M/S Maharani Art Emporium K-345 v. Income Tax Officer Ward -1(2) Jodhpur

HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR D.B. Income Tax Appeal No. 157 / 2011 M/S Maharani Art Emporium K-345-346, Kudi Bhagtasani PaliRoad, Jodhpur. Through its Partner Mahaveer Jain S/o Shri JawariLal Ji Jain, Aged 40 Years, Resident of B-32, Shastri Nagar,Jodhpur. ----Appellant Versus Income Tax Officer Ward -1(2) Jodhpur. ----RespondentConnected With D.B. Income Tax Appeal No. 123 / 2010 Patram Bishnoi s/o mohanlal bishnoi Aged 41 Years Resident ofCE-64, High Court Colony Ratanada Jodhpur. ----Appellant Versus Assistant commissioner of Income Tax Circle-I Jodhpur. ----Respondent D.B. Income Tax Appeal No. 120 / 2010 M/s Traditional Handicrafts Centre 28, Near Circuit House, UmaidBhawan Palace Road Jodhpur. Through its Partner Mahendra Guptas/o Shri Tamesh Chandra Ji Gupta, Aged 50 Years Resident of E-49, Shastri Nagar, Jodhpur. ----Appellant Income Tax Officer Ward -1(3) Jodhpur. ----Respondent D.B. Income Tax Appeal No. 144 / 2010 M/s Suncity Art Exporters Umaid Bhawan Palace Road, Jodhpur.Through its Partner Jitendra Kumar Luniya S/o Shri Jaswant Raj JiLuniya, Aged 34 Years Resident of A-42, Shastri Nagar, Jodhpur. ----Appellant Versus Income Tax Officer Ward -1(1) Jodhpur. ----Respondent D.B. Income Tax Appeal No. 145 / 2010 M/s Bothra International 230, Marudhar Industrial Area, II PhaseBasni, Jodhpur. Through its Partner Naresh Bothra S/o SheriShyamlal Ji Bothra, Aged 40 Years Resident of E-27, Shastri Nagar,Opp. Tarabi Desai Hospital Jodhpur. ----Appellant Versus Income Tax Officer Ward -1(3) Jodhpur. ----Respondent D.B. Income Tax Appeal No. 146 / 2010 M/s Rajasthan Arts & Crafts House Near Circuit House, UmaidBhawan Palace Road Jodhpur. Through its Partner Sunil Gupta s/oShri Ramesh Chandra Gupta Aged 40 Years Resident of NearCircuit House, Umaid Bhawan Palace Road Jodhpur. ----Appellant Versus Income Tax Officer Ward -1(3) Jodhpur. ----Respondent D.B. Income Tax Appeal No. 187 / 2011 Curio Carvers 11, Road No. 11 MIA, II Phase, Basni, Jodhpur.Through its erstwhile Partner Anil Jain S/o Late Shri P.K. Jain,Aged 56 Years Resident of 12/13, Civil Lines, Residency Road,Jodhpur. ----Appellant Versus Income Tax Officer Ward -1(1) Jodhpur. ----Respondent _____________________________________________________ For Appellant(s) : Mr.Rajesh Choudhary. For Respondent(s) : Mr.KK Bissa. _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI Judgment / Order 23/01/2018 1.By way of these appeals, the appellants have challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals filed by the assessees. 2.While admitting the appeals, this Court framed following substantial question of law :- I.T.A. No.157/2011 "Whether the Tribunal was justified in holding that assesseeis not entitled to claim the benefit of tax exemption underSection 10BA of the Income Tax Act ?" I.T.A. No.123/2010 "Whether the Tribunal was justified in holding that theassessee is not entitled to claim the benefit of tax exemptionavailable to them under Section 10BA of the Income TaxAct ?" I.T.A. No.120/2010 "Whether the Tribunal was justified in holding that assess isnot entitled to claim the benefit of tax exemption available tothem under Section 10BA of the Income Tax Act ?" I.T.A. No.144/2010 "Whether Tribunal was justified in holding that appellant(assessee) is not entitled to claim reduction under Section10BA of the Income Tax Act on the account of DEPB/DutyDraw Back Credited ?" I.T.A. No.145/2010 "Whether Tribunal was justified in holding that appellant(assessee) is not entitled to claim reduction under Section10BA of the Income Tax Act on the account of DEPB/DutyDraw Back Credited ?" I.T.A. No.146/2010 I.T.A. No.120/2010 "Whether the Tribunal was justified in holding that assess isnot entitled to claim the benefit of tax exemption available tothem under Section 10BA of the Income Tax Act ?" I.T.A. No.144/2010 "Whether Tribunal was justified in holding that appellant(assessee) is not entitled to claim reduction under Section10BA of the Income Tax Act on the account of DEPB/DutyDraw Back Credited ?" I.T.A. No.145/2010 "Whether Tribunal was justified in holding that appellant(assessee) is not entitled to claim reduction under Section10BA of the Income Tax Act on the account of DEPB/DutyDraw Back Credited ?" I.T.A. No.146/2010 "Whether Tribunal was justified in holding that appellant(assessee) is not entitled to claim reduction under Section10BA of the Income Tax Act on the account of DEPB/DutyDraw Back Credited ?" I.T.A. No.187/2011 "Whether the Tribunal was justified in holding that assess is not entitled to claim the benefit of tax exemption available tothem under Section 10BA of the Income Tax Act ?" 3.Now the issue is squarely covered by the decision of thisCourt in Ranjana Johari. Vs. Assistant Commissioner of IncomeTax, Circle-6, Jaipur (D.B. Income Tax Appeal No.61/2016)decided on 23.10.2017 wherein, it has been held as under :- "3. While considering the matter the Tribunal observed asunder:- 12. We have heard rival contentions and perused thematerial on record. The Hon’ble Supreme Court in thecase of Liberty India (supra) has considered the issueof DEPB and duty draw back and with reference tosection 80IA/80IB held that DEPB/duty draw backbenefit would not form part of the net profit. Thesection 80IA and 80IB deduction is provided by theStatute for industrial undertaking and profit & gainsderived from any business of an industrial undertakinga certain percentage deduction be allowed for numberof assessment years specified under the law. Whereasin section 80IB deduction is allowed to certain industrialundertaking other than infrastructure developmentundertaking from the profit and gains derived from anybusiness referred to in sub section (3) to (11), (11A)and 11B) as such business being referred to as theeligible business on certain percentage basis and forsuch number of assessment years specified under thelaw. Section 10BA also provides special deduction ofsuch profit of eligible article or things. This sectionapplies to any undertaking which fulfill the followingconditions, namely, (a)It manufactures or produces the eligible articles orthings without the use of imported raw materials ; (d) Ninety per cent or more of its sales during theprevious year relevant to the assessment year are byway of exports of the eligible articles or things. Besides these, other conditions provided in clause (b),(c) and (e) are to be fulfilled for claiming deduction.The sub section (4) of section 10BA reads as under :- Sub Section (4) : 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 whichbears to the profits of the business of the undertaking,the same proportion as the export turnover in respectof such articles or things bears to the total turnover ofthe business carried on by the undertaking. (a)It manufactures or produces the eligible articles orthings without the use of imported raw materials ; (d) Ninety per cent or more of its sales during theprevious year relevant to the assessment year are byway of exports of the eligible articles or things. Besides these, other conditions provided in clause (b),(c) and (e) are to be fulfilled for claiming deduction.The sub section (4) of section 10BA reads as under :- Sub Section (4) : 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 whichbears to the profits of the business of the undertaking,the same proportion as the export turnover in respectof such articles or things bears to the total turnover ofthe business carried on by the undertaking. As per sub-section (6) of section 10BA, the subsection(8) and sub-section (1) of section 80IA also applicablein relation to the und ertaking referred to in this sectionas they apply for the purpose of undertaking referredto in section 80IA. Section 10BA was inserted by theFinance Act, 2003 with effect (3 of 5) from 1.4.2004 whereas section 80IA was inserted bythe Finance Act,1999 with effect from 1.4.2000.Originally section 80IA was inserted by the Finance Act,1991 with effect from 1.4.1991. The languages of boththe sections are same but the effective dates aredifferent. Therefore, findings of Hon’ble Supreme Courtin the case of Liberty India squarely are applicable incase of deduction claimed by the assessee undersection 10BA and credited duty draw back and DEPB inthe Profit & Loss Account, but is not derived incomefrom undertaking. Therefore, we reverse the order ofld. CIT (A) to that extent. 12.1. However, Hon’ble Supreme Court in the case ofTopman Exports (supra) held that entire sale proceedsnot to be treated as profits but only difference betweensale value and face value of credit – DEPB creditchargeable as income under section 28(iiib) in year inwhich applied for against exports. Further, profit ontransfer of credit chargeable under section 28(iiid) inyear in which transferred. The ld AR has also referredthe decision of ITAT Jodhpur Bench, Jodhpur in the caseof Angira Art Exports and Suraj Exports India andothers in ITA No. 360/Jodh/2012 order dated31/1/2013 and also ITAT Mumbai Bench in the case ofArts & Crafts Exports Vs. ITO 66 DTR 69 (ITAT MumbaiBench) and claimed that both the ITATs have allowedthe assessee’s appeal by considering the Hon'bleSupreme Court decision in the case of Liberty India andTopman Exports (supra). We have considered theassessee’s submission but fact of both the cases arenot verifiable from the submissions made by theassessee, therefore the Assessing Officer is directed toconsidering the order of the Hon’ble Supreme Court inthe case of Topman Exports (supra) and case lawsreferred by the assessee i.e. decision of ITAT JodhpurBench, Jodhpur in the case of Angira Art Exports andSuraj Exports India and others and ITAT Mumbai Benchdecision in the case of Arts & Crafts Exports Vs. ITO (supra)and recalculate the income accordingly.Therefore, this ground of appeal is setaside to the ldAssessing Officer. 4. However, the view taken by the Supreme Court in thecase of Commissioner of Income-Tax V/s Meghalaya SteelsLtd. [2016] 383 ITR 217 (SC) wherein it has been held asunder:- (supra)and recalculate the income accordingly.Therefore, this ground of appeal is setaside to the ldAssessing Officer. 4. However, the view taken by the Supreme Court in thecase of Commissioner of Income-Tax V/s Meghalaya SteelsLtd. [2016] 383 ITR 217 (SC) wherein it has been held asunder:- “20. Liberty India being the fourth judgment in this linealso does not help Revenue. What this (4 of 5) Court was concerned with was an exportincentive, which is very far removed fromreimbursement of an element of cost. A DEPBdrawback scheme is not related to the business of anindustrial undertaking for manufacturing or selling itsproducts. DEPB entitlement arises only when theundertaking goes on to export the said product, that isafter it manufactures or produces the same. Pithily put,if there is no export, there is no DEPB entitlement, andtherefore its relation to manufacture of a productand/or sale within India is not proximate or direct butis one step removed. Also, the object behind DEPBentitlement, as has been held by this Court, is toneutralize the incidence of customs duty payment onthe import content of the export product which isprovided for by credit to customs duty against theexport product. In such a scenario, it cannot be saidthat such duty exemption scheme is derived fromprofits and gains made by the industrial undertaking orbusiness itself.” 28. It only remains to consider one further argumentby Shri Radhakrishnan. He has argued that as thesubsidies that are received by the respondent, wouldbe income from other sources referable to Section 56 ofthe Income Tax Act, any deduction that is to be made,can only be made from income from other sources andnot from profits and gains of business, which is aseparate and distinct head as recognised by Section 14of the Income Tax Act. Shri Radhakrishnan is notcorrect in his submission that assistance by way ofsubsidies which are reimbursed on the incurring ofcosts relatable to a business, are under the head“income from other sources”, which is a residuary headof income that can be availed only if income does notfall under any of the other four heads of income.Section 28(iii)(b) specifically states that income fromcash assistance, by whatever name called, received orreceivable by any person against exports under anyscheme of the Government of India, will be incomechargeable to income tax under the head “profits and gains of business or profession”. If cash assistancereceived or receivable against exports schemes areincluded as being income under the head “profits andgains of business or profession”, it is obvious thatsubsidies which go to reimbursement of cost in theproduction of goods of a particular business would alsohave to be included under the head “profits and gainsof business or profession”, and not under the (5 of 5) head “income from other sources”. 29. For the reasons given by us, we are of the viewthat the Gauhati, Calcutta and Delhi High Courts havecorrectly construed Sections 80- IB and 80-IC. TheHimachal Pradesh High Court, having wronglyinterpreted the judgments in Sterling Foods and LibertyIndia to arrive at the opposite conclusion, is held to bewrongly decided for the reasons given by ushereinabove. 4. The same view was followed by this Court in the case ofCIT Jaipur V/s Suresh Kumar Bajoria in D. B. Income TaxAppeal No. 294/2008 decided on 18.05.2017. The saiddecisions have not been taken into consideration by theauthority. 5. Therefore, the matter is remitted back to the AO to decidethe same in the light of aforesaid decisions. It is made clearthat we have not expressed anything on merits. 6. The appeal stands accordingly disposed of. " 4.In that view of the matter, all the matters are remitted back to the Assessing Officer. It will be open to both the parties to raiseall the contentions before the A.O. 4. The same view was followed by this Court in the case ofCIT Jaipur V/s Suresh Kumar Bajoria in D. B. Income TaxAppeal No. 294/2008 decided on 18.05.2017. The saiddecisions have not been taken into consideration by theauthority. 5. Therefore, the matter is remitted back to the AO to decidethe same in the light of aforesaid decisions. It is made clearthat we have not expressed anything on merits. 6. The appeal stands accordingly disposed of. " 4.In that view of the matter, all the matters are remitted back to the Assessing Officer. It will be open to both the parties to raiseall the contentions before the A.O. 5.The appeals are disposed of accordingly. (DR. PUSHPENDRA SINGH BHATI)J. (K. S. JHAVERI)J. S.Phophaliya/-