ITA- On Profit Earned From DEPB & Duty Drawback Schemes, Assessee Is Not Entitled To Deductions U/s. 80-IB: SC
The Supreme Court has held that on the profit earned from DEPB (Duty Entitlement Pass Book) and Duty Drawback Schemes, the assessee is not entitled to deductions under Section 80-IB of the Income Tax Act, 1961 (ITA).
The Court also held that such an income cannot be said to be an income derived from industrial undertaking and even otherwise as per Section 28(iiid) and (iiie), such an income is chargeable to tax.
The two-Judge Bench of Justice M.R. Shah and Justice B.V. Nagarathna asserted, “… the High Court has rightly held that the respondent – assessee is not entitled to the deductions under Section 80-IB on the amount of DEPB as well as Duty Drawback Schemes. We hold that on the profit earned from DEPB / Duty Drawback Schemes, the assessee is not entitled to deduction under Section 80-IB of the Act, 1961. Any contrary decision of any High Court is held to be not good law.”
The Bench noted that as per Sections 28(iiid) and (iiie) of the ITA, any profit on the transfer of the Duty Drawback and on the transfer of DEPB Schemes, etc., shall be chargeable to income tax under the head “Profits and gains of business or profession”.
Advocate Gautam Narayan represented the appellant while ASG Balbir Singh represented the respondent.
In this case, the appellant/assessee filed an appeal against the judgment passed by the Rajasthan High Court whereby it allowed a plea preferred by the Revenue holding that the assessee is not entitled to the deduction under Section 80-IB of the ITA, 1961 with respect to the receipts under the Duty Drawback Scheme and on the transfer of DEPB. The assessee, a partnership firm, was engaged in the business of manufacturing and exporting wooden handicraft items.
The Supreme Court in view of the facts and circumstances of the case observed, “It appears that earlier, there used to be a dispute regarding the receipt by way of incentives from the Government being in the nature of cash assistance, duty drawback, profits on transfer of DEPB Scheme, etc., i.e., as to whether these receipts were capital receipt or revenue receipt and would thus, be taxable. However, thereafter, and in order to put an end to the dispute, the legislature by way of inserting clauses 28 (iiia), (iiib), (iiic), (iiid) and (iiie) has made the said incentives taxable under the head of “profits and gains of business and profession”.”
The Court while relying upon the cases of Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore (1999) 4 SCC 98 and Liberty India Vs. Commissioner of Income Tax, (2009) 9 SCC 328 : (2009) 317 ITR 218 (SC) said that no error was committed by the High Court in holding that the assessee shall not be entitled to the deductions under Section 80-IB.
“It can be seen that this Court did not disapprove of the decision of this Court in the case of Liberty India (supra). Even in the case of Meghalaya Steels Limited (supra), this Court did not consider the earlier decision in the case of Sterling Foods, Mangalore (supra). Thus, the decision of this Court in the cases of Liberty India (supra) and Sterling Foods, Mangalore (supra), which as such are on DEPB / Duty Drawback Schemes clinch the issue at hand. It cannot be said that the decision taken in the case of Meghalaya Steels Limited (supra) is contrary to the decisions in the case of Sterling Foods, Mangalore (supra) and Liberty India (supra)”, noted the Court.
Accordingly, the Apex Court dismissed the appeal.
Cause Title- M/s. Saraf Exports v. Commissioner of Income Tax, Jaipur-III
