Duty Drawback and Entitlement schemes are incentives: SC
September, 04th 2009
The Supreme Court has said profits derived from the Duty Entitlement Passbook Scheme and the Duty Drawback Scheme are incentives and cannot be termed as profits from business to claim income tax deductions.
A bench headed by Justice S H Kapadia dismissed a batch of petitions filed by various firms and held that the duty drawback receipt/DEPB benefits are incentives that flow from government schemes and the Customs Act, and therefore are not profits derived from the eligible business under Section 80-IB of the Income-tax Act, 1961.
"In our view, DEPB/Duty Drawback are incentives which flow from the schemes framed by the Central government or from Section 75 of the Customs Act 1962, hence incentive profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such undertakings," the court said.
Stating that DEPB was an "export incentive," the bench said it was given under the Duty Exemption Remission Scheme and to neutralise the customs duty payment on the import content of export product and the neutralisation was provided for by credit to customs duty against export product.
"We are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Schemes framed by the Governmnet of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression 'profits derived from industrial undertaking' in Section 80-IB," Justice Kapadia writing the judgement for the Bench stated.
According to Justice Kapadia, duty drawback, DEPB benefits, rebates, etc cannot be credited against the cost of manufacturing of goods debited in the Profit & Loss account for purposes of Section 80 IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking.