Vildirect: IncomeTax-caselaws-2013-VIL-983-ITAT-JDP

2013-VIL-983-ITAT-JDP

Income Tax Appellate Tribunal JODHPUR

ITA No. 336/Jodh/2011, ITA No. 360/Jodh/2012, ITA No. 386/Jodh/2011, ITA No. 350/Jodh/2011, ITA No. 423/Jodh/2012, ITA No. 368/Jodh/2012, ITA No. 269/Jodh/2011, ITA No. 399/Jodh/2012, ITA No. 254/Jodh/2010, ITA No. 353/Jodh/2012, ITA No. 352/Jodh/20

Date: 31.01.2013

M/s . SURAJ EXPORTS INDIA AND OTHERS

INCOME-TAX OFFICER AND OTHERS

For the Petitioner : Sh. U. C. Jain and Sh. Rajendra Jain
For the Respondent : Shri Subhash Chandra –CIT(DR)

BENCH

Shri Hari Om Maratha And Shri N. K. Saini,JJ.

JUDGMENT

Per Bench :

All the above captioned appeals, filed by different assessees have raised almost identical issues with regard to income derived from the manufacturing and exporting of handicraft-wooden-items. Therefore, we proceed to decide them by a common order for the sake of convenience and brevity. But to be specific, we would narrate the facts obtaining in the appeal of M/s. Suraj Export India in ITA No. 336 (2008- 09), which is directed against the order of ld. CIT(A) dated 08/08/2011.

2. Briefly stated the facts of the case are that this assessee-firm filed its Return of Income (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 after making enquiries from other dealers. Tuff competitions are going on in handicrafts items of export. Rule of g.p. is depending on purchase of foreign dealers. It differs year to year. All the purchases and sales are fully supported by vouchers. The assessment for the A.Y. 2006-07 and 2007-08 have been completed u/s 143(3) and income of the assessee’s firm has been treated as exempted u/s 10BA of the I.T. Act, 1961. In such type of business it is not possible for businessman to maintain stock register and details of day to day consumption of stock. It has been also submitted that when the order for export sales had been taken on the rate of dollar from the foreign dealers, the rate of dollar was on higher side and when the handicrafts items had been supplied on them, the rate of dollar was decreased. The cost of handicrafts items were also increased on account of increase in value of timber and other raw material. The rates of wages have also been increased. On account of these reasons, the cost of handicrafts items decreased the rate of gross profit is very much less as compared to the assessment year 2007-08. He has also filed the chart regarding fall in rate of dollar and increase income cost of timber as compared to last year.”

3. After considering the above reply, the A.O. found it a fit case for application of section 145(3) of the Act. Regarding duty-draw-back received by the assessee-firm amounting to Rs. 38,37,416/- and shown in the Trading Account, which is an incentive given under Customs Act, it was held by A.O. that such incentive do not form part of profit for the benefit of Section 10BA, not being profit derived from manufacturing activities of the eligible goods. Therefore, he invited objections against this proposed denial of benefit u/s 10BA. The A.R. of the assessee submitted his objections through a written submission, the relevant portion of which is being reproduced below :-

“The A/R of the assessee firm has submitted his written submission stating therein that : the amount of Duty Draw back has been received after manufacturing the handicrafts articles without use of imported raw materials and on export sales of the eligible articles. The amount of Duty Draw Back is related to manufacturing of handicrafts articles and on export sales. Hence the amount of Duty Draw Back has been received by the assessee after completing the full conditions 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 claimed by the appellant in the return of Income as per Net Profit declared by the asessee as per Profit and Loss account and Books of accounts. As per provisions of law the amount of Duty Draw Back was related to manufacturing of Handicrafts articles and received on export sales. Thus it was exempt u/s 10BA of the Income Tax Act 1961. The exemption u/s 10BA on the amount of Duty Draw Back ought to have been allowed.

3- Without prejudice to the above grounds of appeal No. 1 & 2 it is humbly submitted that total Net Income of the assessee was exempt u/s 10BA of the Income Tax Act, as per provisions of law. The Net Income of the assessee ought to have been allowed as exempt u/s 10BA of the Income Tax Act.

4- The Learned authorities below was wrong in charging Interest u/s 234B. The charging of Interest was wrong and unjustified.

5. In fact, at the time of the hearing ground No. (1) was not pressed by Shri U.C. Jain, ld. Advocate appearing for the appellant. The other two grounds i.e. ground No. 2 and 3 are of utmost importance. The issues raised vide ground No. 2 and 3 are common in other appeals also.

6. We have heard Shri U.C. Jain, ld. Advocate appointing for this assessee. We have also heard Shri Dinesh Boob and Shri T.L. Jain, ld. ARs etc. appearing for other appellants. We have also heard ld. CIT-DR Shri Subhash Chandra at length. He has filed a detailed written submission with a request that its averments may be incorporated in the order, in extent.

7. We have circumspected the entire record available before us. We have gone through the relevant provisions of the Act and have also treaded through the relevant precedents relied before us. The sum and substance of the submissions made from the side of the assessee can be summarized as under :-

"1. That during the year under consideration the assessee has claimed deduction u/s 10BA on DEPB/DDB. The authorities below has disallowed the claim of the assessee in light of the decision of Hon'ble Supreme Court in the case of Liberty India v/s CIT reported in 225 CTR233.

2. That the decision of Hon'ble Supreme Court in the case of Liberty India v/s CIT reported in 225 CTR 233 is on deduction u/s 80IA of the Act, whereas the claim of the assessee is in respect of deduction u/s 10BA of the Act and as such the ratio of decision of Hon'ble Supreme Court in the case of Liberty India is not applicable in the assessee'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 person is chargeable as income under cl. (iiid) of s. 28 in his hands in the year in which he makes the transfer.

d. Recently the Hon'ble ITAT Mumbai Bench in the case of Arts & Crafts Exports vs ITO reported in 66 DTR 69 (ITAT, Mumbai Bench) after considering the decision of Hon'ble Supreme Court in the case of Liberty India vs CIT reported in 225 CTR 233 has held as under: -

"11.14 As regards deduction under s. 10BA in respect of DEPB, we find that sub-s. (4) of s.-lOBA defines profits derived from eligible articles. Sees. 28[iiic) [iiid) and [iiie) provides that these income are profits and gains of business. The said sub-s. [4) of s. 10BA is reproduced below.

"For the purposes of sub-s. (1), the profits derived from export out of India of the eligible articles or things shall be the amount which bears to the profits of the business of the undertaking, the same 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 s. 28 reads as under:

"Sec. 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 repaid or repayable 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 s. 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 s. 5 of the Foreign Trade [Development and Regulation) Act, 1992 [22 of 1992);"

e. That the decision of Hon'ble ITAT Mumbai Bench has been approved by the Hon'ble Bombay High Court reported in 66 DTR 85 [Bombay).

f. The Hon'ble ITAT Indore Bench [Special) in the case of M/s Moral Overseas Limited Vs Additional Commissioner of Income Tax in reported in 136 ITD 177 held as under: -

"It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific 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 has specifically been provided under sub-section (4) of section 10B while computing the profits derived by the undertaking from the export. Thus, the decision of the Hon'ble Supreme Court is of no help to the revenue in determining the claim of deduction u/s 1 OB in respect of export incentives."

g. Hon'ble IT AT Ahmedabad Bench in the case of Kadam Exports Pvt. Ltd. vs. ITO/I.T.A. No.2890/Ahd/2011 dated 31/7/12

"As far as the other decisions namely, Topman Exports vs. ITO(2009) 125 TTJ 289 (Mumbai)[SBJ and Liberty of India vs. OT (2009) 317ITR 218 (SC) are concerned, the same are not pronounced in the context of the provisions of sec. 10B, therefore, finally from the side of the appellant only this precedent was cited in respect of ground Nos.3 to 6 for the legal proposition that export incentive is to be allowed in terms of the verdict of Moral Overseas Ltd.(supra). Undisputedly, this decision of the Respected Special Bench dated 28/03/2012 was not available when the assessment was finalized. The Assessing Officer did not have the benefit of this verdict. The Respected Special Bench has given the direction that an assessee is eligible for claim of deduction as export incentive received by it in terms of provisions of sec.10B(1) r.w.s. 10B(4) of the Act. On the same lines, we hereby direct the Assessing Officer to verify the correctness of the claim and if satisfied, then apply the formula as discussed in this case-law and thereafter allow as per law. Resultantly, these grounds may be treated as allowed but for statistical purposes only."

In light of above the assessee is eligible for deduction u/s 10BA on DEPB and the authority below has wrongly applied the ratio of decision of Hon'ble Supreme Court in the case of Liberty India which has no application in the case of appellant."

7. The Id. CIT-DR has repeated, all the reasons given by A.O. as well as ld. CIT(A) as to why and how the assessee’s are not entitled to the exemption of Section 10BA. As per the request of ld. CIT(DR), we are extracting his entire written submission, verbatim, as under :

"The provision of section 10B of the IT Act, 1961, starts with the words:- "subject to the provision of this section, any profit and gain derived by the assessee from a 100% export oriented under taking...."

The word used here is 'derived'. Same word has been used in section 80HHC and also in section 80IB of the 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 gains of business. The said subsection (4) of section 10BA is reproduced below:

For the purposes of sub-section (1), the profits derived from export out of India of the eligible articles or things shall be the amount which bears to the profits of the business of the undertaking, the same 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.

The AR further submitted that against the above decision the department filed an- appeal before the Hon'ble Bombay High Court which inter-alia held as under :-

The counsel for the Revenue fairly states that though the question has been raised by relying upon the decision of the apex court in the case of Liberty India vs. CIT MANU/SC/1585/2009: (2009) 225 CTR (SC) 233: (2009) 28 DTR (SC) 73: (2009J 317ITR218 (SC). The said decision has no relevance to the facts of the present case. In this view of the matter, the third question raised by the revenue cannot be entertained. In the result, we see no reason to entertain the appeal. Accordingly, the appeal is dismissed, as question of law is not involved."

It is pertinent to mention here that on one hand the Hon'ble Bombay HC says that in this issue no question of law is involved & on other hand the issue of DDB/DEPB has travelled upto Hon'ble SC in the case of Liberty 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 neither Hon'ble ITAT Bench, Mumbai/Honb'le ITAT Special Bench Indore nor the Hon'ble High Court Bombay have discussed any aspects of the issue as why the decision of the Liberty India is not relevance and have also not distinguished the decision of the Hon'ble SC 317ITR 218 with the facts of the appellant. The decision given by the Hon'ble IT AT Bench Mumbai, I Mumbai HC in Art & Crafts Exports and by Special Bench IT AT, Indore in the case of Moral Overseas Ltd. Are neither expressed nor founded on I reasons and also not proceeds on consideration of issues, cannot be deemed to be law declared to have abinding effect as contemplated by article 141 of the constitution (held by SC in the case of S. Shamughyel Nadar 263 ITR 658). On the other hand the Hon'ble SC in the case of Liberty India and many other cases (by way of consolidated order) had decided the nature of incentives i.e. DDB/DEPB in length, accordingly held that the incentive profits are not profits derived from the eligible business undertaking. It is further held that they belongs to the category of ancillary profits of such undertakings and constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking.

In view of these facts brief observations of the Hon'ble ITAT Benches as well as Hon'ble Bombay High Court cannot overtake the clear-cut finding given by the Hon'ble SC in the case of Liberty of India, which has been held in length" after considering the facts of the another 25 cases on similar issues. The facts ofjthe other cases relied by the AR's not discussed as the same have already been considered by the A.O. / CIT (A).

When the facts are same and the issue is same i.e. whether duty drawback and export quota could be considered as 'derived from' undertaking or they are derived from scheme framed by Central Government. The Hon'ble ITAT cannot differentiate and override the decision of Hon'ble SC as held in following cases:-

1. Ralnson Industry Ltd. (SC) 288ITR 322

2. Nokia Corporation (Del.) 292 ITR 22.

3. American Express Bank Ltd. (ITAT, Mum) 65ITD 67.

The decision of Hon'ble Mumbai ITAT Bench and ITAT special Bench Indore in above cases, against the Supreme Court decision does not contain the following: -

1. What is meant by word 'derived' used in section 10B and how it is different from the word 'derived' used in section 80HHC and 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 they observed as under:-

'The expression 'profit and gains derived by an undertaking' used in Section 80IB is akin to the 'profit and gains derived by an undertaking' used in s. 10BA. Essentially therefore, after the judgment rendered by apex Court in the case of Liberty India Vs. CIT (2009) 28 DTR (SC) 73, the issue under consideration becomes no longer res Integra. Accordingly the amount of DEPB credit and duty drawback receipts being an incentive bestowed under the scheme framed by Central Government or from s. 75 of Customs Act, 1962, are not to be taken as profits and gains derived by an industrial undertaking from the export out of India of eligible articles or things. The amount of DEPB credit/duty drawback receipts as such would not, therefore, enter into profits and gains derived by an industrial undertaking from the export out of India of eligible articles or things for the purpose ofsub-s. (1)r/w Sub-s.(4)of s. 10BA, even though the same are ancillary profits to such undertaking assessable under the head "Income from business". There is remaining no dispute on the issue under consideration; a reference is not required to be made to President, Tribunal for constitution of a Larger Bench for considering this issue. Under the facts-circumstances and keeping in view aforesaid position of law, amount of DEPB benefits/duty drawback receipts do not from profits and gains derived by an industrial undertaking from the export out of India eligible articles or things and as such the same shall not be allowed to be deducted from the total income of the assesses."

The issue of import license sale was considered by Hon'ble Apex Court in Sterling foods 237 ITR 579 (SC) and it was decided that same cannot form part of export turnover for calculation of deduction u/s 80HHC. Because source of import entitlement is the import promotion scheme of Central Government and not the industrial undertaking.

It is well settled fact that the deduction U/s 80HHC is admissible to profits derived from business activities related to export as held in case of V.T. Joseph (Ker) 225 ITR 731 and also in case of A.M. Moose 224 ITR 735 (Ker). This section is akin to section 10B of the Act as both have common objective to boost export of India Para 11 in case of A.M. Moosa state that;-,

" We find that statutory provision that the amount in regard to which exemption is sought must be relatable 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 supported by decision of Bombay High Court in Hindustan Lever Ltd. 121 ITR 951 (Bom.) which was subsequently confirmed by Hon'ble Apex Court reported in 239 ITR 297 (SC).

In case of California software Co. Ltd. 118 TTJ (Chennai) 842, Hon'ble ITAT Chennai 'A' Bench held that definition of 'export turnover' in section 10B is more or less similar to the one that appears in section 80HHC. From the legislative history one can see that quantum of tax relief was to be allowed to an 'exporter' was to be based on 'net inflow of foreign exchange. In present case export incentives do not come in terms of inflow of foreign exchange. Hence condition u/s 10B (A) are not fulfilled EL therefore export incentives are not eligible for deduction u/s 10B.

Cash assistance received is not part of export turnover for 80HHC deduction as held in case of Khan International Export P. Ltd. (All) 280ITR 165.

After excluding premium of export license, export subsidy and duty drawback there is no profit from export business. No deduction u/s 80HHC is allowable as held in case of Krislar Diesal Engines P. Ltd. (ITAT Mad) 74 ITR 414.

Although Hon'ble apex court in case of B. Deshraj 301 ITR 439 (SC) held that word "business profits" in formula given in section 80 HHC (3) include cash compensatory allowance and duty drawback on the reasoning that section 80HHC was required to be read with section 28(iiib) of the IT. Act because both were amended by same Finance Act of 1990. But it was a decision of two member bench in which neither meaning of word 'derived' was considered nor the issue of source of 'export incentives' was examined as to whether it is coming out from Central Government scheme or from manufacturing activity of industrial undertaking. A subsequent decision by two member bench of Supreme Court in case of Liberty India where both these crucial issue were considered at length is binding as held in case of West Patent Press Co. Ltd. AIR 1980 Kar 92 (FB) and also in Bhika Ram & ors. Vs. Union of India (Del.) 238 ITR 113 in which inter-alia following was held:- "Later pronouncement of the Supreme court by a bench of co-equal strength Is binding'.

Even in case of S. Shamughvel Nadar 263 ITR 658 (SC) It is held by Hon'ble Supreme Court in para

11 that a decision which is not express and is not founded on reasons, nor which proceeds on consideration of the issues, cannot be deemed to be 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 goods or merchandize. At the same time, it is equally true that such incentives and export of goods of merchandize cannot be said to be foreign to each other. The relation between the two albeit not immediate is indirect. In that sense the export incentives can be held to be attributable to export"

Hence the aforesaid decision is in fact against the assessee because it holds that export incentives are not "derived from" export activity. The word used in section 10B as also in section 80HHC & section 10B is "derived from" and not "attributable to". Besides as held in para 14 in order of Liberty India by Hon'ble Apex Court words 'derived from' are narrower in connotation as compared to the words "attributable to". In para 18 they further said "we hold that profit derived by way of such export incentives do not fall within the expression "profit derived from industrial undertaking under section 801B."

In Topman Exports, the decision of Hon'ble Supreme Court, in Liberty India, was neither considered nor differentiated. Infact decision in case of M/s Topman Export was overturned & set aside by Mumbai High Court in the case of Kalpataru Colours & Chemicals 328 ITR 451 (Mum.)

As mentioned above tribunal ft courts have applied decision of Liberty India not only in cases of claim u/s 80 IA/80IB of the IT. Act but also in cases of 80HHC which is akin to section 10B. The tribunal decisions where the decision of Liberty India was applied to decide the cases under section 10B of the IT. Act, are discussed, here as under.

Tricom India Ltd. ITAT Mumbai 'E' Bench (2010) 36 SOT 302 (Mumbai) in which inter-alia the following was observed':-

"Para 13:- We further find that similar view has been taken by the Hon'ble Supreme Court again in the case of Liberty India. In this case the question was whether profit from Duty Entitlement Pass Book Scheme (DEPB) and Duty Draw Back Scheme could be said to be profit derived from business of Industrial undertaking eligible for deduction under s. 80-1B of the IT Act, 1961. It can be seen that DEPB and duty drawback etc., are covered by cl. (iiib) to s. 28 which means necessarily they have to be treated as business income under the provisions of the Act, still the deduction was denied under s. 80-1/80-IA/80-IB because these items were held to be not derived from the business of industrial undertaking/export activity."

"Para 14:-Therefore, 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 not the export. As held by the Madras High Court in the case of Menon Impex (P) Ltd. 259 ITR 403 (Mad), the income should be derived from the export business. In view of the above, we do not find any infirmity in the order of the first appellate authority. Accordingly, we confirm the same."

In recent decisions on the issue of nature of incentives like DEPB/Export quota/import licenses, which arise from Central govt. policies to provide incentives to exporters, the various high courts as mentioned below, have followed the decision of Hon'ble Supreme Court in case of Liberty India:-

1 Commissioner of Income Tax Vs. Arisudana Spinning Mills Ltd (2010) 326 ITR 429 (P & H).

2 Jaward Sons Vs. CIT (2010) 326 ITR 39 (P & H).

3 Plastibends India Ltd. Vs. Addl. CIT 8(2) Mumbai (2009) 318 ITR 352 (Bom.)- In this case the judges said that in their opinion, the above question is no longer res integra in view of decision of Apex Court in case of Liberty India.

4. CIT Vs. Kiran Enterprises (2010)327 ITR 520(HP).

5. Eastman Exports Global Clothing (P) Ltd. Vs. ACIT, 331 ITR 232 (Mad).

In the case of Mahalaxtni Art Emporium, the Hon'ble IT AT Jodhpur Bench, in ITA No. 231/JU/2010, for A.Y. 2007-08, order dated 08110/2010, inter-alia held as under-

"If is seen that the Hon'ble Apex Court deliberated upon the meaning of the word "derived from" and held that DDB and DEPB do not form part of net profit of eligible industrial undertaking, though, u/s 80 (1), 80 (1A), 80 (1B) of the Act. While coming to this conclusion Hon'ble Apex Court affirmed the decision from Hon'ble Punjab and Haryana High Court in 293 ITR 520, CIT vs Lakmindar Singh, 317 ITR 209 (Delhi), CIT V/s Ritesh Industries Ltd., 274 ITR 324, Madras and Sakthi Foot Wear Vs CIT (317 ITR 199). If the language employed in section 80 (1A), 80(1 B) of the act is seen these speaks about "any profit" and gain "derived by" an undertaking or an enterprise from "any business" referred to subsection (4). Identical is the wording in section 10BA (1) "from the export" out of India of eligible articles".

From the above discussion, it is crystal clear that for claim u/s 10B, income is to be "derived from" Industrial undertaking, where as income from expor t incent ives are not der ived f rom indus tr ial undertaking but they arise from schemes of Central Government as held in case of Liberty India (2009) 317 ITR 218 (SC), Sterling 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 independent sources. While mathematical formula remained the same, the definition of "profit of business of undertaking" kept on changing and remained most important variable.

The formula for computation of deduction is as follows'.-Profit derived from export

Export turnover

= Profit of the business of undertaking X ------------------------------------

Total turnover

The only item which needs interpretation is "Profits of the business of undertaking" which is already decided by Hon'ble Apex Court in case of K. Ravinderanathan Nair (2007) 295 ITR 228 (SC) wherein the Hon'ble SC held as under:-

"Para-17:- Therefore, it is only 'Profits derived from exports' which become the basis for working out the said formula in s. 80HHC(3) of the Act. Similarly, by Finance Act, 1991 w.e.f. 1st April, 1992, for the first time, the expression 'profit of the business' stood defined to mean the 'profits of the business' as computed under the head 'Profit and gains of business'.

Para 18:- The above discussion indicates that the formula in s. 80 HHC (3) of the IT Act provided for a fraction of export turnover divided by total turnover to be applied to business profits calculated after deducting 90 percent of the sums mentioned in cl. (baa) to the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges etc. though formed part of gross total income had to be excluded as they were 'independent income' had no element of export turnover. That, the said items distorted the figure of export profits."

Even the formula for computation of deduction u/s 80HHC (3) was elaborately discussed in this order where in para 21 Lordship held:-

"Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from Exports."

In para 22 it was held that 90% of processing charges are to be excluded from "profit of the business" but they were indudible in "total turnover".

Therefore this is a direct decision of Hon'ble Apex Court which says that profit incentives mentioned in sub section (iiia), (iiib), (iiic) of section 28 or any other receipts of similar nature though formed part of gross total income had to be excluded from "profits of the business" as they were "independent income" which had no element of "export turnover".

It is well established fact 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 subject matter of appeal as per case of Hukumchand Mills Ltd. (SC) 63 ITR 232, therefore it is requested that the issue raised before Hon’ble Bench arising from appeal of assessee alone may kindly be decided.

8. We have cogitated rival arguments vis-a-vis evidence on record. We have examined the decisions on which parties have placed their respective reliance. We have found that the ratio of the decision of Hon'ble Apex Court rendered in the case of Liberty India vs. CIT reported 225 CTR 233 (Hon'ble Supreme Court) is not applicable to the facts of this case. The Section under interpretation before Hon'ble Summit Court was 801 A. In Sec 80IA, no formula for computation of profits derived by the undertaking is laid down, whereas in Section 10BA and Section 80HHC formula is prescribed for the purpose. Therefore, ;in our considered opinion, section 10BA and 80HHC are more nearer to each other, and whatever interpretation of 'derived from' is given in any decision in which Section 80HHC is involved, would also mutatismutandis to the interpretation of Section 10BA. The Hon'ble Apex Court in the cases of Topman Exports vs. CIT reported in 67 DTR 185 (S.C.) and ACG Associated Capsules Pvt. Ltd. vs. CIT reported in 67 DTR 205 has recently held that DEPB is chargeable as income and Cl. (iiib) of Section 28 in the year in which the assessee applies for DEPB credit against the exports whereas the profit on transfer of DEPB by the assessee is chargeable as income under Cl. (iiid) of Section 28 in his hands in the year in which he makes the transfer. The Mumbai Bench of Hon'ble Income Tax Appellate Tribunal in the case Arts and Crafts Exports vs Income-tax Officer reported in 66 DTR 69 (Mumbai), after considering the decision of Liberty India (supra) has taken a clear cut decision in favour of the assessee. The held portion of the Mumbai Bench is as under:

"Para-11.14-As regards deduction u/s 10 BA in respect of DEPB, we find that sub-section (4) of section 1OB A defines profits derived from eligible articles. Section 28 (iiic), (iiid) and (iiie) provides that these income are profits and gains of business. The said sub-section (4) of section 1OB A is reproduced below:

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;

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 has been approved by Hon'ble Bombay High Court and the decision is reported in 66 DTR 85 (Bombay) I.T.A.T. Indore Special Bench in the case of M/s. Maral Overseas Limited Vs ACIT reported in 136 ITD 177 has held this issue in favour of the assessee. Similarly, the Ahmedabad Bench in the case of Kaden Exports (supra), has taken a similar view of the matter. The held portion of both these decisions have been extracted in the earlier portion of this order. The Written Submission of Id. CIT (DR), have been carefully considered. All the relevant decisions and the line of arguments taken by him, have been considered and decided in the cases referred to as above. Therefore, we don't find any merit worth dissuading by us, from the considered and settled view taken by the Hon'ble Apex Court and various High Courts and the Tribunal. All the arguments raised by ld. CIT(DR) stand explained in our above finding.

11. We have noticed that section 10BA(4) takes its shape and form from erstwhile section 10B(4) which was amended vide the Finance Act, 2001 w.e.f. 01.04.2001. Prior to 01.04.2001, this section 10B(4) read as under :-

“10B(4) – for the purpose of s.s. (1), profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover of the business carried on by the assessee.” Clarifications on notes of clauses of the Finance Act, 2001 clarifies the purpose of this amendment that “under the existing provision contained in s.s. (4), the profits derived from export of articles or things or computer software shall be the amount which bears to the profit of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the assessee. Sub clause (b) seeks to clarify that such proportions shall be calculated with reference to the profits and gains of the business of the undertaking and not from any other business carried on by the assessee. Thus prior to amendment the profits derived from export of articles was meant the amount which bore to the profits of the business, the same proportion as export turnover in respect of such articles bear to the total turnover of the business carried on by the assessee, whereas, after the amendment, the profits derived from 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 Section 10BA is subject to the provisions of S.Ss. 2, 3, 5, 6 and 7 but s.s. 4 lays down a method of computation for the purpose of sub section (1). Likewise, the sale proceeds of DEPB cannot be considered as part of turnover as it is not the sale proceeds of the articles or things manufactured and sold by the assessee, then the profits from sale of DEPB cannot apportioned on treated on profit derived by the undertaking from export out of India. The exemption provisions in 10BA have to be liberally interpreted unless the credit of DEPB and DDB is expressly taken away.

12. Accordingly, we are left with no option but to decide the impugned common issue, in favour of the Appellant/assessee. As a result, we hold that the manufacturing activities of the assessee are eligible for deduction provided u/s 10BA of the Act.

The facts and issue involved in other appeals are exactly similar to the main appeal, except for the quantum of claim made u/s 10BA of the Act. Therefore, with similar reasoning, we allow these appeals by holding that all the assessees before us are eligible for deduction u/s 10BA of the Act. No other ground(s), if raised, were pressed by their respective Id. A.Rs.

13. In the result, all the appeals of the assessees are allowed on the common issues of allowability of deduction u/s 10BA of the Act whereas the appeals of the revenue are dismissed.

Order pronounced in the court on 31st January, 2013.

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