Income Received under FPS introduced under Foreign Trade Policy 2004 are Capital Receipts, attracts Deduction u/s 80IC: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench has held that income received under Focus Products Scheme (FPS) introduced under Foreign Trade Policy 2004 are capital receipts and attracts deduction under section 80IC.

The appellant, Narayan Industries, is a partnership firm engaged in the business of manufacturing and export of home furnishings items like quilts, bedspreads, cushion covers, etc. and the appellant claimed deduction under section 80-IC of the Income-tax Act, 1961.

The Assessing Officer relying on the decision of the Supreme Court in the case of Sterling Foods denied the deduction of income received from the sale of the Focus Products Scheme (FPS) on the ground that such income is not related to the manufacture or sale of the products of the undertaking and is only related to a post-manufacturing event, which is not eligible for deduction under section 80-IC of the Act. The CIT (A) on appeal confirms the addition and hence the appellant approached the ITAT.

The Government of India in its Foreign Trade Policy 2004 started Special Focus Initiatives with the object of continuously increasing the percentage share of global trade and expanding employment opportunities, especially in rural and semi-urban areas. Under the policy of the Special Focus Initiative certain special focus initiatives for market diversification, technological up-gradation, and support to status holders were identified for which specific schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS), Technological Upgradation Fund Scheme (TUFS), Status Holders Incentive Scheme (SHIS) was started.

The Tribunal observed that Focus Product Scheme (FPS) was introduced to incentivize the export of such products which have high export intensity/ employment potential, to offset infrastructure inefficiencies and other associated costs involved in the marketing of these products.

The Coram of Mr. Aakash Deep Jain, Vice President, and Dr. B. R. R. Kumar, Accountant Member by applying the ‘purpose test’ laid down by the Supreme Court in Shanley Steel and Ponni Sugars has held that “we hold that Focus Products Incentive in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act, 1961”.

Adv. Mr. Rohit Jain and Adv. Ms. Manish Sharma appeared on behalf of the appellant and Mr. N. K. Bansal appeared on behalf of the revenue.

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