M/S Topman Exports
Vs. Commissioner of Income Tax, Mumbai
[Civil Appeal No. 1699
of 2012 arising out of SLP (C) No. 26558 of 2010]
[Civil Appeal No. 1700
of 2012 arising out of SLP (C) No. 27418 of 2010]
[Civil Appeal No. 1701
of 2012 arising out of SLP (C) No. 27552 of 2010]
[Civil Appeal No. 1704
of 2012 arising out of SLP (C) No. 27583 of 2010]
[Civil Appeal No. 1705
of 2012 arising out of SLP (C) No. 27608 of 2010]
[Civil Appeal No. 1706
of 2012 arising out of SLP (C) No. 27994 of 2010]
[Civil Appeal No. 1707
of 2012 arising out of SLP (C) No. 28036 of 2010]
[Civil Appeal No. 1708
of 2012 arising out of SLP (C) No. 28044 of 2010]
[Civil Appeal No. 1709
of 2012 arising out of SLP (C) No. 28131 of 2010]
[Civil Appeal No. 1710
of 2012 arising out of SLP (C) No. 28167 of 2010]
[Civil Appeal No. 1711
of 2012 arising out of SLP (C) No. 28173 of 2010]
[Civil Appeal No. 1728
of 2012 arising out of SLP (C) No. 27952 of 2010]
[Civil Appeal No. 1729
of 2012 arising out of SLP (C) No. 28365 of 2010]
[Civil Appeal No. 1730
of 2012 arising out of SLP (C) No. 29290 of 2010]
[Civil Appeal No. 1731
of 2012 arising out of SLP (C) No. 29314 of 2010]
[Civil Appeal No. 1732
of 2012 arising out of SLP (C) No. 29596 of 2010]
[Civil Appeal No. 1733
of 2012 arising out of SLP (C) No. 30461 of 2010]
[Civil Appeal No. 1734
of 2012 arising out of SLP (C) No. 30462 of 2010]
[Civil Appeal No. 1735
of 2012 arising out of SLP (C) No. 30011 of 2010]
[Civil Appeal No. 1736
of 2012 arising out of SLP (C) No. 30018 of 2010]
[Civil Appeal No. 1737
of 2012 arising out of SLP (C) No. 30020 of 2010]
[Civil Appeal No. 1738
of 2012 arising out of SLP (C) No. 30023 of 2010]
[Civil Appeal No. 1739
of 2012 arising out of SLP (C) No. 30100 of 2010]
[Civil Appeal No. 1740
of 2012 arising out of SLP (C) No. 30281 of 2010]
[Civil Appeal No. 1741
of 2012 arising out of SLP (C) No. 30283 of 2010]
[Civil Appeal No. 1712
of 2012 arising out of SLP (C) No. 30289 of 2010]
[Civil Appeal No. 1713
of 2012 arising out of SLP (C) No. 30306 of 2010]
[Civil Appeal No. 1714
of 2012 arising out of SLP (C) No. 30345 of 2010]
[Civil Appeal No. 1715
of 2012 arising out of SLP (C) No. 30374 of 2010]
[Civil Appeal No. 1716
of 2012 arising out of SLP (C) No. 30375 of 2010]
[Civil Appeal No. 1717
of 2012 arising out of SLP (C) No. 30379 of 2010]
[Civil Appeal No. 1718
of 2012 arising out of SLP (C) No. 30381 of 2010]
[Civil Appeal No. 1719
of 2012 arising out of SLP (C) No. 30393 of 2010]
[Civil Appeal No. 1720
of 2012 arising out of SLP (C) No. 30411 of 2010]
[Civil Appeal No. 1721
of 2012 arising out of SLP (C) No. 30426 of 2010]
[Civil Appeal No. 1722
of 2012 arising out of SLP (C) No. 30468 of 2010]
[Civil Appeal No. 1725
of 2012 arising out of SLP (C) No. 30549 of 2010]
[Civil Appeal No. 1742
of 2012 arising out of SLP (C) No. 30215 of 2010]
[Civil Appeal No. 1743
of 2012 arising out of SLP (C) No. 30378 of 2010]
[Civil Appeal No. 1744
of 2012 arising out of SLP (C) No. 30380 of 2010]
[Civil Appeal No. 1745
of 2012 arising out of SLP (C) No. 30388 of 2010]
[Civil Appeal No. 1746
of 2012 arising out of SLP (C) No. 30390 of 2010]
[Civil Appeal No. 1747
of 2012 arising out of SLP (C) No. 30543 of 2010]
[Civil Appeal No. 1748
of 2012 arising out of SLP (C) No. 30546 of 2010]
[Civil Appeal No. 1749
of 2012 arising out of SLP (C) No. 30572 of 2010]
[Civil Appeal No. 1750
of 2012 arising out of SLP (C) No. 30574 of 2010]
[Civil Appeal No. 1754
of 2012 arising out of SLP (C) No. 30657 of 2010]
[Civil Appeal No. 1755
of 2012 arising out of SLP (C) No. 30569 of 2010]
[Civil Appeal No. 1756
of 2012 arising out of SLP (C) No. 32066 of 2010]
[Civil Appeal No. 1757
of 2012 arising out of SLP (C) No. 32069 of 2010]
[Civil Appeal No. 1760
of 2012 arising out of SLP (C) No. 30597 of 2010]
[Civil Appeal No. 1761
of 2012 arising out of SLP (C) No. 30626 of 2010]
[Civil Appeal No. 1762
of 2012 arising out of SLP (C) No. 30634 of 2010]
[Civil Appeal No. 1763
of 2012 arising out of SLP (C) No. 30644 of 2010]
[Civil Appeal No. 1764
of 2012 arising out of SLP (C) No. 30665 of 2010]
[Civil Appeal No. 1765
of 2012 arising out of SLP (C) No. 30671 of 2010]
[Civil Appeal No. 1766
of 2012 arising out of SLP (C) No. 30680 of 2010]
[Civil Appeal No. 1767
of 2012 arising out of SLP (C) No. 30684 of 2010]
[Civil Appeal No. 1768
of 2012 arising out of SLP (C) No. 30689 of 2010]
[Civil Appeal No. 1769
of 2012 arising out of SLP (C) No. 30721 of 2010]
[Civil Appeal No. 1770
of 2012 arising out of SLP (C) No. 30902 of 2010]
[Civil Appeal No. 1771
of 2012 arising out of SLP (C) No. 31085 of 2010]
[Civil Appeal No. 1772
of 2012 arising out of SLP (C) No. 31107 of 2010]
[Civil Appeal No. 1773
of 2012 arising out of SLP (C) No. 31131 of 2010]
[Civil Appeal No. 1774
of 2012 arising out of SLP (C) No. 31134 of 2010]
[Civil Appeal No. 1775
of 2012 arising out of SLP (C) No. 31304 of 2010]
[Civil Appeal No. 1776
of 2012 arising out of SLP (C) No. 31385 of 2010]
[Civil Appeal No. 1777
of 2012 arising out of SLP (C) No. 31450 of 2010]
[Civil Appeal No. 1778
of 2012 arising out of SLP (C) No. 31849 of 2010]
[Civil Appeal No. 1779
of 2012 arising out of SLP (C) No. 32531 of 2010]
[Civil Appeal No. 1780
of 2012 arising out of SLP (C) No. 30628 of 2010]
[Civil Appeal No. 1781
of 2012 arising out of SLP (C) No. 30635 of 2010]
[Civil Appeal No. 1782
of 2012 arising out of SLP (C) No. 30646 of 2010]
[Civil Appeal No. 1783
of 2012 arising out of SLP (C) No. 32532 of 2010]
[Civil Appeal No. 1784
of 2012 arising out of SLP (C) No. 30647 of 2010]
[Civil Appeal No. 1785
of 2012 arising out of SLP (C) No. 32533 of 2010]
[Civil Appeal No. 1786
of 2012 arising out of SLP (C) No. 30653 of 2010]
[Civil Appeal No. 1787
of 2012 arising out of SLP (C) No. 30673 of 2010]
[Civil Appeal No. 1788
of 2012 arising out of SLP (C) No. 30674 of 2010]
[Civil Appeal No. 1789
of 2012 arising out of SLP (C) No. 30675 of 2010]
[Civil Appeal No. 1790
of 2012 arising out of SLP (C) No. 30677 of 2010]
[Civil Appeal No. 1791
of 2012 arising out of SLP (C) No. 30686 of 2010]
[Civil Appeal No. 1792
of 2012 arising out of SLP (C) No. 30708 of 2010]
[Civil Appeal No. 1793
of 2012 arising out of SLP (C) No. 32534 of 2010]
[Civil Appeal No. 1794
of 2012 arising out of SLP (C) No. 30906 of 2010]
[Civil Appeal No. 1795
of 2012 arising out of SLP (C) No. 33218 of 2010]
[Civil Appeal No. 1800
of 2012 arising out of SLP (C) No. 34078 of 2010]
[Civil Appeal No. 1801
of 2012 arising out of SLP (C) No. 32228 of 2010]
[Civil Appeal No. 1802
of 2012 arising out of SLP (C) No. 32256 of 2010]
[Civil Appeal No. 1803
of 2012 arising out of SLP (C) No. 33925 of 2010]
[Civil Appeal No. 1804
of 2012 arising out of SLP (C) No. 32308 of 2010]
[Civil Appeal No. 1805
of 2012 arising out of SLP (C) No. 32339 of 2010]
[Civil Appeal No. 1806
of 2012 arising out of SLP (C) No. 32384 of 2010]
[Civil Appeal No. 1807
of 2012 arising out of SLP (C) No. 34046 of 2010]
[Civil Appeal No. 1808
of 2012 arising out of SLP (C) No. 34047 of 2010]
[Civil Appeal No. 1809
of 2012 arising out of SLP (C) No. 32946 of 2010]
[Civil Appeal No. 1810
of 2012 arising out of SLP (C) No. 33708 of 2010]
[Civil Appeal No. 1811
of 2012 arising out of SLP (C) No. 33692 of 2010]
[Civil Appeal No. 1812
of 2012 arising out of SLP (C) No. 33084 of 2010]
[Civil Appeal No. 1813
of 2012 arising out of SLP (C) No. 33157 of 2010]
[Civil Appeal No. 1814
of 2012 arising out of SLP (C) No. 33265 of 2010]
[Civil Appeal No. 1815
of 2012 arising out of SLP (C) No. 33504 of 2010]
[Civil Appeal No. 1816
of 2012 arising out of SLP (C) No. 35013 of 2010]
[Civil Appeal No. 1817
of 2012 arising out of SLP (C) No. 35016 of 2010]
[Civil Appeal No. 1818
of 2012 arising out of SLP (C) No. 35028 of 2010]
[Civil Appeal No. 1819
of 2012 arising out of SLP (C) No. 35029 of 2010]
[Civil Appeal No. 1820
of 2012 arising out of SLP (C) No. 35030 of 2010]
[Civil Appeal No. 1821
of 2012 arising out of SLP (C) No. 35031 of 2010]
[Civil Appeal No. 1822
of 2012 arising out of SLP (C) No. 35032 of 2010]
[Civil Appeal No. 1823
of 2012 arising out of SLP (C) No. 35129 of 2010]
[Civil Appeal No. 1824
of 2012 arising out of SLP (C) No. 35865 of 2010]
[Civil Appeal No. 1825
of 2012 arising out of SLP (C) No. 35866 of 2010]
[Civil Appeal No. 1826
of 2012 arising out of SLP (C) No. 35867 of 2010]
[Civil Appeal No. 1827
of 2012 arising out of SLP (C) No. 35868 of 2010]
[Civil Appeal No. 1828
of 2012 arising out of SLP (C) No. 33644 of 2010]
[Civil Appeal No. 1829
of 2012 arising out of SLP (C) No. 57 of 2011]
[Civil Appeal No. 1830
of 2012 arising out of SLP (C) No. 136 of 2011]
[Civil Appeal No. 1831
of 2012 arising out of SLP (C) No. 138 of 2011]
[Civil Appeal No. 1832
of 2012 arising out of SLP (C) No. 131 of 2011]
[Civil Appeal No. 1833
of 2012 arising out of SLP (C) No. 132 of 2011]
[Civil Appeal No. 1834
of 2012 arising out of SLP (C) No. 376 of 2011]
[Civil Appeal No. 1835
of 2012 arising out of SLP (C) No. 302 of 2011]
[Civil Appeal No. 1836
of 2012 arising out of SLP (C) No. 428 of 2011]
[Civil Appeal No. 1837
of 2012 arising out of SLP (C) No. 2755 of 2011]
[Civil Appeal No. 1838
of 2012 arising out of SLP (C) No. 2756 of 2011]
[Civil Appeal No. 1839
of 2012 arising out of SLP (C) No. 2757 of 2011]
[Civil Appeal No. 1840
of 2012 arising out of SLP (C) No. 2759 of 2011]
[Civil Appeal No. 1841
of 2012 arising out of SLP (C) No. 2388 of 2011,]
[Civil Appeal No. 1842
of 2012 arising out of SLP (C) No. 2585 of 2011]
[Civil Appeal No. 1843
of 2012 arising out of SLP (C) No. 2588 of 2011]
[Civil Appeal No. 1844
of 2012 arising out of SLP (C) No. 2626 of 2011]
[Civil Appeal No. 1845
of 2012 arising out of SLP (C) No. 2689 of 2011]
[Civil Appeal No. 1846
of 2012 arising out of SLP (C) No. 2932 of 2011]
[Civil Appeal No. 1847
of 2012 arising out of SLP (C) No. 2953 of 2011]
[Civil Appeal No. 1848
of 2012 arising out of SLP (C) No. 2742 of 2011]
[Civil Appeal No. 1850
of 2012 arising out of SLP (C) No. 2693 of 2011]
[Civil Appeal No. 1851
of 2012 arising out of SLP (C) No. 5377 of 2011]
[Civil Appeal No. 1852
of 2012 arising out of SLP (C) No. 5379 of 2011]
[Civil Appeal No. 1853
of 2012 arising out of SLP (C) No. 5972 of 2011]
[Civil Appeal No. 1854
of 2012 arising out of SLP (C) No. 7859 of 2011]
[Civil Appeal No. 1858
of 2012 arising out of SLP (C) No. 8786 of 2011]
[Civil Appeal No. 1859
of 2012 arising out of SLP (C) No. 9547 of 2011]
[Civil Appeal No. 1860
of 2012 arising out of SLP (C) No. 9548 of 2011]
[Civil Appeal No. 1861
of 2012 arising out of SLP (C) No. 9549 of 2011]
[Civil Appeal No. 1862
of 2012 arising out of SLP (C) No. 9550 of 2011]
[Civil Appeal No. 1863
of 2012 arising out of SLP (C) No. 9551 of 2011]
[Civil Appeal No. 1864
of 2012 arising out of SLP (C) No. 7795 of 2011]
[Civil Appeal No. 1865
of 2012 arising out of SLP (C) No. 9552 of 2011]
[Civil Appeal No. 1866
of 2012 arising out of SLP (C) No. 9553 of 2011]
[Civil Appeal No. 1867
of 2012 arising out of SLP (C) No. 11029 of 2011]
[Civil Appeal No. 1868
of 2012 arising out of SLP (C) No. 10958 of 2011]
[Civil Appeal No. 1869
of 2012 arising out of SLP (C) No. 13774 of 2011]
[Civil Appeal No. 1870
of 2012 arising out of SLP (C) No. 11716 of 2011]
[Civil Appeal No. 1873
of 2012 arising out of SLP (C) No. 14070 of 2011]
[Civil Appeal No. 1874
of 2012 arising out of SLP (C) No. 14071 of 2011]
[Civil Appeal No. 1875
of 2012 arising out of SLP (C) No. 14072 of 2011]
[Civil Appeal No. 1876
of 2012 arising out of SLP (C) No. 14073 of 2011]
[Civil Appeal No. 1877
of 2012 arising out of SLP (C) No. 14074 of 2011]
[Civil Appeal No. 1878
of 2012 arising out of SLP (C) No. 14075 of 2011]
[Civil Appeal No. 1879
of 2012 arising out of SLP (C) No. 14076 of 2011]
[Civil Appeal No. 1886
of 2012 arising out of SLP (C) No. 16821 of 2011]
[Civil Appeal No. 1887
of 2012 arising out of SLP (C) No. 16822 of 2011]
[Civil Appeal No. 1888
of 2012 arising out of SLP (C) No. 16823 of 2011]
[Civil Appeal No. 1889
of 2012 arising out of SLP (C) No. 16824 of 2011]
[Civil Appeal No. 1890
of 2012 arising out of SLP (C) No. 16825 of 2011]
[Civil Appeal No. 1891
of 2012 arising out of SLP (C) No. 15474 of 2011]
[Civil Appeal No. 1892
of 2012 arising out of SLP (C) No. 16968 of 2011]
[Civil Appeal No. 1893
of 2012 arising out of SLP (C) No. 16969 of 2011]
[Civil Appeal No. 1894
of 2012 arising out of SLP (C) No. 17643 of 2011]
[Civil Appeal No. 1895
of 2012 arising out of SLP (C) No. 16505 of 2011]
[Civil Appeal No. 1896
of 2012 arising out of SLP (C) No. 17645 of 2011]
[Civil Appeal No. 1897
of 2012 arising out of SLP (C) No. 17644 of 2011]
[Civil Appeal No. 1898
of 2012 arising out of SLP (C) No. 16695 of 2011]
[Civil Appeal No. 1899
of 2012 arising out of SLP (C) No. 22460 of 2011]
[Civil Appeal No. 1900
of 2012 arising out of SLP (C) No. 22180 of 2011]
[Civil Appeal No. 1901
of 2012 arising out of SLP (C) No. 22446 of 2011]
[Civil Appeal No. 1902
of 2012 arising out of SLP (C) No. 22449 of 2011]
[Civil Appeal No. 1903
of 2012 arising out of SLP (C) No. 22447 of 2011]
[Civil Appeal No. 1904
of 2012 arising out of SLP (C) No. 22772 of 2011]
[Civil Appeal No. 1905
of 2012 arising out of SLP (C) No. 26556 of 2011]
[Civil Appeal No. 1906
of 2012 arising out of SLP (C) No. 27677 of 2011]
[Civil Appeal No. 1907
of 2012 arising out of SLP (C) No. 28775 of 2011]
[Civil Appeal No. 1908
of 2012 arising out of SLP (C) No. 27044 of 2011]
[Civil Appeal No. 1909
of 2012 arising out of SLP (C) No. 27048 of 2011]
[Civil Appeal No. 1910
of 2012 arising out of SLP (C) No. 28776 of 2011]
[Civil Appeal No. 1911
of 2012 arising out of SLP (C) No. 28067 of 2011]
[Civil Appeal No. 1912
of 2012 arising out of SLP (C) No. 28607 of 2011]
[Civil Appeal No. 1913
of 2012 arising out of SLP (C) No. 29542 of 2011]
[Civil Appeal No. 1726-1727
of 2012 arising out of SLP (C) Nos. 29853-29854 of 2010]
[Civil Appeal No. 1884-1885
of 2012 arising out of SLP (C) Nos. 16937-16938 of 2011]
[Civil Appeal No. 1880-1881
of 2012 arising out of SLP (C) Nos. 14077-14078 of 2011]
[Civil Appeal No. 1882-1883
of 2012 arising out of SLP (C) Nos. 14079-14080 of 2011]
[Civil Appeal No. 1871-1872
of 2012 arising out of SLP (C) Nos. 14068-14069 of 2011]
[Civil Appeal No. 1855-1856
of 2012 arising out of SLP (C) Nos. 7868 - 7869 of 2011 ]
[Civil Appeal No. 1796-1799
of 2012 arising out of SLP (C) Nos. 34081-34084 of 2010]
[Civil Appeal No. 1758-1759
of 2012 arising out of SLP (C) Nos. 30733-30734 of 2010]
[Civil Appeal No. 1723-1724
of 2012 arising out of SLP (C) No. 30521 - 30522 of 2010]
J U D G M E N T
A. K. PATNAIK, J.
1.
Delay
condoned. Leave granted in Special Leave Petitions.
2.
These
are appeals by way of special leave under Article 136 of the Constitution against
the judgment and orders of the Bombay High Court holding that the entire amount
received by an assessee on sale of the Duty Entitlement Pass Book (for short `the
DEPB') represents profit on transfer of DEPB under Section 28(iiid) of the
Income Tax Act, 1961 (for short `the Act') for the purpose of the computation
of deduction in respect of profits retained for export business under Section
80HHC of the Act.
3.
For
appreciating the controversy between the parties, we will state the facts of only
the lead case of M/s Topman Exports (hereinafter referred to as `the assessee').
The assessee is a manufacturer and exporter of fabrics and garments. During the
previous year relevant to the assessment year 2002-2003, the assessee sold the DEPB
and DFRC (Duty Free Replenishment Certificate) which had accrued to the assessee
on export of its products. The assessee filed a return for the assessment year
2002-2003 claiming a deduction of Rs.83,69,303/- under Section 80HHC of the
Act.
The Assessing Officer
held that if the profit on transfer of the export incentives was deducted from
the profits of the assessee, the figure would be a loss and there will be no positive
income of the assessee from its export business and the assessee will not be
entitled to any deduction under Section 80HHC of the Act as has been held by this
Court in IPCA Laboratories Ltd. v. Deputy C.I.T. (2004) 266 ITR 521 (SC). Aggrieved,
the assessee filed an appeal before the Commissioner of Income Tax (Appeals)
and contended that the profits on the transfer of DEPB and DFRC were not the sale
proceeds of DEPB and DFRC amounting to Rs.2,06,84,841/- and Rs.1,65,616/-
respectively, but the difference between the sale value and face value of DEPB and
DFRC amounting to Rs.14,35,097/- and Rs.19,902/- respectively and if these
figures of profits on transfer of DEPB and DFRC are taken, the income of assessee
would be positive 17 and the assessee would be entitled to the deduction under
Section 80HHC of the Act.
The Commissioner of Income
Tax (Appeals) rejected this contention of the assessee and held that the assessee
had received an amount of Rs.2,06,84,841/- on sale of DEPB and an amount of Rs.1,65,612/-
on sale of DFRC and the costs of acquisition of the DEPB and DFRC are to be taken
as nil and hence the entire sale proceeds of DEPB and DFRC realized by the assessee
are to be treated as profits on transfer of DEPB and DFRC for working out the
deduction under section 80HHC of the Act and directed the Assessing Officer to
work out the deduction under Section 80HHC of the Act accordingly.
4.
Aggrieved,
the assessee filed an appeal before the Income Tax Appellate Tribunal (for short
`the Tribunal'). A Special Bench of the Tribunal heard the appeal and held that
there was a direct relation between the entitlement under the DEPB Scheme and the
custom duty component in the cost of imports used in the manufacture of the export
product. The Tribunal further held that DEPB accrues to the exporter soon after
export is made and application is filed for DEPB and DEPB is a "cash assistance"
receivable by the assessee and is covered under clause (iiib) of Section 28 of the
Act, whereas profit on the transfer of DEPB takes place on a subsequent date
when the DEPB is sold by the assessee and is covered under clause (iiid) of Section
28 of the Act.
The Tribunal compared
the language of Section 28(iiib) of the Act in which the expression "cash assistance"
is used, with the language of Section 28(iiia] (iiid) and (iiie) of the Act in
which the expression "profit" is used and held that the words
"profit on transfer" in Section 28 (iiid) and (iiie) of the Act would
not represent the entire sale value of DEPB but the sale value of DEPB less the
face value of the DEPB. With these reasons, the Tribunal set aside the orders
of the Assessing Officer and the Commissioner of Income Tax (Appeals) and directed
the Assessing Officer to compute the deduction under Section 80HHC of the Act
accordingly.
5.
This
judgment of the Special Bench of the Tribunal was followed by the Tribunal in
all the cases in appeal before us. Against the judgment and orders of the Tribunal,
the Commissioner of Income Tax, Mumbai filed appeals in all the cases under
Section 260A of the Act before the High Court and by the impugned orders the
High Court disposed of the appeals in terms of the judgment delivered in Commissioner
of the Income Tax vs. Kalpataru Colours and Chemicals (ITA(L) 2887 of 2009). In
Commissioner of the Income Tax vs. Kalpataru Colours and Chemicals (supra] the High
Court formulated the following two substantial questions of law:
"(a) Whether the
Tribunal is justified in holding that the entire amount received on the sale of
the Duty Entitlement Passbook does not represent profits chargeable under Section
28(iiid) of the Income Tax Act, 1961 and that the face value of the Duty Entitlement
Passbook shall be deducted from the sale proceeds;
(b) Whether the Tribunal
is justified in holding that the face value of the Duty Entitlement Passbook is
chargeable to tax under Section 28(iiib) at the time of accrual of income i.e. when
the application for Duty Entitlement Passbook is filed with the competent authority
pursuant to the exports made and that the profits on the sale of Duty Entitlement
Passbook representing the excess of the sale proceeds over the face value is liable
to be considered under Section 28(iiid) at the time of sale."In its judgment,
on the first question of law formulated under (a] the High Court held that the Tribunal
was not justified in holding that the entire amount received on the sale of the
DEPB does not represent profits chargeable under Section 28(iiid) of the Act
and in holding that the face value of the DEPB shall be deducted from the sale
proceeds of the DEPB.
On the second question
of law formulated under (b] the High Court in its judgment did not agree with
the Tribunal that the face value of DEPB is chargeable to tax as income of the assessee
under Section 28(iiib) of the Act and instead held that the entirety of sale
consideration for transfer of DEPB would fall within the purview of Section
28(iiid) of the Act. In some of the cases, the appellants filed review petitions
before the High Court, but the High Court dismissed the review petitions.
6.
Learned
counsel for the appellants submitted, relying on the provisions of the DEPB Scheme,
that the Tribunal was right in coming to the conclusion that DEPB was cash 21assistance
receivable by a person against exports and accrued to the exporter as soon as
he files an application for DEPB. They submitted that DEPB was therefore
chargeable to income tax under the head "Profits and Gains of Business or Profession"
under clause (iiib) of Section 28 of the Act.
They submitted that the
contention of the Revenue that DEPB would be income chargeable to tax only on transfer
and would be covered under clause (iiid) of Section 28 of the Act is not
correct. They submitted that it will be clear from different provisions of the DEPB
Scheme that the object of granting DEPB to an exporter is to neutralize the
incidence of custom duties which has been incurred on the import component of the
export product and this neutralization is achieved by grant of duty credit of the
amount specified in the DEPB Scheme. They submitted that the Tribunal,
therefore, was right in coming to the conclusion that there was a direct relation
between the DEPB and the cost of inputs imported for manufacture of the export
product.
7.
Learned
counsel for the appellants submitted that since DEPB was cash assistance receivable
by a person against exports and was covered under clause (iiib) of Section 28
of the Act and it has a direct relation with the costs of the inputs imported by
an exporter from manufacturer of the export product, the DEPB cannot form part
of the profits on transfer of DEPB under Section 28(iiid) of the Act. They argued
that as and when DEPB is transferred and the sale value realized on such transfer
of DEPB is more than the face value of the DEPB, the difference between the sale
value and face value of the DEPB will constitute profit on transfer of DEPB and
would be covered under clause (iiid) of Section 28 of the Act. They argued that
if the intention of the legislature was to cover the entire sale proceeds
arising on transfer of DEPB under clause (iiid) of Section 28 of the Act then they
would have used the expression "sale proceeds" instead of profit on
transfer of DEPB in clause (iiid) of Section 28 of the Act.
8.
Learned
counsel for the appellants argued that if the entire sale proceeds of the DEPB
is treated as profits arising on transfer of DEPB for the purpose of clause (iiid)
of Section 28 as contended by the Revenue, then the assessee will be taxed twice
for the same income, once as cash assistance under clause (iiib) of Section 28
equivalent to the 23face value of the DEPB and for the second time as profit on
transfer of DEPB under clause (iiid) of Section 28, the face value of the DEPB being
part of the sale proceeds of the DEPB on transfer.
They submitted that as
the legislature could not have intended such double taxation of the same
income, the interpretation suggested by the Revenue should not be accepted by the
Court. They submitted that in the present batch of cases, DEPB accrued to the assessees
in the first year when the assessees made the export and applied for DEPB and the
assessee sold the DEPB in subsequent year and the Revenue has taken a stand
that in the subsequent year, the entire sale proceeds comprising both the face
value of the DEPB and the profits on transfer of DEPB are covered under Section
28(iiid) of the Act and this stand of the Revenue has been accepted by the High
Court in the impugned orders on an incorrect interpretation of the DEPB scheme
and the provisions of Section 28 of the Act and 80HHC of the Act.
9.
Learned
counsel for the Revenue, on the other hand, supported the impugned judgment and
orders of the High Court and submitted that profit on transfer of DEPB would represent
the entire sale value realized by the assessee on transfer of the DEPB. He submitted
that the High Court has rightly held that the assessee does not incur any cost
in obtaining the DEPB. He argued that DEPB is an export incentive granted by the
Government under DEPB Scheme and it has no direct relation with the cost of purchases
made by the assessee and therefore the assessee is not entitled to deduct the
face value of the DEPB from the sale proceeds for determining the profit arising
on transfer of DEPB and the entire sale proceeds of the DEPB represent the
profits earned by the assessee on transfer of the DEPB.
He argued that the findings
of the Tribunal that there is a direct relation between DEPB and the costs
incurred by the assessee for importing inputs for manufacture of export
products is, therefore, not correct and the High Court was right in setting aside
the findings of the Tribunal and in coming to the conclusion that the entire sale
proceeds of DEPB represent the profits on transfer of DEPB within the meaning
of clause (iiid) of Section 28 of the Act.
10.
For
appreciating the nature of the DEPB, paragraphs 4.37 and 4.42 of the Hand Book on
DEPB issued by the Government of India and paragraphs 7.14, 7.15, 7.16 and 7.38
of the Export and Import Policy, 1997-2002 as notified by the Central
Government in the Notification No.1(RE-99)/ 1997-2202 dated 31st March, 2000 are
extracted hereinbelow: Hand Book on DEPB "4.37 Duty Entitlement Passbook Scheme
(DEPB) The Policy relating to Duty Entitlement Passbook (DEPB) Scheme is given
in Chapter- 4 of the Policy. The duty credit under the scheme shall be calculated
by taking into account the deemed import content of the said export product as per
SION and the basic custom duty payable on such deemed imports.
The value addition achieved
by export of such product shall also be taken into account while determining the
rate of duty credit under the scheme. 4.42 Utilization of DEPB credit. The credit
under DEPB shall be utilized for payment of customs duty on any item which is
freely importable. Export and Import Policy, 1997-2002 7.14 For exporters not desirous
of going through the licensing route, an optional facility is given under DEPB.
The objective of Duty Entitlement Passbook Scheme is to neutralize the incidence
of Customs duty on 26the import content of the export product. The neutralization
shall be provided by way of grant of duty credit against the export product.
Under the Duty Entitlement
Passbook Scheme (DEPB] an exporter may supply for credit, as a specified
percentage of FOB value of exports, made in freely convertible currency. The credit
shall be available against such export products and at such rates as may be specified
by the Director General of Foreign Trade by way of public notice issued in this
behalf, for import of raw materials, intermediates, components, parts packing
material etc. The holder of Duty Entitlement Passbook Scheme (DEPB) shall have the
option to pay additional customs duty, if any, in cash as well. Validity 15. The
DEPB shall be valid for a period of 12 months from the date of issue. 16 The DEPB
and/or the items imported against it are freely transferable. The transfer of DEPB
shall however be for import at the port specified in the DEPB which shall be the
port from where exports have been made.
However, imports from
a port other than the port of export shall be allowed under TRA facility as per
the terms and conditions of the notification issued by Department of Revenue.7.38
(i) An application for grant of credit under DEPB may be made to the licensing
authority concerned in the form given in Appendix-11C along with the documents
prescribed therein. The provisions of paragraphs 7.2 shall be applicable for DEPB
also. The FOB value in free foreign exchange shall be converted into Indian rupees
as per the authorized dealer's T/T buying rate, prevalent on the date of negotiation/purchase/collection
of document. The DEPB rate of credit shall be applied on the FOB value so
arrived.
In case of advance payment,
the FOB value in free foreign exchange shall be converted into Indian rupees as
per the authorized dealer's T/T buying rate, prevalent on the date of receipt
of advance payment. (ii) The DEPB shall be initially issued with non transferable
endorsement in such cases where realization has not taken place to enable the exporter
to effect import for his own use. However, upon receipt of realization, the DEPB
shall be endorsed transferable.
In such cases where the
applicant applies for DEPB after realization, the DEPB shall be issued with transferable
endorsement."On a reading of the aforesaid paragraphs of the Hand Book on DEPB
and the Export and Import Policy of the Government of India, 1997-2002, it is clear
that the objective of DEPB scheme is to neutralize the incidence of customs
duty on the import content of the export products.
Hence, it has direct
nexus with the cost of the imports made by an exporter for manufacturing the
export products. The neutralization of the cost of customs duty under the DEPB
scheme, however, is by granting a duty credit against the 28export product and this
credit can be utilized for paying customs duty on any item which is freely
importable. DEPB is issued against the exports to the exporter and is
transferable by the exporter.
11.
We
may now consider the relevant provisions of Section 28 for determining whether DEPB
will fall under clause (iiib) or under clause (iiid) of Section 28. The
relevant provisions of Section 28 of the Act are reproduced hereunder: Section 28.
Profits and Gains of Business or Profession.--The following income shall be chargeable
to income-tax under the head "Profits and gains of business or
profession",-- .........................................................................
(iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955,
made under the Imports and Exports (Control)Act, 1947 (18 of 1947); (iiib) cash
assistance (by whatever name called) received or receivable by any person against
exports under any scheme of the Government of India;] (iiic) ..................................................................
(iiid) any profit on the
transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme
under the export and import policy formulated and announced under section 5 of the
Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) (iiie) any profit
on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission
Scheme under the export and import policy formulated and announced under
section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992).
12.
"12.
It will be clear from the aforesaid provisions of Section 28 that under clause (iiib)
cash assistance (by whatever name called) received or receivable by any person against
exports under any scheme of the Government of India is by itself income chargeable
to income tax under the head "Profits and Gains of Business or Profession".
DEPB is a kind of assistance given by the Government of India to an exporter to
pay customs duty on its imports and it is receivable once exports are made and an
application is made by the exporter for DEPB. We have, therefore, no doubt that
DEPB is "cash assistance" receivable by a person against exports under
the scheme of the Government of India and falls under clause (iiib) of Section 28
and is chargeable to income tax under the head "Profits and Gains 30of Business
or Profession" even before it is transferred by the assessee.
13.
Under
clause (iiid) of Section 28, any profit on transfer of DEPB is chargeable to income
tax under the head "Profits and Gains of Business or Profession" as an
item separate from cash assistance under clause (iiib). The word "profit"
means the gross proceeds of a business transaction less the costs of the
transaction. To quote from Black's Law Dictionary (Fifth Edition): "Profit.
Most commonly, the gross proceeds of a business transaction less the costs of the
transaction, i.e. net proceeds. Excess of revenues over expenses for a
transaction; sometimes used synonymously with net income for the period. Gain realized
from business or investment over and above expenditures."
This Court in E.D. Sassoon
& Company Ltd. and Others v. Commissioner of Income-Tax, Bombay City (1954)
26 ITR 27 (SC) has quoted the following observations of Lord Justice Fletcher Moulton
in The Spanish Prospecting Company Limited [(1911) I Ch. 92] on the meaning of the
word "profits": ".... `Profits' implies a comparison between the
state of a business at two specific dates usually separated by an interval of a
year.
The fundamental meaning
is the amount of gain made by the business during the year. This can only be
ascertained by a comparison of the assets of the business at the two
dates." `Profits', therefore, imply a comparison of the value of an asset
when the asset is acquired with the value of the asset when the asset is
transferred and the difference between the two values is the amount of profit
or gain made by a person. As DEPB has direct nexus with the cost of imports for
manufacturing an export product, any amount realized by the assessees over and above
the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB.
14.
We
are, thus, of the considered opinion that while the face value of the DEPB will
fall under clause (iiib) of Section 28 of the Act, the difference between the
sale value and the face value of the DEPB will fall under clause (iiid) of Section
28 of the Act and the High Court was not right in taking the view in the impugned
judgment that the entire sale proceeds of the DEPB realized on transfer of the
DEPB and 32not just the difference between the sale value and the face value of
the DEPB represent profit on transfer of the DEPB.
15.
We
may now point out the errors in the impugned judgment of the High Court. The first
reason given by the High Court is that clause (iiia) of Section 28 treats
profits on the sale of an import license as income chargeable to tax and when
the license is sold, the entire amount is treated as profits of business under
clause (iiia) of Section 28 and thus there is no justification to treat the amount
which is received by an exporter on the transfer of the DEPB any differently
than the profits which are made on the sale of an import license under clause
(iiia) of Section 28 of the Act.
In taking the view that
when the import license is sold the entire amount is treated as profits of business,
the High Court has visualized a situation where the cost of acquiring the
import license is nil. The cost of acquiring DEPB, on the other hand, is not nil
because the person acquires it by paying customs duty on the import content of the
export product and the DEPB which accrues to a person against exports has a
cost element in it. Accordingly, when DEPB is sold by a person, his profit on transfer
of DEPB would be the sale value of the DEPB less the face value of DEPB which
represents the cost of the DEPB.
The second reason
given by the High Court in the impugned judgment is that under the DEPB scheme,
DEPB is given at a percentage of the FOB value of the exports so as to neutralize
the incidence of customs duty on the import content of the export products, but
the exporter may not himself utilize the DEPB for paying customs duty but may transfer
it to someone else and therefore the entire sum received on transfer of DEPB would
be covered under clause (iiid) of Section 28.
The High Court has failed
to appreciate that DEPB represents part of the cost incurred by a person for
manufacture of the export product and hence even where the DEPB is not utilized
by the exporter but is transferred to another person, the DEPB continues to
remain as a cost to the exporter. When, therefore, DEPB is transferred by a
person, the entire sum received by him on such transfer does not become his
profits. It is only the amount that he receives in excess of the DEPB which
represents his profits on transfer of the DEPB.
16.
The
High Court has sought to meet the argument of double taxation made on behalf of
the assessees by holding that where the face value of the DEPB was offered to
tax in the year in which the credit accrued to the assessee as business
profits, then any further profit arising on transfer of DEPB would be taxed as profits
of business under Section 28(iiid) in the year in which the transfer of DEPB
took place. This view of the High Court, in our considered opinion, is contrary
to the language of Section 28 of the Act under which "cash
assistance" received or receivable by any person against exports such as the
DEPB and "profit on transfer of the DEPB" are treated as two separate
items of income under clauses (iiib) and (iiid) of Section 28.
If accrual of DEPB
and profit on transfer of DEPB are treated as two separate items of income chargeable
to tax under clauses (iiib) and (iiid) of Section 28 of the Act, then DEPB will
be chargeable as income under clause (iiib) of Section 28 in the year in which
the person applies for DEPB credit against the exports and the profit on transfer
of the DEPB by that person will be chargeable as income under clause (iiid) of Section
28 in his hands in the year in which he 35makes the transfer.
Accordingly, if in the
same previous year the DEPB accrues to a person and he also earns profit on
transfer of the DEPB, the DEPB will be business profits under clause (iiib) and
the difference between the sale value and the DEPB (face value) would be the profits
on the transfer of DEPB under clause (iiid) for the same assessment year. Where,
however, the DEPB accrues to a person in one previous year and the transfer of DEPB
takes place in a subsequent previous year, then the DEPB will be chargeable as
income of the person for the first assessment year chargeable under clause (iiib)
of Section 28 and the difference between the DEPB credit and the sale value of the
DEPB credit would be income in his hands for the subsequent assessment year chargeable
under clause (iiid) of Section 28. The interpretation suggested by us,
therefore, does not lead to double taxation of the same income, which the
legislature must be presumed to have avoided.
17.
The
High Court has held that as the assessees had an export turnover exceeding Rs.10
crores and did not fulfill the conditions set out in the third proviso to Section
80HHC(3) of the Act, the assessees were not entitled to a 36deduction under
Section 80HHC on the amount received on transfer of DEPB and to get over this
difficulty the assessees have contended that the profits on transfer of DEPB in
Section 28(iiid) would not include the face value of the DEPB so that the
assessees get a deduction under Section 80HHC on the face value of the DEPB. This
finding of the High Court is not based on an accurate understanding scheme of Section
80HHC of the Act.
18.
The
relevant provisions of Section 80HHC are quoted hereinbelow: "Section 80HHC-
Deduction in respect of profits retained for export business.-- [(1) Where an assessee,
being an Indian company or a person (other than a company) resident in India,
is engaged in the business of export out of India of any goods or merchandise
to which this section applies, there shall, in accordance with and subject to the
provisions of this section, be allowed, in computing the total income of the assessee,
[a deduction to the extent of profits, referred to in sub-section (1B]] derived
by the assessee from the export of such goods or merchandise: .........................................................................
(1B) For the purposes
of sub-sections (1) and (1A] the extent of deduction of the profits shall be an
amount equal to-- 37(i) eighty per cent thereof for an assessment year beginning
on the 1st day of April, 2001;(ii) seventy per cent thereof for an assessment year
beginning on the 1st day of April, 2002;(iii) fifty per cent thereof for an assessment
year beginning on the 1st day of April, 2003;(iv) thirty per cent thereof for an
assessment year beginning on the 1st day of April, 2004,]and no deduction shall
be allowed in respect of the assessment year beginning on the 1st day of April,
2005 and any subsequent assessment
year.].........................................................................
(3) For the purposes
of sub-section (1]--(a) where the export out of India is of goods or
merchandise manufactured [or processed] by the assessee, the profits derived from
such export shall be the amount which bears to the profits of the business, the
same proportion as the export turnover in respect of such goods bears to the
total turnover of the business carried on by the
assessee;.........................................................................Provided
that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section
shall be further increased by the amount which bears to ninety per cent of any
sum referred to in clause (iiia) (not being profits on sale of a licence
acquired from any other person] and clauses (iiib) and (iiic) of section 28,
the same proportion as the export turnover bears to the total turnover of the
business carried on by the assessee : 38Provided further that in the case of an
asseesee having export turnover not exceeding rupees ten crores during the previous
year, the profits computed under clause (a) or clause (b) or clause (c) of this
sub-section or after giving effect to the first proviso, as the case may be,
shall be further increased by the amount which bears to ninety per cent of any
sum referred to in clause (iiid) or clause (iiie] as the case may be, of section
28, the same proportion as the export turnover bears to the total turnover of the
business carried on by the assessee;
Provided also that in
the case of an assessee having export turnover exceeding rupees ten crores during
the previous year, the profits computed under clause (a) or clause (b) or
clause (c) of this sub-section or after giving effect to the first proviso, as
the case may be, shall be further increased by the amount which bears to ninety
per cent of any sum referred to in clause (iiid) of section 28, the same proportion
as the export turnover bears to the total turnover of the business carried on by
the assessee, if the assessee has necessary and sufficient evidence to prove
that,
(a) he had an option to
choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being
the Duty Remission Scheme; and
(b) the rate of drawback
credit attributable to the customs duty was higher than the rate of credit allowable
under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme. Provided
also that in the case of an assessee having export turnover exceeding rupees ten
crores during the previous year, the profits computed under clause (a) or
clause (b) or clause (c) of this sub-section or after giving effect to the
first proviso, as the case may be, shall be further increased by the amount which
bears to ninety per cent of any sum referred to in clause (iiie) of section 28,
the same proportion as the export turnover bears to the total turnover of the
business carried on by the assessee, if the assessee has necessary and sufficient
evidence to prove that (a) he had an option to choose either the duty drawback or
the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b)
the rate of drawback credit attributable to the customs duty was higher than the
rate of credit allowable under the Duty Free Replenishment Certificate, being
the Duty Remission Scheme.
Explanation.- For the
purposes of this clause, `rate of credit allowable' means the rate of credit
allowable under the Duty Free Replenishment Certificate, being the Duty Remission
Scheme calculated in the manner as may be notified by the Central
Government:].........................................................................Explanation:-
For the purposes of this section,-(baa) `profits of the business' means the
profits of the business as computed under the head `Profits and gains of business
or profession' as reduced by- (1) ninety per cent of any sum referred to in clauses
(iiia] (iiib] (iiic] (iiid) and (iiie) of Section 28 or of any receipts by way
of brokerage, commission, interest, rent, 40 charges or any other receipt of a similar
nature included in such profits; and (2) the profits of any branch, office, warehouse
or any other establishment of the assessee situate outside India"
19.
Sub-section
(1) of Section 80HHC quoted above makes it clear that an assessee engaged in
the business of export out of India of any goods or merchandise to which this
Section applies shall be allowed, in computing his total income, a deduction to
the extent of profits referred to in sub-section (1B] derived by him from the export
of such goods or merchandise. Sub-section (1B) of Section 80HHC gives the percentages
of deduction of the profits allowable for the different assessment years from the
assessment years 2001-2002 to 2004-2005.
Sub-section (3)(a) of
Section 80HHC provides that where the export out of India is of goods or merchandise
manufactured or processed by the assessee, the profits derived from such
exports shall be the amount which bears to the profits of the business, the
same proportion as the export turnover in respect of such goods bears to the
total turnover of the business carried on by the assessee. In Commissioner of Income-Tax
v. K. Ravindranathan Nair (2007) 295 ITR 228 (SC] the formula in sub-section (3)(a)
of Section 80HHC was stated by this Court to be as follows: Profits derived = Profits
of the business x Export Turnoverfrom exports Total Turnover
20.
Explanation
(baa) under Section 80HHC states that "profits of the business" in
the aforesaid formula means the profits of the business as computed under the
head "Profits and Gains of Business or Profession" as reduced by (1)
ninety per cent of any sum referred to in clauses (iiia] (iiib] (iiic] (iiid)
and (iiie) of Section 28 or of any receipts by way of brokerage, commission,
interest, rent, charges or any other receipt of similar nature including any
such receipts and (2) the profits of any branch, office, warehouse or any other
establishment of the assessee situated outside India.
Thus, ninety per cent
of the DEPB which is "cash assistance" against exports and is covered
under clause (iiib) of Section 28 will get excluded from the "profits of the
business" of the assessee if such DEPB has accrued to the assessee during
the previous year. Similarly, if during the same previous year, the assessee has
transferred the DEPB and the sale value of such DEPB is more than the face value
of the DEPB, the difference between the sale value of the DEPB and the face
value of the DEPB will represent the profit on transfer of DEPB covered under clause
(iiid) of Section 28 and ninety per cent of such profit on transfer of DEPB
certificate will get excluded from "profits of the business".
But, where the DEPB accrues
to the assessee in the first previous year and the assessee transfers the DEPB
certificate in the second previous year, as appears to have happened in the
present batch of cases, only ninety per cent of the profits on transfer of DEPB
covered under clause (iiid) and not ninety per cent of the entire sale value
including the face value of the DEPB will get excluded from the "profits
of the business".
Thus, where the
ninety per cent of the face value of the DEPB does not get excluded from
"profits of the business" under explanation (baa) and only ninety per
cent of the difference between the face value of the DEPB and the sale value of
the DEPB gets excluded from "profits of the business", the assessee
gets a bigger figure of "profits of the business" and this is possible
when the DEPB accrues to the assessee in one previous year and transfer of the
DEPB takes place in the subsequent previous year. The result in such case is
that a higher figure of "profits of the business'" becomes the
multiplier in the aforesaid formula under sub-section (3)(a) of Section 80HHC for
arriving at the figure of profits derived from exports.
21.
To
the figure of profits derived from exports worked out as per the aforesaid formula
under sub-section (3)(a) of Section 80HHC, the additions as mentioned in first,
second, third and fourth proviso under sub-section (3) are made to profits
derived from exports. Under the first proviso, ninety per cent of the sum referred
to in clauses (iiia] (iiib) and (iiic) of Section 28 are added in the same proportion
as export turnover bears to the total turnover of the business carried on by
the assessee. In this first proviso, there is no addition of any sum referred to
in clause (iiid) or clause (iiie). Hence, profit on transfer of DEPB or DFRC
are not to be added under the first proviso.
Where therefore in the
previous year no DEPB or DFRC accrues to the assessee, he would not be entitled
to the benefit of the first proviso to sub-section (3) of Section 80HHC because
he would not have any sum referred to in clause (iiib) of Section 28 of the 44Act.
The second proviso to sub-section (3) of Section 80HHC states that in case of an
assessee having export turnover not exceeding Rs.10 crores during the previous
year, after giving effect to the first proviso, the export profits are to be increased
further by the amount which bears to ninety per cent of any sum referred to in
clauses (iiid) and (iiie) of Section 28, the same proportion as the export
turnover bears to the total turnover of the business carried on by the assessee.
The third proviso to sub-section
(3) states that in case of an assessee having export turnover exceeding Rs.10
crores, similar addition of ninety per cent of the sums referred to in clause
(iiid) of Section 28 only if the assessee has the necessary and sufficient
evidence to prove that (a) he had an option to choose either the duty drawback
or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b)
the rate of drawback credit attributable to the customs duty was higher than
the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being
the Duty Remission Scheme. Therefore, if the assessee having export turnover of
more than Rs.10 crores does not satisfy these two conditions, he 45will not be entitled
to the addition of profit on transfer of DEPB under the third proviso to sub-section
(3) of Section 80HHC.
22.
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 (d)
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 of the Act 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 fulfill the conditions set out in the 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 clauses (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.
23.
The
impugned judgment and orders of the Bombay High Court are accordingly set-aside.
The appeals are allowed to the extent indicated in this judgment. The Assessing
Officer is directed to compute the deduction under Section 80HHC in the case of
the appellants in accordance with this judgment. There shall be no order as to
costs.
..........................CJI.
(S.H. Kapadia)
.............................J.
(A. K. Patnaik)
.............................J.
(Swatanter Kumar)
New
Delhi,
February
08, 2012.
Back
