Income Tax Appellate Tribunal - Chandigarh
Fitex Industries Ltd., Ludhiana vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH, CHANDIGARH
BEFORE SHR I D.K.SRIVASTAVA, ACCOUNTANT MEMBER
AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER
I.T.A.No.956/Chd/2006
Assessment Year : 2003-04
M/s Fitex Industries, V A.C.I.T. - V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.143/Chd/2008
Assessment Year : 2004-05
M/s Fitex Industries, V J.C.I.T. Range-V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.1080/Chd/2008
Assessment Year : 2000-01
M/s Jacob Export House, V ITO (OSD)-II,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.402/Chd/2008
Assessment Year : 2004-05
M/s T.R.B. Exports P.Ltd., V J.C.I.T. Range-IV,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
2
I.T.A.No.10/Chd/2007
Assessment Year 2003-04
M/s Jindal Fine Ind., V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.141/Chd/2009
Assessment Year 2004-05
M/s Jindal Fine Ind., V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.245/Chd/2008
Assessment Year : 2004-05
M/s Sameer Exports V A.C.I.T. Circle-I,
International, Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.5/Chd/2008
Assessment Year : 2004-05
Shri Aman Singhal, V A.C.I.T. Circle-I,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.741/Chd/2006
Assessment Year : 2003-04
M/s Sovereign Exports, V D.C.I.T. Circle-IV,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
3
I.T.A.No.347/Chd/2008
Assessment Year : 2004-05
M/s Sovereign Exports, V J.C.I.T.Range-V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.192/Chd/2009
Assessment Year : 2001-02
M/s Sovereign Exports, V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.484/Chd/2006
Assessment Year 2003-04
M/s Perfect Forging, V D.C.I.T. Circle-IV,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.209/Chd/2008
Assessment Year : 2004-05
M/s Turbo Impex , V J.C.I.T. Range-VI,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.190/Chd/2009
Assessment Year : 2001-02
M/s Turbo Impex , V A.C.I.T. Circle-I,
Ludhiana. Ludhiana.
4
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.346/Chd/2008
Assessment Year : 2001-02
M/s Jacob Export House, V A.C.I.T. Circle-II,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.308/Chd/2008
Assessment Year : 2004-05
M/s Perfect Forgings, V J.C.I.T. Range-V,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.332/Chd/2008
Assessment Year : 2004-05
A.C.I.T., V M/s Perfect Forgings,
Circle-V, Ludhiana.
Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.No.749/Chd/2006
Assessmet Year 2003-04
M/s T.R.B. Exports P.Ltd., D.C.I.T. Circle-IV,
Ludhiana. Ludhiana.
A p p e l l a n t b y: Shri Sudhir Sehgal
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal, DR
I.T.A.Nos.1043 & 1044/Chd/2007
Assessment Year : 2003-04 & 2004-05
5
M / s T i p s o n C yc l e s P v t . L t d . V A.C.I.T-III,
Ludhiana. Ludhiana.
PAN : AAACT-6543-Q
A p p e l l a n t b y: S h r i S . K . M u k h i & M s . J yo t i
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal,DR
I.T.A.No.61 /Chd/2010
Assessment Year : 2001-02
A.C.I.T, Circle-I, V M / s T i p s o n C yc l e s L t d .
Ludhiana. Ludhiana.
PAN : AAACT6543Q
A p p e l l a n t b y: S h r i S . K . M u k h i & M s . J yo t i
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal,DR
I.T.A.No.69 /Chd/2011
Assessment Year : 2002-03
M / s T i p s o n C yc l e s P v t . L t d . V A.C.I.T, Circle-I,
Ludhiana. Ludhiana.
PAN : AAACT6543Q
A p p e l l a n t b y: S h r i S . K . M u k h i & M s . J yo t i
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal,DR
I.T.A.No.768/Chd008
Assessment Year : 2004-05
M/s Kanin (India) Ltd., V J.C.I.T. Range-I,
Ludhiana. Ludhiana.
A p p e l l a n t b y: S h r i S . K . M u k h i & M s . J yo t i
R e s p o n d e n t b y: S/Shri S.K.Mittal, CIT & S.S.Khemwal,DR
I.T.A.No.55/Chd/2008
Assessment Year : 2004-05
M/s R.N. Gupta & Co. Ltd., V J.C.I.T. Range-I,
Ludhiana. Ludhiana.
6
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.124/Chd/2009
Assessment Year : 2001-02
M/s R.N. Gupta & Co. Ltd., V A.C.I.T. Circle-I,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.834/Chd/2006
Assessment Year 2003-04
M/s Hero Exports, V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.124/Chd/2008
Assessment Year : 2003-04
M / s H i g h w a y C y. I n d u s t r i e s V A.C.I.T. Circle-V,
Ltd., Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.89/Chd/2008
Assessment Year : 2004-05
M/s Anand Concast Ltd., V J.C.I.T. Range-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.38 to 40/Chd/2009
Assessment Year : 2000-01 to 2002-03
7
M/s Greatway P. Ltd., V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.227/Chd/2009
Assessment Year : 2001-02
M / s A v o n C yc l e L t d . , V D.C.I.T. Circle-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
C.O.No.45/Chd/2006
In I.T.A.No. 816/Chd/2006
Assessment Year 2003-04
M / s A v o n C yc l e s L t d . , V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.104/Chd/2009
Assessment Year : 2001-02
M/s Hero Exports, V D.C.I.T. Circle-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.836/Chd/2008
Assessment Year : 2000-01
M/s Hero Exports, V A.C.I.T. Circle-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
8
I.T.A.No.264/Chd/2008
Assessment Year : 2004-05
M/s Hero Exports, V J.C.I.T. Range-V,
Ludhiana. Ludhiana.
Appellant b y: S h r i S u b h a s h A g g a r w a l
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.487/Chd/2009
Assessment Year : 2001-02
M/s Eastman International, V A.C.I.T. Circle-I,
Ludhiana. Ludhiana.
Appellant b y: Shri Ashwani Kumar
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.319/Chd/2009
Assessment Year : 2004-05
M/s Eastman Impex Ltd., V J.C.I.T. Range-I,
Ludhiana. Ludhiana.
I.T.A.No.214/Chd/2009
Assessment Year : 2004-05
M/s Eastman International, V J.C.I.T. Range-I,
Ludhiana. Ludhiana
Appellant b y: Shri Ashwani Kumar
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.955/Chd/2006
Assessment Year 2003-04
M/s Eastman Impex, V A.C.I.T. Range-I,
Ludhiana. Ludhiana.
Appellant b y: Shri Ashwani Kumar
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
9
I.T.A.No.64/Chd/2007
Assessment Year 2002-03
M/s Eastman Impex, V A.C.I.T. Range-I,
Ludhiana. Ludhiana.
Appellant b y: Shri Ashwani Kumar
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.673 /Chd/2007
Assessment Year 2003-04
M/s King Exports, V A.C.I.T. Circle-II,
Ludhiana. Ludhiana.
Appellant b y: S h r i A s h o k K u m a r J u n e j a
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
I.T.A.No.1072/Chd/2007
Assessment Year : 2004-05
M/s King Exports, V A.C.I.T. Circle-I,
Ludhiana. Ludhiana.
(Appellant) (Respondent)
Appellant b y: S h r i A s h o k K u m a r J u n e j a
R e s p o n d e n t b y: S / S h r i S . K . M i t t a l , C I T & S . S . K h e m w a l , D R
O R D E R
PER BENCH :
The present bunch of appeals were listed for hearing pursuant to t h e o r d e r / s p a s s e d b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n setting aside to the file of the Tribunal the issue of computation of deduction under section 80HHC of the Income Tax Act vis-à-vis the income from DEPB, DBK and DFRC, which are to be treated as business income.10
2. All the above-said appeals relating to different assessees involving similar issues were heard together and are being disposed off by this consolidated order for the sake of convenience.
3. The issue arising in the captioned appeals relates to the computation of deduction under section 80HHC of the Income Tax Act on account of income by way of Duty Entitlement Pass book(DEPB), Duty Draw Back (DBK) and Duty Free Remission Scheme(DFRC). The issue was decided by the Chandigarh Bench of the Tribunal vide order dated 31.8.2009 following the decision of a Special Bench of Mumbai Tribunal in M/s Topman Exports Vs. ITO (2009) 29 DTR 153 (Mumbai) and the matter was remitted back to the file of the Assessing Officer to be adjudicated afresh conformity with the aforesaid decision of the Special Bench of the Tribunal.
4. The Revenue filed appeals before the Hon'ble High Court. The following substantial questions of law were raised before the Hon'ble High Court :
"I. Whether on the facts and circumstances of the case the ITAT was right in law in not holding that the total sale consideration inclusive face value of DEPB and premium amount received thereof represents profit chargeable under section 28(iiid) and 28(iiie) of the Income Tax Act, 1961?
II. Whether on the facts and circumstances of the case the ITAT was right in law in not holding that profit on transfer of DEPB entitlement represents the entire amount inclusive of premium of sale of such DEPB?11
III. Whether on the facts and circumstances of the case the ITAT was right in law in holding that the word "profit" referred to in section 28(iiid) and 28(iiie) of Income Tax Act, 1961 means the difference between the sale price of DEPB and the face value of DEPB ignoring the fact that the entire amount represents the profit in the hands of assessee?
IV. Whether on the facts and circumstances of the case
the ITAT was right in law in deducting the face
value of DEPB from sale price of DEPB for
calculating profit under section 28(iiid) and
28(iiie) of Income Tax Act, 1961 as if the face value is the cost incurred by the assessee to acquire the DEPB?
V. Whether on the facts and circumstances of the case the ITAT was right in law in holding that the word profit referred to in section 28(iiid) and 28(iiie) of the Income Tax Act, 1961 requires any artificial cost to be interpolated to the extent that the face value of DEPB/DFRC should be deducted from the sale proceed for the purpose of determination of deduction under section 80HHC of the Income Tax Act, 1961?"
5. T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n I . T . A . N o . 2 9 9 o f 2010 in CIT vs. F.C.Sondhi & Compan y (P) Ltd. vide its judgment dated 16.8.2010, in respect of the issue raised with regard to treatment of receipts of DEPB/DFRC entitlements and deduction allowable on such receipts under section 80HHC of the Act, observed after hearing the rival contentions of the parties, that the view taken by the Mumbai Tribunal has been reversed b y the Hon'ble Bombay High Court in CIT vs. Kalpataru Colours and Chemicals, (2010) 42 DTR (Bom) 193/328 ITR 451 (Bom). The Hon'ble Court held as under :
12
"6. After hearing learned counsel for the parties, we are in agreement with the view taken by the Bombay High Court and are of the view that the income from DBK, DEPB and DFRC has to be treated as business income and has to be taken into account for deduction under Section 80HHC. The questions proposed are answered accordingly and matter is remanded to the ITAT for fresh decision in accordance with law."
6. T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T v s . V i c t o r Forgings in I.T.A.No. 301 of 2010 vide its judgment dated 16.8.2010 observed that its order would dispose off various captioned ITAs as common questions were involved therein. The Hon'ble High Court has held that the issue stands covered b y the order passed in I.T.A.No. 299 of 2010 in CIT Vs. F.C.Sondhi & Company (P) Ltd. (order dated 16.8.2010).
7. T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e c a s e o f v a r i o u s a s s e s s e e s i n c l u d i n g C I T v s . M / s T i p s o n C yc l e s P v t . L t d . b e f o r e u s h a v e remitted the matter back to the Tribunal for fresh decision in accordance with law by observing as under :
"2. Learned counsel for the appellant states that the matter is covered in favour of the revenue by orders of this Court dated 16.8.2010 in I.T.A.No.301 of 2010 CIT v. M/s Victor Forgings and I.T.A.No.299 of 2010 CIT v. F.C.Sondhi, wherein after noticing the judgment of the Bombay High Court in CIT v.
Kalpararu Colours & Chemicals 2010 (42) DTR 193, the matter was remanded to the Tribunal for fresh decision in accordance with law.
3. Since we find that the matter is covered by earlier orders of this Court, we dispose of this appeal in same terms. For this purpose, we have not 13 considered it necessary to issue notice to the respondent, but we given liberty to the respondent to move this Court if they have any grievance against this order."
In view of theaforesaid directions, all the captioned appeals were listed for hearing before the Tribunal and the learned ARs representing different assessee putforth their contentions.
8. Mr. Sudhir Sehgal, the learned authorized representative for the assessee in I.T.A.No.956/Chd/2006 & Others made elaborate arguments about the computation of deduction under section 80HHC vis-à-vis the receipts of DEPB & DFRC and also filed written submissions. As per the learned A.R., Section 80HHC was meant to encourage the exports and was beneficial provision and, accordingly the interpretation of this section read with various other proviso had to be interpreted favourably. He further submitted that the DEPB scheme was brought to neutralize the incidence of custom/import duties levied /paid on import contents of raw material and other inputs of the export product. Thus, DEPB was nothing but quantification of import/custom duties levied on raw material/inputs consumed in export product and the said cost stands debited to P & L account as Raw material cost, which was pre- d e t e r m i n e d b y i s s u i n g a u t h o r i t y, b a s e d o n s p e c i f i c d a t a r e l a t i n g t o Export Product, which was in substance the cost of DEPB licenses. He further stated that amount to be recouped on account of custom /import duties levied on raw material of the export product was face value (cost) of the DEPB license and the same was illustrated by following example in the written submissions:
i) Sale price of export product 100.00
ii) Raw material and other inputs 60.00
iii) Import duty levied on raw/material
and other inputs 6.00
14
66.00
Other manufacturing expenses 20.00 86.00
Profit 14.00
D E P B L i c e n s e E n t i t l e m e n t ( B e i n g i m p o r t d u t y) 6.00
As per the learned A.R., DEPB license having face value of Rs. 6/- was issued by the Govt. authorities, which in other words, was reimbursement of import duty cost, which was already debited in the Trading Account under the head "Raw Material" and other inputs cost. The claim of learned A.R. was that face value of the license represents the reimbursement/neutralization of custom/import duty cost and Clause (iiid) of Section 28 of the Act comes into play when DEBP credit of Rs. 6/- was transferred and when the said license having value of Rs. 6/- was transferred in the market at Rs. 7/-, only Rs. 1/- was the profit to the export on such transfer of DEPB license, as envisaged in clause (iiid) of Section 28 of the Act. Reliance was placed on the speech of Finance Minister, while introducing the Bill to show that the intention of the Statute was to tax only the profits/premium arising on the transfer of DEPB. Further reliance was placed on Calcutta Co. Ltd. Vs. CIT, 37 ITR 1 (SC) and Vania Silk Mills (P) Ltd. Vs. CIT (19 ITR 647 (SC)) and Others that transfer presumes existence of asset and of transferee to whom it is transferred and DEPB licence is an asset having value, which is transferred.
9. The learned A.R. thus submitted that the expression 'profit' signifies sale price over and above the face value of DEPB License and the same was contemplated under clause ((iiid) of Sec 28 of the Act and 90% of such profits only were to be reduced to calculate 'profits of the business' as per clause (baa) of the explanation to sub-sec 4 of Section 15 80HHC, for the purpose of calculation of deduction u/s 80HHC of the Act.
10. It was further pointed out b y the learned A.R. that under clause/s (iiia), (iiib), (iiic) and clause (iv) and (v) of Section 28 of the Act that wherever, Legislature wanted that only profit element was to be considered, the word 'profit' had been used and wherever the whole amount has to be considered, different language had been used.
11. The learned A.R. explained that when section 28(iiia), (iiib) & (iiic) of the Act were brought into existence by the Finance Act 1990, the definition of 'income' as appearing in clause (24) of Sec 2 was also amended to bring the said receipt/s in the ambit of income. Also when t h e a m e n d m e n t s o f c l a u s e ( i v ) & ( v ) o f S e c t i o n 2 8 w e r e m a d e i n t h e ye a r 1 9 6 4 a n d 1 9 9 2 r e s p e c t i v e l y, e v e n a t t h a t t i m e , t h e d e f i n i t i o n o f i n c o m e w a s a m e n d e d a c c o r d i n g l y. However, when the provisions of Section 28 (iiid) & (iiie) were inserted by the Taxation Laws (Amendment) Act, 2005, no corresponding changes were brought in the definition of 'income' to bring them into the purview of 'income'. As per the learned A.R., the findings as given by the Hon'ble Bombay High Court in the case of CIT v. Kalapataru Colours and Chemicals (328 ITR 451(Bom)), does not give the correct interpretation of the said clauses (iiid) & (iiie) of Section 28, as only profit element i.e. sale proceeds minus face value of Custom duty Credit under DEPB Scheme, were envisaged in Section 28 (iiid) of the Act, which view further gets strengthened that if DEPB was not transferred as envisaged in clause (iiid) of Section 28, then it had to be placed under clause (iiib) of Section 28 as rightly held by the Hon'ble Special Bench in the case of M/s Topman Exports in para 39 of the order.
16
12. The next plea of the learned A.R. was even if deduction u/s 80HHC had to be restricted in case of exporters having export turnover exceeding 10 crores, only the premium earned on transfer of the licence was to be brought to tax and not the whole of the receipts on account of such licenses. He concluded by submitting that even 90% of profit on transfer of Duty Credit under DEPB Scheme i.e. Transfer Price minus face value of DEPB also becomes a part of export profit, if the following two conditions are satisfied.
(a) he had an option to choose either the Duty Draw back or the Duty Entitlement Pass Book Scheme, being the duty remission scheme.
(b) The rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under eh Duty Entitlement pass book scheme, being the Duty Remission Scheme.
13. The learned A.R. pointed out that in the judgment of Hon'ble Bombay High Court in the case of Kalaptaru Colours & Chemicals(supra), though the reference has been made to the speech of the Finance Minister, but the intention of the Finance Minister, has not been discussed at all and the bare reading of the speech of the Finance Minister is absolutely clear that only premium i.e. the profit has to be taken into consideration for the purpose of clause (iiid) of Sec 28 of the Act.
14. Shri S.K.Mukhi appearing in I.T.A.Nos. 1043 & 1044/Chd/2007, I.T.A.No. 61/Chd/2010 and I.T.A.No. 69/Chd/2011 relying on the submissions made by Shri Sudhir Sehgal, made further submissions and 17 also filed written submissions, which are placed on record. As per the learned A.R. the issue to be considered by the Tribunal was to decide whether DEPB had any value or not. The learned A.R. stated that though the Hon'ble High Court had agreed with the judgment of Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra), to the extent "that the income from DBK, DEPB and DFRC has to be treated as business income and has to be taken into account for deduction under section 80HHC", but Hon'ble High Court has left the second issue to Tribunal - i.e., to decide that whether DEPB etc. has any value or not which is the main issue in dispute.
15. The second limb of arguments of the learned A.R. was that the findings of the Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra) were against the facts, express provisions of law and findings of Special Bench in the case of M/s Topman Exports (supra). The learned A.R. stressed the findings of the Hon'ble Bombay High Court need reconsideration as these were without considering the fact of the insertion being made vide clause (iiid) & (iiie) of section 28 of the Income Tax Act b y the Taxation Laws (Amendment) Act, 2005, though no amendment was made to the definition of income in section 2(24) of the Act. Reliance was placed on the ratio laid down in CIT vs. Ambika Forgings in I.T.A.No. 302 of 2010 wherein the order was passed b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t r e m a n d i n g t h e i s s u e t o t h e Tribunal in view of the order passed by the Hon'ble Bombay High Court, where the Revenue had itself admitted in its grounds of appeal before the Hon'ble High Court that "there is no cost of DEPB incentive to the assessee though it certainly has value". The learned A.R. placed reliance on the ratio laid down by the Hon'ble Supreme Court in Yasha Overseas Vs. CST & Others (2008) 17 VST 182 (SC), in which it has 18 been held that "DEPB has an intrinsic value that makes it a market c o m m o d i t y" . As per the Hon'ble Apex Court DEPB like REP licence qualifies as goods within the meaning of the Sales Tax Laws of Delhi, Kerala and Mumbai and its sale was exigible to tax. The learned A.R. stressed that where two views are possible then the one which is in favour of the assessee must be adopted as laid down in UOI & Others Vs. Onkar S.Kanwar & Others, 258 ITR 761 (SC). Reliance was also placed on the findings of the Special Bench in the case of M/s Topman Exports Vs. ITO (supra) speciall y para-29 of the order and it was pointed out that the DEPB and DFRC are though chargeable to tax at the time of accrual of income, but for the purposes of computing the deduction under section 80HHC of the Act it was only the profits arising on account of sale of the said items which are to be considered. Stress was laid on the observations of the Special Bench on the meaning of word "profit" as envisaged under section 28(iiid) of the Act and rationale behind section 28(iiib), non-inclusion of 28(iiid) in definition of income under section 2(24) of the Income Tax Act. T h e l e a r n e d A . R . r e l yi n g o n t h e p l e a d i n g s o f t h e R e v e n u e i n C I T v s . M / s R o a d w a ys O v e r s e a s , Jalandhar in I.T.A.No. 466 of 2010 pointed out that the Revenue had stated that there was some consideration "of DEPB and it was also pleaded in its grounds that if the DEPB credits are consumed the cost incurred by the assessee on import duty will be lower to that extent". The learned A.R. thus pointed out that only the profit on transfer had to be considered for 90% exclusion under explanation (baa) to sub-section 4C to section 80HHC of the Act. It was reiterated that the face value of DEPB was to be taken as cost for arriving at profit allowable to be taxed under section 28(iiid) of the Income Tax Act. The learned A.R. in the second round of arguments pointed out that the proviso to section 80HHC (3) of the Act was inserted by the Taxation Laws (2nd 19 Amendment) Act, 2005 with w.r.e.f. 1.4.1998 wherein such proviso was made applicable to all exporters having turnover exceeding Rs.10 crores. It was fairl y admitted b y the learned A.R. that all the assessees before us were those where the turnover exceeded Rs.10 crores. The learned A.R. p o i n t e d o u t t h a t t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e b u n c h of appeals had set aside the matter to the Tribunal for deciding the issue of determination of value of DEPB as per the provisions of law as per para-6 of the main judgment in the case of F.C.Sondhi (supra) and it was pointed out that the judgment in the case of CIT Vs. Kalapataru Colours & Chemicals (supra) was of non-jurisdictional High Court. The learned A.R. stressed that though the decision of the High Court was binding but the same was distinguishable on features and hence not applicable. The learned A.R. also pointed out that the writ petitions were filed before the Hon'ble High Court against the retrospective amendment by alleging that the provisions were ultra virus which were transferred to the Hon'ble Supreme Court and are pending before the Apex Court.
16. Shri Subhash Aggarwal appearing in I.T.A.No. 678/Chd/2006 of R.N.Gupta & Co. & Others pointed out that the DEPB has a cost in view of the ratio laid down by the Apex Court in Yasha Overseas Vs. CST & Others (supra).
17. The learned D.R. for the Revenue pointed out that the arguments of the learned A.R. for different assessees were of three folds ; a) profits under section 28(iiid) of the Act was the premium earned on sale of DEPB/DFRC, which in turn had a cost; b) the speech of the Hon'ble Finance Minister at the time of introducing the said bill was not considered b y the Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra); and c) the decision in CIT Vs. Kalapataru 20 Colours & Chemicals (supra) being non jurisdictional High Court was not applicable to the present bunch of cases. The learned D.R. for the Revenue pointed out that all the arguments raised by different learned A.Rs. for the assessee/s were repetition of the arguments before the Special Bench in M/s Topman Exports (supra) which has been overruled by the Hon'ble Bombay High Court.
18. Our attention was drawn to para 89 of the decision of Special Bench in M/s Topman Exports (supra) wherein the Tribunal had held that the DEPB has a face value and on its sales profits are to be determined. The learned D.R. for the Revenue drew our attention to the question raised before the Hon'ble High Court, the arguments of the Revenue before the Hon'ble Bombay High Court and the arguments raised on behalf of the assessee and after taking us through the various paras of the said judgment pointed out that the issue has been elaborately considered by the Hon'ble Bombay High Court even taking into consideration the ratio laid down by the Apex Court in K. Ravindranathan Nair, 295 ITR 228 (SC). It was pointed out by the learned D.R. that the contention of the learned A.R. that the speech of the Finance Minister at the time of introduction of the bill was not considered, is misplaced as in para 32 of its judgment, the said issue has been considered by the Hon'ble Bombay High Court.
19. The learned D.R. for the Revenue further pointed out that the H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n F . C . S o n d h i ( s u p r a ) d e c i d e d t h e first issue that the receipts on sale of DEPB/DFRC were business income and not export income and thereafter the Jurisdictional High Court had concurred with the ratio laid down by the Hon'ble Bombay High Court and on its acceptance, the said view of the High Court was to be applied. 21 It was the contention of the learned D.R. that the decision in CIT Vs. Kalapataru Colours & Chemicals (supra) being single decision on the question, though by a different High Court but applied by the Jurisdictional High Court, was binding on the persons under its jurisdiction. Reliance was also placed on the decisions of the Bombay High Court in CIT Vs. Godavaridevi Saraf, 113 ITR 589(Bom) and CIT Vs. Smt.Nirmalabai K.Darekar, 186 ITR 242 (Bom).
20. In rejoinder the learned A.R. for the assessee referred to para-25 of the judgment in CIT Vs. Kalapataru Colours & Chemicals (supra) and pointed out that the Court compared the DEPB receipts with licence and under section 28(iiia) profit on sale of licence is excludible as business income and under section 29(iiid) profit on transfer of DEPB is to be included as business income. It was pointed out that the DEPB has value, which is specific and the credit for the same is to be allowed. Further reference was made to the observations in para-29 of the judgment in CIT Vs. Kalapataru Colours & Chemicals (supra) b y the learned A.R. and it was pointed out that DEPB is an income which is chargeable when the assessee uses it but once the same is sold on premium, such premium is taxable profit.
21. The learned A.R. stressed that the Hon'ble Jurisdictional High Court in F.C.Sondhi (supra) vide para-6 had decided the issue that the DEPB was business income, but the second issue of computation of deduction under section 80HHC vis-à-vis profits on sale of DEPB licence was not decided by the Court and the matter was remanded back to the Tribunal. The learned A.R. further pointed out that the entire value of the receipts on sale of DEPB were not to be excluded while computing deduction under section 80HHC of the Act.
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22. Another set of appeals were heard by us on 12.5.2011. In I.T.A.No. 768/Chd/2008 Shri S.K.Mukhi placed reliance on his submissions made earlier and filed the compendium of the written submissions and the various case laws relied upon. Shri Ashok Kumar Juneja appearing in the case of King Exports in I.T.A.Nos.673 & 1022/Chd/2007 & Others pointed out that where there was a loss on sale of DEPB i.e. the loss being attributable to the face value minus sale value, nothing had to be excluded. It was pointed out that there was no merit in the arguments that the DEPB had a face value which merits to be considered while computing the deduction under section 80HHC of the Act.
23. The learned A.R. for the assessee pointed out that the amendment introduced in section 80HHC of the Act denies retrospectively deduction to exporters having turnover of more than 10 crores and imposition of such conditions was ultravirus and against the principles of promissory estoppel. It was pointed out that the present assessee in I.T.A.No. 673/Chd/2007 had suffered a loss of Rs.11,98,827/-. The learned A.R. for the assessee placed reliance on the submissions made by the learned A.Rs. for other assessees.
24. We have heard the rival contentions and perused the record. The issue arising before us in the captioned appeals heard on different dates p u r s u a n t t o t h e j u d g m e n t p a s s e d b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h Court in various cases of the assessees before us was in connection with the assessability of the sale consideration of DEPB entitlement/DFRC and its treatment while computing the deduction under section 80HHC of the Act.
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25. The first issue whether the income from DEPB/DFRC is to be treated as business income under section 28(iiid) and 28(iiie) of the Act h a s b e e n a n s w e r e d i n t h e a f f i r m a t i v e b y t h e H o n ' b l e P u n j a b & H a r ya n a High Court in CIT Vs. F.C.Sondhi & Co. Pvt. Ltd. (supra) vide judgment dated 16.8.2010 and following the same in the cases of all the assessees before us same ratio has been laid down by the Hon'ble Punjab & H a r ya n a H i g h C o u r t . The Hon'ble High Court had relied on the ratio laid down b y the Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra) and has remanded the issue of its treatment of the said receipts while computing the deduction under section 80HHC of the Act back to the Tribunal for a decision in accordance with law.
26. Elaborate submissions were made by both the parties, which have been referred to by us in the paras hereinabove. We proceed to deal with the same in paras hereunder.
27. The issues to be addressed in the present appeals are in connection with the provisions of section 28 i.e. incomes chargeable under the head "profits & gains of business" and the corresponding deduction of profits received from exports under the provisions of section 80HHC of the Act. Section 28 of the Income Tax Act reads as under :
28. T he f ol l ow i ng i ncome s hal l be char g e abl e t o i ncom e-t ax under t he head " Pr of i t s and gai ns of bus i nes s or pr of es s i on" ,-- (i ) t he pr of i t s and gai ns of any bus i nes s or pr of es s i on w hi ch w as car r i ed on by t he as s es s ee at any t i me d ur i ng t he pr evi ous year ;
24(i i )any compens at i on o r ot her payment due t o or r ecei ved b y,--
(a ) any per s on, by w hat ever name cal l ed, managi ng t he w hole or s ubs t ant i al l y t he w hol e of t he af f ai r s of an Indi an company, at or i n connect i on w i t h t he t er mi nat i on of hi s management or t h e modi f i cat i on of t he t er ms and condi t i ons r el at i ng t her et o;
(b ) any per s on, by w hat ever name cal l ed, managi ng t he w hole or s ubs t ant i all y t he w hol e of t he af fai r s i n Indi a of any ot her company, at or i n connect i on w it h t he t er mi nat i on of hi s of f i ce or t he m odi f i cat i on of t he ter ms and condi t i ons r el at i ng t her et o ;
(c ) any per s on, by w hat ever nam e cal l ed, h ol di ng an agency i n Indi a f or any par t of t he act i vi t i es r el at i ng t o t he bus i nes s of any ot her per s on, at or in c onnect i on with t he t er mi nat i on of t he agency or t h e modi f i cat i on of t he t er ms and condi t i ons r el at i ng t her et o ;
[ (d ) any per s on, f or or i n connect i on w i t h t he ves t i ng i n t he Gover nm ent , or i n any cor por at i on ow ned or cont r ol l ed b y t he Gov er nment , un der any l aw f or t he t i me b ei ng i n f or c e , of t he management of any pr oper t y or b us i nes s ;] (i i i ) i ncome der i v ed by a t r ade, pr of es s i onal or s i mi l ar ass oci at i on f r om s peci f i c s er vi c es per f or med f or i t s member s ; [ (i i i a ) pr of i t s on s al e of a l i cence gr ant ed und er t he I mpor t s (C ont r ol ) Or der , 1955, made under t he I mpor t s and Expor t s (C ont r ol ) Act , 1947 (18 of 1947) ;] [ (i i i b ) cas h as s i s t ance (by w hat ever name cal l ed) r e cei v ed or r ecei vabl e b y any p er s on agai ns t expor t s under any s chem e of t he Gover nm ent of I ndi a ;] [ (i i i c ) any dut y of cus t o ms or e xci s e r e-p ai d or r e-payabl e as dr aw back t o any pe r s on agai ns t expor t s under t he C us t oms and C ent r al Exci s e Dut i es Dr aw back Rul es , 1971 ;] "
28. Clauses (iiia), (iiib) and (iiic) of section 28 were inserted by the Finance Act, 1990 though with retrospective effect from different dates.
As per the said clauses of section 28 of the Income Tax Act, the 25 incentives given to the exporters were held to be taxable as profits of business comprising of three categories i.e. i) Cash compensatory scheme; ii) Duty Draw back; and iii) Import entitlement licence. By the aforesaid amendment of the Act, profits on sale of import licence, cash assistance under any scheme of the Central Government and drawback on duty of customs or excise would constitute income chargeable to tax under the head "profits & gains of business". Further DEPB scheme was introduced b y the Government of India in the exim p o l i c y, w . e . f . 1 . 4 . 1 9 9 7 . The said scheme was introduced to neutralize the incidence of customs duty on the import content of the export product. The quantification for said benefit is on the FOB value of exports in convertible foreign exchange. Under the scheme credit is c a l c u l a t e d b y i d e n t i f yi n g t h e e l e m e n t o f c u s t o m s d u t y i n c l u d e d i n t h e import content of the export made by the exporters. The government has fixed the rates for grant of DEPB credit on the export products. The said DEPB credit is allowed after exports are made. As per the Foreign T r a d e P o l i c y, m e r e f a c t o f e x p o r t i n g t h e g o o d s o r m e r c h a n d i s e d o e s n o t entitle the exporters to grant of DEPB/duty drawback. Only after making the exports, when the exporter makes application for grant of DEPB, he acquires the right to such DEPB/Duty Drawback.
29. The Parliament had introduced amendments vide Taxation Laws (Amendment) Act 2005, under which insertion of clauses (iiid) and (iiie) to section 28 of the Income Tax Act were made, which reads as under :
[ (i i i d ) any pr of i t on t he t r ans f er of t he Dut y Ent i t l ement Pas s Book Sche me, bei ng t he Dut y R em i s s i on Scheme und e r t he expor t and i mpor t pol i cy f or mulat ed and announced under s e ct i on 5 of t he For ei gn T r ade (D ev el opment an d Regul at i on) A ct , 1992 (22 of 1992 );] 26 [ (i i i e ) any pr of i t on t he t r ans f er of t he Dut y Fr ee Repl eni s hment C er t i f i cat e, bei ng t he Dut y Remi s s i on Scheme under t he e xpor t and i mpor t pol i cy f or mul at ed an d announced under s ect i on 5 of t he For ei gn T r ade (Dev el opment and R egul at i on) A ct , 1992 (22 of 1992 ) ;]
30. As per clause (iiid) to section 28 of the Act any profit on transfer of DEPB scheme is chargeable to tax as profits of business. S i m i l a r l y, any profit on transfer of DFRC is chargeable to tax as profits of business under clause (iiie) to section 28(1) of the Act.
31. The Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra) while deciding the issue of chargeability of DEPB credit, the profits on its transfer and its treatment under section 80HHC of the Act had elaborately addressed the issue. The Hon'ble Bombay High Court had considered the proposition of section 28 in paras 9 and 10 of its judgment and thereafter had elaborated upon DEPB scheme formulated under the exim policy in paras 11 and 12 of its judgment.
Thereafter a reference was made to the amendment of 2005 by which clauses (iiid) and (iiie) of section 28 of the Act were inserted. The Hon'ble Court referred to the circumstances under which the said insertions were made to the Statute, vide para 19 & 20; the Hon'ble Court observed as under :
"19. Clause (iiid) contemplates that any profit on the transfer of the Duty Entitlement Pass Book scheme would be chargeable to income-tax as a business profit. The circumstances in which the amendment was brought about would have a bearing on the subject-matter of the controversy in the present case and will, therefore, need some elaboration. In P & G Enterprises [2005] 93 ITD 138 (Delhi) a Bench of the Income-tax Appellate Tribunal at Delhi considered the case of an exporter to whom a credit was available under the duty entitlement pass book scheme. The DEPB credit was transferred and the receipts were shown as business receipts under section 28(iiia). The Assessing Officer held that the receipts upon the transfer of the DEPB entitlement fell for classification under section 28(iv) and be excluded ninety per cent. of those receipts under section 80HHC. The Commissioner (Appeals) held that the receipts were 27 in the nature of revenue receipts and the entirety of those receipts was assessable as business receipts under section 28(iv). The Commissioner (Appeals) held that those receipts were not derived from export though they may have been attributable to that business and upheld the action of the Assessing Officer in excluding ninety per cent. of the DEPB receipts under Explanation (baa). Before the Tribunal there was no dispute about the finding that the DEPB receipts were in the nature of revenue and that the entirety of those receipts was chargeable to tax under section 28(iv). The Tribunal held that section 28(iv) was not referred to in Explanation (baa) and the omission to include that provision suggested that the Legislature did not intend the exclusion of ninety per cent. of those incomes which fell within the purview of section 28(iv). The Tribunal was also of the view that the DEPB receipts did not constitute a "receipt of a similar nature" within the meaning of Explanation (baa) and were not, therefore, liable to be reduced in computing the profits of business. The judgment of the Tribunal would, therefore, show that (i) the entirety of the DEPB receipts were treated as of a revenue nature ; (ii) the DEPB receipts were held to fall within the purview of section 28(iv) ; and (iii) such receipts were held not to be sustainable to a reduction of ninety per cent under Explanation (baa).
20. It is in this background that Parliament stepped in by amending section 28 and correspondingly, Explanation (baa), so as to specifically bring in the DEPB receipts within the fold of taxability under section 28. The fact that the entirety of the DEPB receipts was taxable was elucidated in the judgment of the Tribunal. The Tribunal had, however, held that such receipts were not liable to sustain a reduction of ninety per cent. under Explanation (baa). Parliament considered it appropriate to amend section 28 by bringing in a specific provision that would cover the DEPB receipts on the one hand and by clarifying through the amendment of Explanation (baa) that the DEPB receipts also constitute incentive profits which were liable to sustain a reduction of ninety per cent."
32. The Hon'ble High Court further held vide its observation in para 27 that after the insertion of the clause (iiid) to section 28 of the Act profits on transfer of DEPB was income chargeable under the head "profits & gains of business &profession". The Hon'ble Punjab & H a r ya n a H i g h C o u r t i n t h e c a s e o f t h e d i f f e r e n t a s s e s s e e s b e f o r e u s h a v e held that the profits arising on transfer of DEPB are business profits in the hands of the assessee. Thus there is no controversy regarding the aspect of the said receipts received by the exporter on transfer of DEPB credit to be included as business profits of the said concern. 28
33. The consequential issue arising in the captioned appeals before us is its treatment under the provisions of section 80HHC of the Act. Under sub-section (1) to section 80HHC of the Act deduction is allowed to the assessee in respect of profits derived from export. The formula for determining the export profits is laid down in sub-section (3) to section 80HHC of the Act, which deals with export of goods manufactured or processed by the assessee in clause (a); export of trading goods in clause (b) and export of goods manufactured/processed and of trading goods in clause (c). The expression "profits derived from export" is defined in clause (a) of sub-section (3) to section 80HHC of the Act, as the amount which bears to the profits of the business, the same proportion as between the export turnover to the total turn over of the business. The Hon'ble Bombay High Court vide para 14 observed "In other words, the proportion between the export turnover to total turnover of the business is applied to the profits of the business and the result constitutes export profits". However, in respect of business of trading of goods under clause (b) the profits derived from such export would be the export turn over as reduced by direct cost and indirect cost attributable to such export. Various terms referred to in section 80- HHC of the Act have been defined as per the clauses of Explanation under section 80HHC of the Act. Clause (aa) defines convertible foreign ex change out of In dia, clause (ba) defines export turn over and clause (baa) defines profits of business. The Hon'ble Bombay High Court have referred to clause (baa) of Explanation to section 80HHC of the Act and vide paras 15,16 & 17 held as under :
"15. In the application of the formula to a manufacturer exporter, clause (a) refers to the profits of the business. The expression "profits of the business" is elucidated in 29 Explanation (baa) to section 80HHC. Explanation (baa) is to the following effect :
"(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, 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 ;"
16. The expression "profits of the business" means profits as computed under the head of "profits and gains of business or profession" under sections 28 to 44D and they are thereupon to be reduced to the extent provided by clauses (1) and (2). Clause (1) as it now stands is bifurcated in two parts. The first consists of the sums referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 ; and the second consists of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. The first part of clause (1) provides for the exclusion of ninety per cent. of "incentive profits" (those referred to in clauses (iiia) to (iiie) of section 28) and "independent incomes" which are not relatable to exports. Rationale for exclusion of independent incomes and incentive profits
17. The rationale for this exclusion is explained in the judgment of the Supreme Court in the CIT v. K. Ravindranathan Nair [2007] 295 ITR 228 (SC). The Supreme Court held that the expression "derived from" that is used in sub-section (1) of section 80HHC is narrower in its ambit than the words "attributable to" and consequently, it is only profits that are derived from export that qualify for a deduction. The second important facet of the judgment of the Supreme Court is in explaining the provisions of Explanation (baa). The Supreme Court has observed that what the Explanation postulates is that though incentive profits and independent incomes constitute a part of the gross total income, they have to be excluded from the gross total income because such receipts have no nexus with the export turnover. In referring to "incentive profits" the Supreme Court had in contemplation clauses (iiia) to (iiie) of section 28. Similarly, the independent incomes to which a reference has been made in the judgment of the Supreme Court are receipts by way of brokerage, commission, interest, rent, charges and any other receipt of a similar nature included in the profits of the business."
34. The Hon'ble Bombay High Court further took note of various provisions of sub-section (3) of section 80HHC of the Act and vide para 30 21 held as under :
21. Parliament incorporated several provisos to sub-section (3) of section 80HHC. Under the first proviso, the profits computed under clause (a), (b) or (c) of sub-section (3) have to be increased by the amount which bears to ninety per cent.
of any sum referred to any clauses (iiia), (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. The second and third provisos to sub-section (3) are of some significance in the present case and they read as follows :
"Provided further that in the case of an assessee 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."
35. In view of provisions of sub-section (3) to 80HHC of the Act, and the provisions thereunder, for computing the deduction under section 80HHC of the Act, the export turnover of the business carried on by the assessee has a relevance. The Parliament has drawn a distinction between the assessee having ex port turn over not ex ceeding Rs.10 crores and those having turn over exceeding Rs.10 crores while computing the profits of business. Under sub-section (3) of section 80HHC of the Act 31 where the turn over of the exporters was less than Rs.10 crores, it has been provided that the profits would further be increased by an amount which bears to 90% of the sum referred in clause (iiid) or (iiie) of section 28, in the same proportion as export turnover bears to the total turn over. However, in the cases of exporters with turnover in excess of Rs.10 crores, the said benefit is to be allowed on fulfillment of two conditions referred thereunder. A d m i t t e d l y, i n t h e g r o u p o f c a p t i o n e d appeals before us total export turnover in all cases exceeds Rs.10 crores and the conditions therein are not fulfilled and as such the provisions of Third proviso under sub-section (3) to section 80HHC of the Act are applicable. The learned A.Rs for different assessees before us have admitted to the said aspect but had further made elaborate submissions on the quantum of exclusion of the DEPB profits from the profits of business while computing the deduction under section 80HHC of the Act. The contention of the assessee before us is that the words used in section 28 (iiid) of the Act are the 'profits on transfer of DEPB/DFRC scheme'. Elaborate submissions were made that the profits amounts to difference between sale consideration and the face value of DEPB credit, which have been transferred. The contention of the learned A.R. is that the face value of DEPB credit is taxable on its accrual i.e. the date on which application is moved before the authorities after the exports have been made, entitling the exporters to claim DEPB/DFRC credit, which as per t h e a s s e s s e e i s c h a r g e a b l e t o t a x i n t h e ye a r o f i t s a c c r u a l u n d e r s e c t i o n 28(iiid) of the Act.
36. The second limb of arguments is that when the said DEPB credit is t r a n s f e r r e d i n a n y r e l e v a n t ye a r , t h e n o n l y t h e p r o f i t / s a r i s i n g o n s u c h transfer of DEPB is to be considered for exclusion while computing the profits of business under Explanation (baa) to section 80HHC of the Act. 32
37. The said issue of chargeability of DEPB receipts on its transfer was deliberated upon by the Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra) and similar contentions as raised before us were putforth before the Hon'ble Court. The Hon'ble Court vide para 24 compared various export incentives received by the exporters and observed as under :
"24. Export incentives, such as import licences, cash assistance, duty drawback, DEPB credit, or duty free replenishment certificates are all intended to encourage exports. The object of these incentives is to neutralize the incidence of customs duty on the import content of the export product. Under the Income-tax Act, 1961, not only the profits on sale of an import licence and profits on transfer of the DEPB credit/DFRC, but also the duty drawback received by an assessee are considered as profits of business. Duty drawback is nothing but receiving back the amount of duty actually paid by the assessee. Similarly, the DEPB credit is a credit to be utilized in paying the customs duty on goods to be imported. When the duty drawback received by the assessee constitutes profits of business, then, it is obvious that the amount realized on transfer of the DEPB credit would also be business profits. Thus, the amount received on transfer of the DEPB credit would be profits of business covered under section 28(iiid)."
38. The treatment of various export incentives as per clauses (iiia) to (iiie) to section 28 of the Act were compared by the Hon'ble Court and vide para 25 it was observed as under :
"25. Clause (iiia) treats as income chargeable to tax, profits on the sale of an import licence. When the licence is sold, the entire amount is received as profit. The entire amount that is received on the sale of a licence is considered as profits of business under section 28(iiia). Similarly, the entire amount of cash assistance received or receivable by any person against exports under a scheme of the Government of India is treated as income for the purposes of chargeability to tax. By clause (iiic) the entire duty of customs or excise repaid or repayable as drawback against exports is also treated as income that would be subject to tax. Under the Exim policy, the scheme relating to the DEPB entitlement is in the nature of an option which is made available to an exporter who does not wish to go through the licensing procedure. The transfer of a DEPB 33 credit is similar to trading in a licence. As we have noted, when a licence is sold, the holder receives the entire amount as profit which is treated by the Legislature as profits of business within the meaning of section 28. Logically and as a matter of first principle, there would be no justification for this court to treat the amount which is received by an exporter on the transfer of the DEPB credit any differently than the profits which are made on the sale of an import licence under clause (iiia). Both would have to be treated as profits of business under clause (iiid)."
39. The Hon'ble Court thus held that under clause (iiid) to section 28, of the Act the profits on transfer of DEPB i.e. the amount received on transfer of DEPB is income chargeable to tax under the head "profits & gains of business & profession". With regard to the deduction claimed under section 80HHC of the Act, the Hon'ble Court in para 27 held that "the Legislature substituted Explanation (baa) in section 80HHC so as to exclude 90 per cent. of the profits received on transfer of DEPB from the profits of business for the purposes of section 80HHC and inserted the second and third provisos to section 80HHC(3). By the second proviso, it was provided that in the case of an assessee having an export turnover not exceeding Rs. 10 crores, the profits computed under section 80HHC(3) shall be increased by 90 per cent. of the sum referred to in section 28(iiid). By the third proviso, it was provided that in the case of an assessee having an export turnover exceeding Rs. 10 crores, the profits computed under section 80HHC(3) shall be increased by 90 per cent. of the sum referred to in section 28(iiid) subject to the two conditions set out therein". The Hon'ble Court further observed that in order to get over this difficulty of third proviso to section 80HHC(3) of the Act, the assessee contends that the profits on transfer of DEPB in section 28(iiid) would not include the face value of DEPB, so that the assessee gets a deduction of face value of DEPB under section 80HHC of the Act. The Hon'ble Court held that there was no merit in the said contention of the assessee for the following reasons :- 34
(Para 29 Part) " (a ) What i s r e cei v ed on t r ans f er of t h e DEPB cr edi t i s t h e pr of i t , becaus e DEPB cr edi t under the DEPB s cheme i s gi ven at a per cent a ge of t he FOB val ue of t he expor t s , s o a s t o neut r al i z e t he i n ci dence of cus t oms dut y on t he i mpor t cont ent of t he expor t pr oduct . T he DEPB cr edi t i s al s o gi ven t o an expor t er w ho has expor t ed good s w i t hout i mpor t i ng r aw mat er i al s r equi r ed f or t he expor t . DEPB cr edi t i s gi ve n f or payi ng cus t oms dut y on i mpor t of goods w hi ch may or may not be ut i l i z ed i n t he expor t of go ods . Wh en t he DEP B cr edi t i s not ut i l iz ed f or payi ng c us t oms dut y but i s t r ans f er r ed f or any s um, t hen s uch s um w oul d be pr ofi t s on t r ans f er of t he DEPB cover ed under s e c t i on 28(i i i d ) ;
(b ) Ev en t he as s es s ee has not di s put ed bef or e t he cour t t h at t he ent i r e amount r ecei ved on t r ans f er of t he DEPB i s bus i nes s i ncome ch ar geabl e t o t ax as pr of i t s of bus i nes s . How ever , i t i s contended t hat t he f ace val ue of t he DEPB w oul d not be cover ed under s ect i on 28(i i i d ) becaus e i t i s a cr edi t ear ned by t he as s es s ee. Wh er e t he dut y pai d i s r ecei v ed bac k as du t y dr aw back i t i s al s o an amount ear ne d by t he as s es s ee, bu t s uch a r ecei pt i s s t i l l cons i der ed as pr of i t s of bus i ness . Si mi l ar l y, t he amount r eal i z ed on t r ans f er of t he DEPB, be i t equi val ent t o t he f ace val ue of t he DEPB ; mor e t h an t he f ace val ue of t he DEPB ; or l es s t han t he f ace val ue of t he DEPB, w oul d be pr of i t on t r ans f er of t he DEPB cov er e d under s ect i on 28 (i i i d) ;
(c ) T he f act t hat t he as s es s ee had acc ount ed f or t he DEPB cr edi t i mmedi at el y af t er maki ng an ap pl i cat i on s eeki ng t he DEPB cr edi t w oul d make no di f f er enc e t o t he t a xabi l i t y of t he ent i r e amount r ecei v ed on t r ans f er of t he DEPB cr edi t under s ect i on 28 (i i i d). What cons t i t ut es " pr of it s" under s ect i on 28 (i i i d) i s t he amount r ec ei ve d on t r ans f er of t he DEPB cr edi t and not t he amount of cr edi t w hi ch t he as s es s ee w as ent i t l ed t o under t he DEPB s cheme. In ot he r w or ds , t he amount e qui val ent t o t he f ac e val ue of t he DEP B as w el l as t he amou nt r ecei v ed i n e xces s of t he DEPB w oul d cons t i t ut e pr of i t s of bus i nes s under s ect i on 28(i i i d ) an d mer el y b ecaus e, a par t of s uch pr of i t s of bus i nes s (f ace val ue ) w as of f er ed t o t ax i n t he year i n w hi ch t he cr ed i t accr ued t o t he as s es s ee w oul d not be a gr ound t o hol d t hat s uch pr of i t w as not cover ed under s ec t i on 28(i i i d). Wher e t he f ace val ue of t he DEPB cr edi t i s of f er ed t o t ax as bus i nes s pr of i t s under s ect i on 28(i i i d ) i n t he year i n w hich t he cr edi t accr ued t o t he as s es s ee, t hen any f ur t her pr of it ar i s i ng on t r ansf er of t he DEPB cr edi t w oul d be t axed as pr of i t s of bus i nes s under s ect i on 28 (i i i d) i n t he year i n w hi ch t he t r ans f er of t he DEPB cr edi t t ook pl ace. T her ef or e, t he ar gument of t h e as s es s e e t hat i f t he f ace val ue of t h e DEPB cr edi t i s hel d t o be cover ed unde r s ect i on 28(i i i d), i t w oul d amount t o doubl e t axat i on i s w i thout any mer i t ."35
40. The Hon'ble Court further observed that the DEPB credit is a form of an export incentive, which is made available to the exporter and there is no cost that is attached to the grant of the incentives. The Hon'ble Court vide para 30 observed that 'the incentive, as have already noted, is calculated as a percentage of the FOB value of the goods exported". The Hon'ble Court also took note of the observations of the Tribunal in Special Bench case in para 48 of its judgment that "No doubt, the exporter does not directly purchase DEPB from the market by incurring any cost". The Hon'ble Court thus concluded that there was no basis or justification in the order of the Tribunal in holding that clause (iiid) would only resort to the difference between sale consideration and the value of DEPB credit. The Hon'ble Court on the issue thus held as under:
"31. We do not find any logical justification in bifurcating the value of the sale consideration realized by the exporter on the transfer of the DEPB credit. For one thing clause (iiid) of section 28 must cover within its purview, the entirety of the sale consideration which is realized by the exporter on the transfer of the DEPB credit since that represents the profit which the exporter obtains on the transfer of the credit. No part of the credit that is available under the DEPB scheme can fall for classification under clause (iiib) of section 28 which deals with cash assistance, received or receivable against any scheme of the Government of India. As the legislative history of the provision would show clause (iiib) was enacted by Parliament at a time when the export incentives that were available were (i) import entitlement licences ; (ii) cash compensatory support ; and (iii) duty drawback. The DEPB scheme was not even in existence when clause (iiib) came to be enacted into section 28 by the Finance Act of 1990. The DEPB scheme was brought into existence with effect from April 1, 1997. Clause (iiid) of section 28 was inserted by the Amending Act of 2005 with effect from April 1, 1998. The value of the DEPB credit can by no means be regarded as a cash assistance which is received or receivable by a person against exports under any scheme of the Government of India."
41. The Hon'ble Court further held vide para 30 of its judgement that DEPB credit to which an exporter is entitled is a form of 36 an export incentive and as an incentive made available to the assessee, there is no cost attached to the grant of incentive. The said incentive is calculated as a percentage of FOB value of the goods exported.
42. In view of the abovesaid ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra) we hold that the export incentive received by the exporters in the form of DEPB has no cost, as the same is made available to the assessee as a percentage of FOB value of the goods exported. The said export incentives received in the form of DEPB/DFRC are includible in the hands of the assessee as business income under section 28 (iiid) and (iiie) of the Act. Further no cost is attributable to such DEPB credit as the same is awarded to the exporter at a percentage of FOB value of the export made, in line with the exim policy to neutralize the incidence of customs duty on the import content of the export product. The said DEPB is allowed to an exporter irrespective of whether the raw materials were imported which in turn were utilized for the exports or were not imported. A c c o r d i n g l y, w h e r e D E P B i s n o t u t i l i z e d a n d t r a n s f e r r e d , t h e amount received on its transfer in its entirety is to be considered while computing the profits eligible for determining the deduction under section 80HHC of the Act provided other conditions stipulated by section 80HHC are also satisfied. The Hon'ble Bombay High Court in CIT Vs. Kalapataru Colours & Chemicals (supra) has also held that 'what constitutes "profits" under section 28 (iiid) is the amount received on transfer of the DEPB credit and not the amount of credit which the assessee was entitled to under DEPB scheme, meaning thereby that both the face value of the DEPB and the amount received in excess of the DEPB credit constitute profits of business under section 28(iiid) of the Act, where the face value of the DEPB credit has been offered to 37 tax in the year in which the credit accrued to the assessee, would not be a ground to hold that such profit was not covered under section 28(iiid) of the Act'. The Hon'ble Bombay High Court clarified where the face value of DEPB credit was offered to tax as business profits under section 2 8 ( i i i d ) i n t h e ye a r i n w h i c h t h e c r e d i t a c c r u e d t o t h e a s s e s s e e , t h e n further profit arising on its transfer would be taxed as profit of business u n d e r s e c t i o n 2 8 ( i i i d ) i n t h e ye a r i n w h i c h t h e t r a n s f e r t a k e s p l a c e . Further no part of the DEPB credit would attract charge under section 28(iiib) of the Act. As in the captioned appeals export turnover of all the assessees exceeds Rs.10 crores and admittedly the conditions stipulated in third proviso to section 80HHC of the Act have not been fulfilled by the assessee, amount received on transfer of DEPB shall be excluded from the profits of business to determine eligible profits under Explanation (baa) to section 80HHC of the Act.
43. During the course of hearing the learned A.R. drew our attention to the speech of the Finance Minister during the debate in Lok Sabha at the time of passing the above amendment Bill while introducing clause (iiid) & (iiie) to section 28 and its treatment under section 80HHC of the Act and pointed out that though the reference was made to the speech of the Finance Minister by the Hon'ble Bombay High Court but the intention of the Finance Minister, has not been discussed at all and the bare reading of the speech of the Finance Minister is absolutely clear that only premium i.e. the profit has to be taken into consideration for the purpose of clause (iiid) of Sec 28 of the Act.
44. The relevant portion of the speech of the Finance minister referred to by the learned A.R. reads as under :
38
"What is DEPB credit sale? A DEBP credit sale is that on your DEPB Passbook, if you have certain credit in your favour, you can import items without paying credit. But you can also sell credit to another importer. If you actually import it is part of import export. If you sell it to another importer and make profit on that, premium it is not export profit."
45. We find no merit in the said contention of the learned A.R. for the assessee as the Hon'ble Bombay High Court in Kalaptaru Colours & Chemicals(supra) vide para 32 had referred to the speech made by the Finance Minister while introducing the said amendment in 2005 and had also considered the reasons for the introduction of clause (iiid) in section 28 of the Act in view of the decision of Delhi Bench of the Tribunal in the case of P& G Enterprises (93 ITD 138) (Del) and had observed as under :
" 32. T he T r i bunal has rel i ed t o a cons i der abl e ext ent on a s peech mad e by t h e t hen Fi nance Mi ni s t er on t he f l oor of Par l i ament i n s uppo r t of i t s concl us i on t hat onl y t he pr emi um r eal i z ed by an e xpo r t er on t he s al e of t he DEPB cr edi t w o ul d f al l w i t hi n t he pur vi ew of cl aus e (i i i d ) of s ect i on 28 and not t he f ace val ue of t he DEPB. T he ent i r e appr oach of the T r i bunal i s wi t h r espect mi s conc ei ved a nd uns us t ai nabl e. The Fi nance Mi ni s t er s o ught t o i nt r oduce c l aus e (i i i d ) i n s ect i on 28 i n vi ew of t he deci s i on of t he Del hi Bench of t he T r i bunal i n t he cas e of P & G Ent er pr i s es [ 2005] 93 IT D 138 (Del hi ). T he di s put e i n t hat cas e r el at ed t o t axi ng t he ent i r e amo unt r ecei v ed on t he t r ans f er of t he DEP B cr edi t and not t he amount t hat w as r ecei ved i n e xc es s of t he f ace val ue of t he DEPB cr edi t . As a mat t er of f act i n t hat cas e t he as s es s ee had cl ai med t hat t he ent i r e r ecei pt on t he t r ans f er of t he DEPB cr edi t i ncl udi ng t he f ace val ue of t he cr edi t as pr ofi t s under s ect i on 28 (i i i a ). T he T r i bunal i n t hat cas e h el d t hat t he ent i r et y of t he amount w oul d be cover ed by s ect i on 28(i v ). How ever , t he vi ew of t he T r i bunal w as t hat s i nce Expl anat i on (baa ) i n s ect i on 8 0HHC di d not envi s age t he e xcl us i on of pr of i t s cover ed by s ect i on 28(i v ), s uc h pr of i t s coul d not be excl uded w hi l e co m put i ng t he deduct i on under s ect i on 80H HC . Hence, t h er e w as no di s put e i n cons i der i ng t he ent i r et y of t he r ecei pt s on t he t r ans f er of t he DEPB cr edi t as pr of it s of bus i nes s . T he di s put e w as onl y i n not t r eat i ng t he r ec ei pt s by 39 w ay of t r ans f er of t he DEPB cr edi t as expor t r ecei pt s w hi l e comput i ng t he dedu ct i on under s e ct i on 80HHC . C ons equent l y, t he ent i r et y of t he recei pt s on t he t r ans f er of t he DEPB cr edi t w hi ch w as s ought t o be i ncl uded i n s ect i on 28(i v ) w as br ought i n by Par l i ament ar y amendment i n t h e f or m of an i ns er t i on of cl aus e (i i i d ) i n s ect i on 28 w i t h r et r os pe ct i ve ef f ect . T her e w as no cont r over s y r eg ar di ng t he t axabi l i t y of t he quant um of r ecei pt s on t he t r ans f er of t he DEPB credi t . Hence, f or t hes e r eas ons w e ar e of t he vi ew t hat i t cannot be i nf er r ed f r om t he s peech of t he Fi nance Mi ni s t er t hat t he i ns er t i on of cl aus e (i i i d ) i n s e ct i on 28 w as made w i t h a vi ew t o t ax onl y t he amount w hi ch has been r ec ei ved i n exc e s s of t he f ace val ue of t he DEPB cr edi t ."
46. The Hon'ble Court further held as under :
" 33. T he s ubmi s s i on t hat pr i or t o t he i ns er t i on of cl aus e (i i i d ) i n s e ct i on 28, t he f ace val ue of t he DEPB cr edi t r eal i z ed on t he t r ans f er of s uch cr edit cons t i t ut ed expor t pr of i t s , but not t he amount r eal i z ed i n ex ces s of t he f ac e val ue of t he D EPB i s s i mi l ar l y w i t hout any bas i s . T hi s i s becaus e (i ) t he obj ect of t he DEPB w as t o f ur nis h an i ncent i ve t o e xpor t e r s s o as t o adj us t t he cr edi t agai ns t t h e cus t oms dut y paya bl e on any goods i mpor t ed i nt o Indi a. How ever , w her e an expor t er i ns t ead of ut i l i z i ng t he cr edi t t r ans f er s t he cr edi t at a pr emi um, i t ca nnot be s ai d t hat t he expor t er has ut i l i z ed t he cr edi t ; (i i ) t he L egi s l at ur e cons i der s t hat t he cus t oms dut y and exci s e dut y pai d on r aw mat er i al s us ed i n t he expor t pr odu ct , w hen r epai d o r r epayabl e as dut y dr aw back, w oul d not cons t i t ut e expor t pr of i t . Si mi l ar l y, w hen t he DEPB cr edi t i s not ut i l i z ed i n t he bus i nes s but i s t r ans f er r ed f or val u e, t h e amount r ecei ved o n t he t r ans f er w oul d be bus i nes s pr of i t s and not expor t pr of i ts i r r es pect i ve of w het her t he amount w hi ch i s r eal i z ed i s equal t o, l ar ger t han or l es s t han t he f ace val ue of t he DEPB cr edi t . Par l i ament has cons i der ed t ha t t he ent i r et y of t h e amount r ecei v ed on t he t r ans f er of t he DEPB s hal l cons t i t ut e pr of i t s of bus i nes s under s ect i on 28 (i i i d). Si nce s u ch pr of i t s ar e not expor t pr of i t s Par l i ament di r ect ed t hat ni net y per cent . of t hos e pr of i t s w oul d be ex cl uded w hi l e comput i ng t he deduct i on under s ect i on 80HHC ; (i i i ) Par l i ament cons i der ed t hat an expor t er w ho i ns t ead of ut i l i z i ng t he DEPB cr edi t f or payi ng cus t oms dut y on i mpor t ed goods , makes a pr of i t by t r ans f er r i ng t he DEPB, w oul d f or m a s epar at e cl as s and s eeks t o t ax t he r ec ei pt s on t he t r ans f er of t he DEPB cr edi t as bus i nes s pr of i t s and not expor t pr of i t s . Expor t er s who t r ans f er t he DEPB cr edi t and make a pr of i t cannot be pl aced on par w i t h t hos e expor t er s w ho ut i l i z e t he cr edi t f or payi ng t he cus t oms dut y on t he i mpor t ed goods ; (i v ) t he f a ct t hat Par l i ament di d n ot cons i der t he amount r ecei ved on t he t r a ns f er of t he DEPB t o be e xpor t pr of i t can not be a gr ound t o hol d t hat t he r e cei p t s on t he t r ans f er of DEPB cr edi t ar e not bus i nes s pr of i t s . C ouns el appear i ng on behal f of t he as ses s ee s ubmi t s t hat the 40 ent i r e amount r e cei ved on t he t r ans f er of t he DEPB cr edi t i s bus i nes s pr of i t , but i t w as cont ended t hat w hat i s i ncl uded i n s ect i on 28(i i i d) i s t he amount r ecei ved on t he t r ans f er of t he DEPB cr edi t i n exc es s of t he f a ce v al ue of t he DE PB a nd t he amount r e cei v e d t o t he e xt ent of t he f ace val ue of t h e DEPB w oul d be co v er ed und er s e ct i on 28(i i i b ). T her e i s n o mer i t i n t hi s cont ent i on becaus e (a ) t he DEPB cr edi t w as no t i n exi s t ence w hen s ect i on 28 (i i i b ) w as i ns er t ed by t he Fi nance Act of 1990. DEPB cr edi t w as int r oduced w i t h ef f ect f r om Apr i l 1, 1997 w hi ch w as aft er t he i ns er t i on of cl aus e (i i i b ) i n s e ct i on 2 8 ; (b ) s ect i on 28 (i i i b ) r ef er s t o cas h as s i s t ance (by w h at ever nam e cal l e d) r ec ei ved b y t h e as s es s ee f r om t he Gover nm ent pur s uant t o a s cheme of t he Gover nm ent . T he amount r ecei v ed on t he t r ans f er of t he DEPB cr edi t i s n ot r ecei v ed b y t h e as s es s e e f r om t he Gover nm ent pur s uant t o a s chem e of t he Gov er nment w i t h i n t he meani ng of cl aus e (i i i c ) ; and (c ) w hen s ect i on 28(i i i d) s peci f i cal l y deal s w i t h pr of i t s r eal i z ed on t he t r ans f er of t he DEPB cr edi t , i t w o ul d be i mper mi s s i bl e as a mat t er of f i r s t pr i nci pl e t o bi f ur cat e t he f ace val ue o f t he DEPB and t he amount r ecei v ed i n exc es s of t he f ace v al ue of t he DEPB."
47. Respectfully following the abovesaid ratio laid down by the Hon'ble Bombay High Court in Kalaptaru Colours & Chemicals(supra) we find no merit in the stand of the assessee that DEPB credit has a face value and while determining the profits eligible for deduction under section 80HHC of the Act, only the profits arising on the transfer of DEPB credit are to be excluded. As observed by us in para 42 above the DEPB credit being an export incentive received by the assessee in proportion to the FOB value of its export has no face value and the amount received on its transfer is to be considered while computing the profits allowable for deduction under section 80HHC of the Act. A d m i t t e d l y, i n t h e c a s e o f t h e a s s e s s e e s b e f o r e u s t h e t u r n o v e r e x c e e d s Rs.10 crores and the provisions of Third proviso to sub-section (3) of section 80HHC of the Act are applicable and the assessee having not fulfilled the conditions laid down under the said proviso, the total amount received on transfer of DEPB credit is to be excluded from the profits eligible for deduction under section 80HHC of the Act. However, the amount received by the assessee on the transfer of DEPB credit is 41 includible as business profit in the hands of the assessee under section 28(iiid) of the Act.
48. The learned A.R. for the assessee stressed that the ratio laid down by the Hon'ble Bombay High Court in Kalaptaru Colours & Chemicals(supra) is not applicable as the said decision has been rendered by a non-jurisdictional High Court, has no merit as the Hon'ble P u n j a b & H a r ya n a H i g h C o u r t w h i l e s e t t i n g a s i d e t h e i s s u e t o t h e Tribunal in its lead order in F.C.Sondhi (supra) has expressed its approval with the view taken by the Hon'ble Bombay High Court in Kalaptaru Colours & Chemicals(supra).
49. Further the learned A.Rs for the assessee have pointed out that DEPB credit has value and such value is to be deducted while computing the profits on the transfer of DEPB credit. We find no merit in the said stand of the assessee as though the DEPB credit had a 'value' but the cost of such value is zero in the hands of the assessee and in the absence of any cost borne by the assessee, no benefit of any amount being the cost of DEPB credit is allowable in the hands of the assessee. In one of the captioned appeals the learned A.R. had stressed that it had incurred loss on the transfer of its DEPB credit. In view of our holding that the amount received on transfer of DEPB credit is to be considered as business profits under section 28(iiid) of the Act and the said DEPB credit has no cost, the loss or profit arising on the transfer of DEPB credit vis-à-vis its face value accrued on application being made, has no relevance and only the amount received on the transfer of DEPB credit is includible in the hands of the assessee under section 28(iiid) of the Act and such amount is to be excluded while computing the profits eligible 42 for deduction under section 80HHC of the Act provided other conditions stipulated by section 80HHC are satisfied.
50. In view of our decision in paras hereinabove we direct the Assessing Officer to compute the deduction under section 80HHC of the Act in line with our directions in the paras hereinabove. Reasonable opportunity shall be allowed to the assessee while computing the income i n t h e h a n d s o f t h e a s s e s s e e f o r t h e c a p t i o n e d ye a r s .
51. A c c o r d i n g l y, t h e c a p t i o n e d a p p e a l s o f d i f f e r e n t a s s e s s e e s are disposed off as indicated above following the decision of the Hon'ble Bombay High Court in Kalaptaru Colours & Chemicals(supra), which has since been approved by the Hon'ble Jurisdictional High Court.
52. In the result, the captioned appeals in I.T.A.Nos referred to above are allowed for statistical purposes.
Order Pronounced in the Open Court on 30th day of June, 2011.
Sd/- Sd/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 30th June, 2011 Rati
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
True Copy By Order Assistant Registrar, ITAT, Chandigarh