LexM/S LIBERTY INDIA versus COMMISSIONER OF INCOME TAX
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... \ =(. [2009] 13 (ADDL.) S.C.R. 1037 M/S LIBERTY INDIA v . COMMISSIONER OF INCOME TAX (Civil Appeal No. 5891 of 2009) AUGUST 31, 2009 [S.H. KAPADIA AND AFTAB ALAM, JJ.] A B ·~ • INCOME TAX ACT,.1961: s. 80-IB - Profits and gains derived from eligible business c - Duty drawback receipt/DEPB benefits - HELD: Do not form part of the net profits of eligible industrial undertaking for the purposes of ss. 80-1180-1 A/80-IB - Expression "derived from" occurring in s.80-IB is narrower in connotation as compared ...( · to words "attributable to" - By using expression "derived from~ 0 .. • Parliament intended to cover sources not beyond the first degree - Profits derived by way of incentives, namely DEPB · and duty drawback do not fall within the expression "profits derived from industrial undertaking". ACCOUNTING STANDARDS: AS-2 - Valuation of Inventories - Cost of Purchase - 1 HELD: Duty drawback/DEPB benefits, rebates etc. cannot be E • credited against cost of purchase of manufacture of goods debited in the Profit and Loss account for purposes of s. 80- F A/80-18 - Department correctly applied AS-2. Words and Phrases: Expressions 'derived from' and 'attributable to' - Connotation of. G ~ The assessee-appellant in CA No. 5891 of 2009, a partnership firm owning a small scale industrial undertaking, during the relevant previous year 1037 H 1038 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R. A corresponding to Assessment Year 2001-02, claime_d deduction u/s 80-18 of the Income Tax Act, 1961 on account of Duty Entitlement Passbook and Duty Drawback credited to Profit and Loss account. The Assessing Officer denied the deduction.-When the matter B ultimately reached the High Court, it held that the assessee having failed to prove the nexus between the receipt by way of duty drawback/DEP8 benefit and the industrial undertaking, was not entitled to deduction u/s 80-18. The other appeals were filed in similar c circumstances. The question for consideration before the Court was: whether profit from Duty Entitlement Passbook Scheme (DEP8) and Duty Drawback Scheme could be said to be profit derived from the business of the D industrial undertaking eligible for deduction u/s . 80-18 of the 1961 Act. Dismissing th,e appeals, the Court i HELD: 1. Duty drawback receipt/DEP8 benefits do E not form part of the net profits of eligible industrial undertaking for the purposes of ss.80-1/80-1A/80-18 of the Income Tax Act, 1961. [Para 24][1062-F] 2.1. The 1961 Act broadly provides for two types of F tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belongs to the category of "profit linked incentives". Therefore, when s. 80-IA/80-18 refers to profits derived G from eligible business, it is the generation of profits (operational profits), which attracts the incentives and not the ownership of that business. Parliament has thus confined deduction to profits derived from eligible businesses mentioned in sub-sections (3) to (11A) [as H they stood at the relevant time]. Besides, each of the ' y ( I >- ., _., ) LIBERTY INDIA v. COMMISSIONER OF INCOME TAX1039 eligible business in sub-sections (3) to (11A) constitutes A A- a stand-alone item in the matter of computation of profits. That is the reason why the concept of "Segment J Reporting" stands introduced in the Indian Accounting Standards by the Institute of Chartered Accountants of ~ India. [Para 13] [1057-C-H; 1058-A] B ' 2.2. In Chapter VI-A, ss.80-18/80-IA are the Code by t themselves as they contain both substantive as well as • ~ procedural provisions. Section 80-18 provides for allowing of deduction in respect of profits and gains c ..., derived from the eligible business. The words "derived from" are narrower in connotation as compared to the words "attributable to". By using the expression "derived from", Parliament intended to cover sources not beyond the first degree. [Para 14] [1058-B-C] 0 ~ .. ' 2.3. Sub-section (13) of s.80-18 provides for applicability of the provisions of sub- section (5) and sub- ~ sections (7) to (12) of s.80-IA, so far as may be, applicable to the eligible business u/s '80-18. On perusal of sub- section (5) of s.80-IA, it is noticed that it provides for E m~nner of computation of profits of an eligible business. Accordingly, such pr
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