exports, 65-B, Bank Colony, Rai Ka Bagh, Umaid Bhawan Palace Road, Jodhpur Versus . . Area, Boranada, Jodhpur M/S Corn I Chowk, Jodhpur Versus M/S Aztec Shiva Handicrafts & Art Pvt. Ltd., E-589-595, EPIP Ind. Area, Boranada, Jodhpur D.B. Income Tax ~ p p e a i No. 122 / 2013 Commissioner of Income Tax-I, Jodhpur ----Appellant Versus (Uploaded on 18/07/2024 at 10:52:07 AM)

t Ram Bhishnoi P/O M/S Indus Trade Tanawara Phanta Salawas ad Jodhpur ----Respondent / .

y n c o m e Tax Appeal No. 110 / 2013. Commissioner of Income Tax-11, Jodhpur Versus M/S Bharat Art & Crafts, Main Bhawan, Goro Ka Chowkt Jodhpur .. . ----Respondent Tax Appeal Nb. Jodhpur Versus M/S Aztec Shiva Ha Area, Boranada, 'Jo Commissioner of Inco M/S Bharat Art & Cra 19-595, EPIP Ind. . Commissioner of Inco . . . , .,. . . . . - k Ka ~ h o w k , Jodhpur Versus M/S Aztec Shiva Handicrafts & Art Pvt. Ltd. ----Respondent For Appellant(s) : Mr. K.K.- Bissa, Mr. Sunil Bhandari For Respondent@) : Mr. Anjay Kothari, Mr. Sharad Kothari; Mr. Anil Bha.nsali with Mr. Bhagirath Patel (Uploaded on 18/07/2024 at 10:52:07 AM)

HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI Judqment 24/01/2018 I Since common question of law and facts are involved in these appeals, hence, they are decided by this common judgment. By way of iudqment and Th su bstan is Court while a d m i t i $ ~ ~ ~ h m a t t e r s framed the folla tial questionsh 'i) Whether case, the lea allow the deducti DEPB and DDB fsi specific proviso i. ,$ Section DDB eligible fc I ii) Whether 4 case. the lear ,114/2013 mstances of the m e d in directina to that there is no like in the case. of of DEPB and allow the d e m . , , , Tn IOBA on the receipts of the-^^ ignoring the preliminary c sub-section (3) and (4) of Se iii) Whether on the facts and circumstances of the. case, the learned Tribunal is justified in directing to treat the D ~ P B and DDB deduction as income 'from export of eligible articlek or things ignoring the ratio laid down by the Hon'ble Apex Court in the case of CIT vs. Sterling Foods?" In DBITA No. 121/2013 'i) Whether on the facts and circumstances of the case, the learned Tribuqal was justified In directing" to allow the deduction u/s IOBA of the Income Tax Act, '1961 on the receipts of the DEPB and DDB (Uploaded on 18/07/2024 at 10:52:07 AM)

despite the fact that there is no specific proviso in Section IOBA like in the case of Section 80HHC, making the receipts of DEPB and DDB eligible for reduction under Section IOBA of the Act? ii) 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 conditions laid down in sub-section (3) and (4) of Section IOBA of the Act? iii) Whether on the facts and circumstances of the case, the learned ~ r i b ~ i n a l reference to section 80IA/80IB held that DEPB/duty draw back benefit would not form part of the net profit.. he section 801A and 801B deduction is provided by the Statute for industrial undertaking.. and profit & gains derived from any business of an industrial undertaking a certain percentage deduction be allowed for number of assessment years specified under the law. Whereas in section 801B deduction is allowed to certain industrial undertaking other than infrastructure development undertaking from the profit and gains derived from (Uploaded on 18/07/2024 at 10:52:07 AM)

any business referred to in sub section (3) to (ll), (11A) and 11B) as such 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 use of imported raw materials I (d) Ninety per cent or more of its sales during the ion IOBA, the of section 801A hey apply for the to in section 80I.A: the Finance Act, e sections are are different. reme Court in the applicable in .case of deduction claimed by the assessee under section 10BA 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.

12.1.

However, Hon'ble Supreme Court in the. case of Topman Exports (supra) held that entire sale proceeds not to 'be treated as profits but only difference between sale value and face value of credit - DEPB credit chargeable as income under section 28(iiib) in year in which applied for against exports. Further, profit on transfer of -credit chargeable under section 28(iiid) in year in which (Uploaded on 18/07/2024 at 10:52:07 AM)

transferred. The Id AR has also referred the decision of ITAT Jodhpur Bench, Jodhpur in the case of Angira Art Exports and Suraj Exports India and others' in ITA No. 360/Jodh/2012 order dated 31/1/2013 and also ITAT Mumbai Bench in the case of Arts & Crafts Exports Vs. IT0 66 DTR 69 (ITAT Mumbai Bench) an'd claimed that both the ITATs have allowed the assessee's appeal by considering the Hon'ble Supreme Court decision in the case of Liberty India and Toprnan Exports (supra). We have considered the assessee's submission but fact of both the cases are not verifia'ble from the submissions made by the assessee, therefore the element of co Court, is to neutralize. the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In 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 ~adhakrishnan. He has argued that as the subsidies that are received by the ' respondent, would be income from other sources (Uploaded on 18/07/2024 at 10:52:07 AM)

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 T ~ x Act. S k i Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbu'rsed 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 Land not under the head 'i

29.

For the r e are of the view elhi High Courts have correct1 s 80- IB and 80- h Court, having decided .for the have not. been decide the same in the lig.ht of aforesaid decisions. It is made clear that w e have not expressed anything on merits." However, counsel for the respondent contended that the issue is not covered and in view of decision of Supreme Court 'in Liberty India, the appeal is required to be allowed in favour of assessee. (Uploaded on 18/07/2024 at 10:52:07 AM)

I n case of assessee we have remitted back the matter to the I. I n that view of the matter, on same principle, the matters are imitted back to the AO. It will be open for both the sides to raise I1 contentions including applicability of the circular before the I n view of the above, the appeals are allowed and while quashing and' setting aside the Tribunal, the rnattelp~?&&~ impugned order of learned Powered by TCPDF (www.tcpdf.org) (Uploaded on 18/07/2024 at 10:52:07 AM)

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