Facts of the Case

• The assessee claimed deduction under Section 80-IA of the Income Tax Act on DEPB credit arising from exports of goods manufactured by it.

• The ITAT directed the Assessing Officer to verify the claim and allow deduction under Section 80-IA if the DEPB credit had arisen from exports of goods manufactured by the assessee.

• The Revenue challenged the order of the ITAT before the Delhi High Court.

• During the pendency of the appeal, the Supreme Court delivered its judgment in Liberty India v. Commissioner of Income Tax (317 ITR 218), deciding the issue against the assessee.

Issues Involved

Whether DEPB credit arising from export activities can be treated as profits derived from an industrial undertaking so as to qualify for deduction under Section 80-IA of the Income Tax Act, 1961?

Petitioner’s Arguments (Revenue)

• The Revenue contended that DEPB credit is an incentive granted under an export promotion scheme.

• Such incentive income does not have a direct nexus with the manufacturing activity of the industrial undertaking.

• Therefore, DEPB credit cannot be regarded as profits derived from the eligible business for the purposes of Section 80-IA.

• Reliance was placed on the Supreme Court judgment in Liberty India v. Commissioner of Income Tax (317 ITR 218).

Respondent’s Arguments (Assessee)

• The assessee supported the order of the ITAT.

• It was argued that the DEPB credit had arisen from the export of goods manufactured by the assessee and therefore should qualify for deduction under Section 80-IA.

• However, during the hearing, counsel for the assessee conceded the legal position in view of the Supreme Court judgment in Liberty India.

Court Order / Findings

• The Delhi High Court observed that the precise issue regarding DEPB credit and deduction under Section 80-IA had already been settled by the Supreme Court in Liberty India v. Commissioner of Income Tax (317 ITR 218).

• The Supreme Court had held that DEPB benefits are incentives arising from Government schemes and are not profits derived from the industrial undertaking.

• Consequently, such receipts are not eligible for deduction under Section 80-IA.

• Following the binding precedent of the Supreme Court, the High Court answered the question of law in favour of the Revenue and against the assessee.

• The appeals filed by the Revenue were allowed.

Important Clarification

The judgment reiterates that export incentive receipts such as DEPB credit cannot be treated as profits derived from an industrial undertaking merely because they arise in connection with export activities. For claiming deduction under Section 80-IA, the income must have a direct and first-degree nexus with the eligible business undertaking. Incentive-based receipts generated under Government schemes fall outside the scope of such deduction.

Sections Involved

• Section 80-IA of the Income Tax Act, 1961

Link to download the order –

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:9449-DB/AKS18112009ITA182009_153158.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.