M/S. SARAF EXPORTS versus COMMISSIONER OF INCOME TAX, JAIPUR-III

Citation: [2023] 4 S.C.R. 338 · Decided: 10-04-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Dismissed
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Judgment (excerpt)

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338
SUPREME COURT REPORTS
[2023] 4 S.C.R.
M/S. SARAF EXPORTS
v.
COMMISSIONER OF INCOME TAX, JAIPUR-III
(Civil Appeal No. 4822 of 2022)
APRIL 10, 2023
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Income Tax Act, 1961 – ss.80-IB and 28 – Deduction u/s 80-
IB – Denial of – For AY 2008-09 the respondent-assessee
(partnership firm) filed its return declaring its income as nil, claiming
deduction of Rs. 70,197/- on account of Duty Entitlement Pass Book
Scheme (DEPB) and of Rs. 76,27,636/- on account of receipts under
the Duty Drawback – Respondent claimed the same as “Profit/ gains
of business/ profession” under ss. 28(iiic) and (iiib) of the Act of
1961– Deputy commissioner disallowed the deductions – The said
order was upheld by Commissioner of Income Tax (Appeals) – ITAT
allowed the deductions – However, the High Court restored the order
passed by the Deputy commissioner and held that the respondent is
not entitled to the deduction u/s.80-IB of Act of 1961 with respect to
the receipts under the Duty Drawback Scheme and DEPB – On
appeal, held: For claiming deductions under s. 80-IB, it must be on
the “profits and gains derived from industrial undertakings”
mentioned in s. 80-IB – It was held in Liberty India that DEPB/Duty
Drawback Schemes are incentives which flow from the schemes
framed by the Central Government or from section 75 of the Customs
Act, 1962 and hence, incentive profits are not profits derived from
the eligible business u/s. 80-IB – Following the law laid down in the
case of Sterling Foods, Mangalore and Liberty India, no error was
committed by the High Court in holding that on the profit from DEPB
and Duty Drawback claims, the respondent-assessee shall not be
entitled to the deductions u/s. 80-IB – Such 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 – Judgment of High Court upheld.
Dismissing the appeal, the Court
HELD: 1. After taking into consideration the DEPB and
Duty Drawback Schemes, ultimately, it is observed and held in
[2023] 4 S.C.R. 338
338
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the case of Liberty India that DEPB/Duty Drawback Schemes are
incentives which flow from the schemes framed by the Central
Government or from Section 75 of the Customs Act, 1962 and,
hence, incentive profits are not profits derived from the eligible
business under Section 80-IB. It is observed that they belong to
the category of ancillary profits of such undertakings. Duty
drawback, DEPB benefits, rebates, etc. cannot be credited against
the cost of manufacture of goods debited in the profit and loss
account for purposes of Sections 80-IA/80-IB as such remissions
(credits) would constitute an independent source of income
beyond the first degree nexus between profits and the industrial
undertaking. Thus, it is observed and held that duty drawback
receipts/DEPB benefits do not form part of the net profits of
eligible industrial undertakings for the purpose of Section 80-IB
of the Act, 1961. [Paras 7.3 and 7.4][352-F-H; 353-A-B]
2. Prior thereto, the treatment of “profits and gains derived
from industrial undertakings” for the purpose of determining tax
liability came up for consideration before this Court in the case
of Sterling Foods, Mangalore and Liberty India as such, no error
has been committed by the High Court in holding that on the
profit from DEPB and Duty Drawback claims, the assessee shall
not be entitled to the deductions under Section 80-IB as such
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. [Para 7.6][358-B-C]
Liberty India v. Commissioner of Income Tax (2009) 9
SCC 328 : [2009] 13 SCR 1037; Commissioner of
Income Tax, Karnataka v. Sterling Foods, Mangalore
(1999) 4 SCC 98 : [1999] 2 SCR 699 – relied on.
Commissioner of Income Tax v. Meghalaya Steels
Limited (2016) 6 SCC 747 : [2016] 1 SCR 952;
Commissioner of Income Tax v. Dharam Pal Prem Chand
Ltd. (2009) 317 ITR 353 (Del); Topman Exports v.
Commissioner of Income Tax, Mumbai (2012) 3 SCC
593 : [2012] 4 SCR 684; B. Desraj v. Commissioner of
Income Tax, Salem (2010) 14 SCC 510; ACG Associated
M/S. SARAF EXPORTS v. COMMISSIONER OF INCOME TAX,
JAIPUR-III
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SUPREME COURT REPORTS
[2023] 4 S.C.R.
Capsules Private Limited v. Commissioner of Income Tax,
Central-IV, Mumbai (2012) 3 SCC 321 : [2012] 2 SCR
401; Vikas
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