Ranjana Johari v. Assistant Commissioner Of Income Tax, Circle-6, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 61 / 2016 Ranjana Johari, Proprietor M/s Global Art Exports, S-249,Mahaveer Nagar, Tonk Road, Jaipur ----Appellant Versus Assistant Commissioner of Income Tax, Circle-6, Jaipur ----Respondent _____________________________________________________For Appellant(s) : Mr. Sanjay Jhanwar For Respondent(s) : Mr. Prateek Kedawat & Mr. K. D. Mathur on behalf of Mr. R. B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS judgment 23/10/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the department as well as cross objection ofthe assessee only for statistical purposes. 2.This court while admitting the appeal on 31.01.2017 framedthe following questions of law:- “(i) Whether the income from the duty draw backand sale of export license does not qualify as profitderived by an undertaking from the export out ofIndia of eligible articles or things for allowingdeduction u/s 10BA of the Act? (ii) Whether the order of the Ld. Tribunal does notgot vitiated on account of apparent inconsistencyof reversing the order of Ld. CIT(A) andsimultaneously setting aside the ground of appealto the Ld. Assessing Officer?” under:- 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 industrialundertaking a certain percentage deduction beallowed for number of assessment years specifiedunder the law. Whereas in section 80IB deduction isallowed to certain industrial undertaking other thaninfrastructure development undertaking from theprofit and gains derived from any business referredto in sub section (3) to (11), (11A) and 11B) as suchbusiness being referred to as the eligible business oncertain percentage basis and for such number ofassessment years specified under the law. Section10BA also provides special deduction of such profit ofeligible article or things. This section applies to anyundertaking which fulfill the following conditions,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 claimingdeduction. The sub section (4) of section 10BA readsas under :- Sub Section (4) : For the purposes of sub-section (1),the profits derived from export out of India of theeligible articles or things shall be the amount whichbears to the profits of the business of theundertaking, the same proportion as the exportturnover in respect of such articles or things bears tothe total turnover of the business carried on by theundertaking. As per sub-section (6) of section 10BA, the sub-section (8) and sub-section (1) of section 80IA alsoapplicable in relation to the und ertaking referred toin this section as they apply for the purpose ofundertaking referred to in section 80IA. Section 10BAwas inserted by the Finance Act, 2003 with effect Sub Section (4) : For the purposes of sub-section (1),the profits derived from export out of India of theeligible articles or things shall be the amount whichbears to the profits of the business of theundertaking, the same proportion as the exportturnover in respect of such articles or things bears tothe total turnover of the business carried on by theundertaking. As per sub-section (6) of section 10BA, the sub-section (8) and sub-section (1) of section 80IA alsoapplicable in relation to the und ertaking referred toin this section as they apply for the purpose ofundertaking referred to in section 80IA. Section 10BAwas inserted by the Finance Act, 2003 with effect 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 FinanceAct, 1991 with effect from 1.4.1991. The languagesof both the sections are same but the effective datesare different. Therefore, findings of Hon’ble SupremeCourt in the case of Liberty India squarely areapplicable in case of deduction claimed by theassessee under section 10BA and credited duty drawback and DEPB in the Profit & Loss Account, but isnot derived income from undertaking. Therefore, wereverse the order of ld. CIT (A) to that extent. 12.1. However, Hon’ble Supreme Court in the case ofTopman Exports (supra) held that entire saleproceeds not to be treated as profits but onlydifference between sale value and face value of credit– DEPB credit chargeable as income under section28(iiib) in year in which applied for against exports.Further, profit on transfer of credit chargeable undersection 28(iiid) in year in which transferred. The ldAR has also referred the decision of ITAT JodhpurBench, Jodhpur in the case of Angira Art Exports andSuraj Exports India and others in ITA No.360/Jodh/2012 order dated 31/1/2013 and also ITATMumbai Bench in the case of Arts & Crafts ExportsVs. ITO 66 DTR 69 (ITAT Mumbai Bench) and claimedthat both the ITATs have allowed the assessee’sappeal by considering the Hon'ble Supreme Courtdecision in the case of Liberty India and TopmanExports (supra). We have considered the assessee’ssubmission but fact of both the cases are notverifiable from the submissions made by theassessee, therefore the Assessing Officer is directedto considering the order of the Hon’ble SupremeCourt in the case of Topman Exports (supra) and caselaws referred by the assessee i.e. decision of ITATJodhpur Bench, Jodhpur in the case of Angira ArtExports and Suraj Exports India and others and ITATMumbai Bench decision in the case of Arts & CraftsExports Vs. ITO (supra)and recalculate the incomeaccordingly. Therefore, this ground of appeal issetaside to the ld Assessing Officer. 4.However, the view taken by the Supreme Court in the case of Commissioner of Income-Tax V/s Meghalaya Steels Ltd. [2016]383 ITR 217 (SC) wherein it has been held as under:- “20. Liberty India being the fourth judgment inthis line also does not help Revenue. What this 4.However, the view taken by the Supreme Court in the case of Commissioner of Income-Tax V/s Meghalaya Steels Ltd. [2016]383 ITR 217 (SC) wherein it has been held as under:- “20. Liberty India being the fourth judgment inthis line also does not help Revenue. What this 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 businessof an industrial undertaking for manufacturing orselling its products. DEPB entitlement arises onlywhen the undertaking goes on to export the saidproduct, that is after it manufactures orproduces the same. Pithily put, if there is noexport, there is no DEPB entitlement, andtherefore its relation to manufacture of aproduct and/or sale within India is not proximateor direct but is one step removed. Also, theobject behind DEPB entitlement, as has beenheld by this Court, is to neutralize the incidenceof customs duty payment on the import contentof the export product which is provided for bycredit to customs duty against the exportproduct. In such a scenario, it cannot be saidthat such duty exemption scheme is derivedfrom profits and gains made by the industrialundertaking or business itself.” 28. It only remains to consider one furtherargument by Shri Radhakrishnan. He has arguedthat as the subsidies that are received by therespondent, would be income from other sourcesreferable to Section 56 of the Income Tax Act,any deduction that is to be made, can only bemade from income from other sources and notfrom profits and gains of business, which is aseparate and distinct head as recognisedby Section 14 of the Income Tax Act. ShriRadhakrishnan is not correct in his submissionthat assistance by way of subsidies which arereimbursed on the incurring of costs relatable toa business, are under the head “income fromother sources”, which is a residuary head ofincome that can be availed only if income doesnot fall under any of the other four heads ofincome. Section 28(iii)(b) specifically states thatincome from cash assistance, by whatever namecalled, received or receivable by any personagainst exports under any scheme of theGovernment of India, will be income chargeableto income tax under the head “profits and gainsof business or profession”. If cash assistancereceived or receivable against exports schemesare included as being income under the head“profits and gains of business or profession”, it isobvious that subsidies which go toreimbursement of cost in the production ofgoods of a particular business would also haveto be included under the head “profits and gainsof business or profession”, and not under the head “income from other sources”. 29. For the reasons given by us, we are of theview that the Gauhati, Calcutta and Delhi HighCourts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court,having wrongly interpreted the judgments inSterling Foods and Liberty India to arrive at theopposite conclusion, is held to be wronglydecided for the reasons given by ushereinabove. 4.The same view was followed by this Court in the case of CIT 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 the authority. 5.Therefore, the matter is remitted back to the AO to decidethe same in the light of aforesaid decisions. It is made clear thatwe have not expressed anything on merits. 6. The appeal stands accordingly disposed of. (VIJAY KUMAR VYAS),J. (K.S.JHAVERI),J. B.M.G/Gourav/22