Bombay High Court
M/S Pioneer Foods And Agro Industries vs Income Tax Officer Ward 18 93) (4) And Anr on 22 April, 2019
Bench: Akil Kureshi, Sarang V. Kotwal
1.os itxa 142-143-17.doc
R.M. AMBERKAR
(Private Secretary)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J.
INCOME TAX APPEAL NO. 142 OF 2017
IN
INCOME TAX APPEAL NO. 143 OF 2017
Pioneer Foods & Agro Industries .. Appellant
Versus
Income Tax Officer, Ward 18(3)(4) & Anr. .. Respondents
...................
Mr. K. Gopal a/w Ms. Neha Paranjpe i/by Jitendra Singh for the
Appellant
Mr. Ashok Kotangle a/w Mr. Prabhakar Ramshur for the
Respondents
...................
CORAM : AKIL KURESHI &
SARANG V. KOTWAL, JJ.
DATE : APRIL 22, 2019.
P.C.:
1. These appeals are filed by the same assessee and involve identical issues. They have been heard together and with consent of the learned counsel for the parties would be finally disposed of by this common order. For convenience, we may refer facts from Income Tax Appeal No. 142 of 2017.
2. In this appeal, the assessee had challenged the judgment of the Income Tax Appellate Tribunal, Mumbai ("the 1 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc Tribunal" for short) dated 20.7.2016. The appellant - assessee is a partnership firm engaged in the business of manufacturing and exporting honey. The assessee had filed return of income for the assessment year 2009-10. In relation to the export of the said product, the assessee had claimed deduction under Section 80IB(11A) of the Income Tax Act, 1961 ("the Act" for short) in relation to following receipts:-
(I) The benefit received by the assessee for the export under Vishesh Krishi and Gram Udyog Yojana ("VKGUY" for short);
(ii) In relation to additional receipt of such export on account of favourable foreign exchange rate fluctuation;
(iii) In relation to Duty Entitlement Pass Book benefit ("DEPB" for short) upon such export.
3. The Assessing Officer having disallowed all the three claims, the issue eventually reached the Tribunal. The Tribunal, by the impugned judgment, accepted the assessee's case in relation to foreign exchange rate fluctuation but disallowed the other two. In this appeal, the assessee has confined its grievance in relation to the benefits received under VKGUY Scheme and not pressed the deduction in respect of DEPB benefits which were denied by the Tribunal on the basis of the decision of the Supreme 2 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc Court in the case of Liberty India Vs. CIT1.
4. In such background, following substantial question of law is framed for the purpose of these appeals.
" Whether the Tribunal was right in law in rejecting the assessee's claim of deduction under Section 80IB(11A) of the Act in relation to the benefits received by the assessee under VKGUY scheme upon the export of its agro products?"
5. It is undoubtedly true that the Supreme Court in the case of Liberty India (supra) had held that an export house cannot claim deduction in relation to the benefits of DEPB received on account of such exports. However, later on the Supreme Court in the case of CIT Vs. Meghalaya Steels Ltd2 had an occasion to examine a case where the assessee was engaged in the business of manufacture of Steel and Ferro Silicon. The assessee was paid following subsidies:
(Rs.) Transport subsidy 2,64,94,817 Interest subsidy 2,14,569 Power subsidy 7,00,000
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Total 2,74,09,386
=========
1 (2009) 317 ITR 218 (SC)
2 [2016] 383 ITR 217 (SC)
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6. The assessee had claimed deduction under Section 80IB(4) of the Act in relation to such subsidies. The Assessing Officer disallowed the claim. The issue reached the Supreme Court. The Supreme Court noted the speech of Finance Minister while presenting the budget for the assessment year 1999-2000 in relation to Government of India's Industrial Development Policy for the North-Eastern region. It was noticed that ten years' tax holiday was granted for the industries set up in the north-eastern region on account of the fact that despite of announcements, the industrial development in the north-eastern region had not come up to the expectation. The Supreme Court noted the distinction between the expressions "attributable to" and "derived from" as discussed in various earlier judgments.
The Supreme Court distinguished the judgment in case of Liberty India (supra) in facts of the case on hand observing that in the said case, the Court was concerned with the export incentive which is far removed from the activity of export. The profit, therefore, cannot be said to have been derived from such activity. In the opinion the Court in the case on hand was one where the transport and interest 4 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc subsidy had a direct nexus with the manufacturing activity in as much as these subsidies go to reduce the cost of production. In this background, it was observed as under:-
"20. Liberty India being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A Duty Entitlement Pass Book Drawback Scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. Duty Entitlement Pass Book entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no duty entitlement pass book entitlement, and therefore its relation to manufacture of a product and or sale within India is not proximate or direct but is one step removed. Also, the object behind the duty entitlement pass book entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself."
7. The Supreme Court noted with approval the observations in case of Jai Bhagwan Oil and Flour Mills Vs. Union of India3 which are as under:-
"24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under:
3 [2009] 14 SCC 63 5 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc "The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty.
The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas.
The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other north-eastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable." (Paras 14 and
15)
8. With this background, we may refer to VKGUY Scheme. This scheme is part of Foreign Trade Policy 2009-2014 framed by the Government of India, Ministry of Commerce and Industry. Relevant portion of this policy reads as under:-
3.13 VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) (SPECIAL AGRICULTURE AND VILLAGE 6 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc INDUSTRY SCHEME) Objective 3.13.1 Objective of VKGUY is to promote exports of :
(i) Agricultural Produce and their value added products;
(ii) Minor Forest Produce and their value added variants;
(iii) Gram Udyog Products;
(iv) Forest Based Products; and
(v) Other Products, as notified from time to time.
Such products shall be listed in Appendix 37A of HBPv1 Entitlement 3.13.2 Duty Credit Scrip benefits are granted with an aim to compensate high transport costs, and to offset other disadvantages.
Exporters, of products notified in Appendix 37A of HBPv1, shall be entitled for Duty Credit Scrip equivalent to 5% of FOB value of exports (in free foreign exchange) for exports made from 27.8.2009 onwards.
However, for exports made w.e.f 27.8.2009,some Flowers, Fruits, Vegetables and other products, as listed in Table 2 of Appendix 37A shall be entitled to an additional duty credit scrip equivalent to 2% of FOB value of exports; over and above the 5% or 3% VKGUY reduced rate entitlement available as per Para 3.13.3 below Applicability of 3.13.3 Duty Credit Scrip benefits under VKGUY scheme shall be Reduced Rate granted only at a reduced rate of 3% of FOB value of exports in such cases where exporter has also availed benefits of:
(i) Drawback at rates higher than 1%; and/or
(ii) Specific DEPB rate (i.e. other than Miscellaneous Category - Sr. Nos. 22C & 22D of Product Group 90);
and/or
(iii) Advance Authorization or Duty Free Import Authorization Import of inputs (other than catalysts, consumables and packing materials) for the exported product for which Duty Credit Scrip under VKGUY is being claimed.
9. Perusal of the scheme would suggest that the objective of the scheme was to promote export of agricultural produce and their value added products, minor forest produce and their value added variants, Gram Udyog products, forest based products and other produces as may be notified. In relation to exports of such products, benefits in the form of 7 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc incentives would be granted at the prescribed rate. The objective behind granting such benefit was in order to compensate high transport cost and to offset other disadvantages. In clear terms, thus, the Government of India realized that the products such as agricultural produce, minor forest produce and Gram Udyog products as also forest based products would have high transport cost and would be accompanied by various other disadvantages. In order to make the export of such products viable, the Government of India decided to grant certain incentives under the said scheme. The clear objective behind the scheme was, thus, to reduce the cost of its procurements and to neutralize certain inherent disadvantages attached to such products. Clearly, thus, the case was covered by the decision of the Supreme Court in the case of Meghalaya Steels Ltd (supra) extensive reference to which has been made earlier. This is not a case akin to export incentives such as DEPB which the Supreme Court in case of Liberty India (supra) held was a benefit far removed from the assessee's business of export.
10. In the result, the question is answered in favour of the 8 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::
1.os itxa 142-143-17.doc appellant - assessee and against the Revenue. The judgment of the Tribunal to this limited extent is reversed. The appeals allowed and disposed of in above terms. [ SARANG V. KOTWAL, J. ] [ AKIL KURESHI, J ] 9 of 9 ::: Uploaded on - 23/04/2019 ::: Downloaded on - 24/04/2019 22:32:30 :::