Facts of the Case

The Revenue filed appeals before the Delhi High Court challenging the order of the Income Tax Appellate Tribunal (ITAT). The Tribunal had directed the Assessing Officer to allow deduction under Section 80-IA of the Income-tax Act after verification and upon finding that the DEPB credit had arisen from the export of goods manufactured by the assessee.

The principal controversy concerned whether DEPB credit could be considered as income eligible for deduction under Section 80-IA.

Issues Involved

Whether the Income Tax Appellate Tribunal was correct in law in directing the Assessing Officer to allow deduction under Section 80-IA of the Income-tax Act on verification that the DEPB credit had arisen from the export of goods manufactured by the assessee?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that DEPB benefits do not constitute profits derived from an eligible industrial undertaking.
  • It was argued that such incentives arise from a Government incentive scheme and not directly from the manufacturing activity of the undertaking.
  • Therefore, DEPB receipts cannot qualify for deduction under Section 80-IA.
  • Reliance was placed on the judgment of the Supreme Court 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 be considered for deduction under Section 80-IA.
  • However, during the hearing, counsel for the assessee conceded the legal position in light of the Supreme Court's decision in Liberty India v. Commissioner of Income Tax.

Court Findings

The Delhi High Court observed that the identical question relating to the treatment of DEPB credit for the purpose of deduction under Section 80-IA had already been conclusively decided by the Supreme Court in Liberty India v. Commissioner of Income Tax, (2009) 317 ITR 218.

The Supreme Court had held that DEPB benefits and similar export incentives are not profits derived from the eligible business undertaking and therefore are not eligible for deduction under provisions such as Section 80-IA.

The High Court noted that the respondent's counsel fairly conceded the issue in view of the binding Supreme Court precedent.

Court Order

  • The question of law was answered in favour of the Revenue and against the assessee.
  • The appeals filed by the Revenue were allowed.
  • The direction of the ITAT permitting deduction under Section 80-IA in respect of DEPB credit could not survive in view of the Supreme Court ruling in Liberty India.

Important Clarification

This judgment reinforces the principle laid down by the Supreme Court in Liberty India v. CIT (317 ITR 218) that:

  • DEPB credit is an incentive arising from a Government scheme.
  • Such income does not have a direct nexus with the manufacturing activity of the industrial undertaking.
  • Therefore, DEPB receipts cannot be treated as profits "derived from" the eligible business for claiming deduction under Section 80-IA.
  • The expression "derived from" is narrower in scope and requires a direct and immediate connection with the eligible undertaking.

Sections Involved

  • Section 80-IA of the Income-tax Act, 1961
  • DEPB (Duty Entitlement Pass Book) Scheme
  • Relevant reliance on Liberty India v. Commissioner of Income Tax, (2009) 317 ITR 218 (SC)

Link to download the order -

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

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