Madras H.C : When DEPB receivable is assessed as income under u/s. 28(iv) of the Income Tax Act, 1961, the same has to be treated as export receipts while computing deduction u/s. 80HHC since 28(iv) was not referred to in Explanation (baa) to section 80HHC

High Court Of Madras

Gold Line Exports vs. ITO

Section 80HHC

Asst. Year 2003-2004

Dr. Vineet Kothari & C.V. Karthikeyan, JJ.

Tax Case Appeal No. 542 of 2011

15th February, 2019

Counsel Appeared:

M.P. Senthil Kumar for the Petitioner.: V. Pushpa, Senior Standing Counsel for the Respondent.

DR. VINEET KOTHARI, J.:

The Assessee has filed the present Appeal under Section 260A of the Income Tax Act, 1961 raising substantial questions of law arising from the order of the Income Tax Appellate Tribunal, dated 23.12.2010 whereby the learned Tribunal dismissed the Appeal of the Assessee on the issue as to whether the Assessee was entitled to claim only the Net value of the sale of DEPB (Duty Entitlements Pass Book) after deducting its face value for the purpose of computing the benefit under Section 80HHC of the Act applying explanation (baa) of the said provision.

2. The learned Tribunal in the impugned order in paragraph No. 8 held as under:

“8. The third issue raised vide ground No.4, the assessee has claimed that under Section 28(iiid) only the profit and transfer of Duty Entitlements Pass Book Scheme was chargeable to income tax under the head profits and gains of business and the entire value of DEPB received and/or sold. According to the assessee, the face value of the DEPB allotted was to be treated as cost of s ch DEPB notwithstanding the method of accounting employed to account for such receipts and should be assessed as profit on sale in accordance with law. Again this issue is found to be covered in favour of assessee by the decision of Hon’ble jurisidictional High Court in the case of Kalpataru Colours and Chemicals (supra). Accordingly, we dismiss this ground taken by the Assessee.”

There appears to be a bona fide typing error in the last lines of the aforesaid quoted portion where the learned Tribunal has held that the issue is covered (in favour of Assessee). In fact, the view of the Bombay High Court relied upon by the learned Tribunal in the case of CIT Vs. Kalpataru Colours and Chemicals reported in [2010] 328 ITR 451 (Bom.) was against the Assessee and not in favour of the Assessee.

However, the learned counsel for the Assessee submitted that the said view of the Bombay High Court in the case of Kalpataru Colours and Chemicals supra was later on revised by the Hon’ble Supreme Court in the case of Topman Exports Vs. Commissioner of Income tax reported in [2012 18 taxmann.com 120 (SC). The relevant portions of the decision of the Hon’ble Supreme Court in this regard are quoted below for ready reference:

“The aforesaid discussion would show that where an assessee has an export turnover exceeding Rs.10 crores and has made profits on transfer of DEPB under Clause (iiid) of Section 28, he would not get the benefit of addition to export profits under third or fourth proviso to sub-section (3) of Section 80HHC, but he would get the benefit of exclusion of a smaller figure from ‘profits of the business’ under Explanation (baa) to Section 80HHC and there is nothing in Explanation (baa) to Section 80HHC to show that this benefit of exclusion of a smaller figure from ‘profits of the business’ will not be available to an assessee having an export turnover exceeding Rs.10 crores. In other words, where the export turnover of an assessee exceeds Rs.10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid) of Section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not have the export turnover exceeding Rs. 10 crores and as the assessee did not fulfil the conditions set out in third proviso to Section 80HHC (iii), the assessee was not entitled to a deduction under Section 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under Section 28(iiid) would not include the face value of the DEPB. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to Section 80HHC read with the words used in clause (iiid) and (iiie) of Section 28, the assessee was entitled to a deduction under Section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee.

The impugned Judgement and orders of the High Court are accordingly, set aside. The appeals are allowed to the extent indicated in this Judgement. The Assessing Officer is directed to compute the deduct on under Section 80HHC in the case of the assessee in accordance with this Judgement.

Case Review:

E.D. Sassoon and Co. Limited v. CIT [1954] 26 ITR 27(SC) followed & relied upon. CIT vs. Kalpataru Colours and Chemicals [2010] 328 ITR 451 (Bom.) reversed.”

5. He therefore submits that the very foundation of the order passed by the learned Tribunal no longer exists and the substantial question of law deserves to be answered in favour of the Assessee. The questions of law which arise in the present case are quoted below for ready reference:

“3. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in not appreciating that when DEPB receivable is assessed as income under u/s. 28(iv) of the Income Tax Act, 1961, the same has to be treated as export receipts while computing deduction u/s. 80HHC since 28(iv) was not referred to in Explanation (baa) to section 80HHC?;

Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the entire DEPB receivables was chargeable to income tax under the head Profits and Gains of Business”?

Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in not holding that u/s. 28(iiid), only profit on transfer of duty drawback and DEPB scheme was chargeable to income tax under the head “Profits and Gains of Business” and not the entire value of DEPB?”.

Having heard the learned counsels, we are of the opinion that the controversy is no longer res integra and the same is covered by the aforesaid decision of the Hon’ble Supreme Court and the Assessee is entitled to take only the Net amount of the sale value after deducting the face value of the DEPB for the purpose of Section 80HHC while applying Explanation (baa) of the said provision in the present case.

Accordingly, the Appeal of the Assessee is allowed and the questions of law framed above are answered in favour of the Assessee and against the Revenue. No order as to costs.

[Citation : 412 ITR 465]

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