2011 (6) TMI 844 - AT - Income Tax

Issues Involved:
1. Computation of deduction under section 80HHC of the Income Tax Act concerning income from DEPB, DBK, and DFRC.
2. Treatment of DEPB, DBK, and DFRC as business income.
3. Interpretation of the term "profit" under section 28(iiid) and 28(iiie) of the Income Tax Act.
4. Inclusion of face value of DEPB in the computation of profit.
5. Applicability of the third proviso to section 80HHC(3) for exporters with turnover exceeding Rs. 10 crores.

Detailed Analysis:

1. Computation of Deduction under Section 80HHC:
The issue pertains to the computation of deduction under section 80HHC of the Income Tax Act in relation to income from DEPB, DBK, and DFRC. The Tribunal had previously remitted the matter to the Assessing Officer to be adjudicated afresh in conformity with the decision of the Special Bench of the Mumbai Tribunal in M/s Topman Exports Vs. ITO. The High Court remanded the issue for fresh decision in accordance with law, emphasizing that income from DEPB, DBK, and DFRC should be treated as business income for deduction under Section 80HHC.

2. Treatment of DEPB, DBK, and DFRC as Business Income:
The Hon'ble Punjab & Haryana High Court, following the Bombay High Court in CIT vs. Kalpataru Colours and Chemicals, held that income from DBK, DEPB, and DFRC must be treated as business income and taken into account for deduction under Section 80HHC. The High Court remanded the matter to the Tribunal for fresh decision in accordance with this view.

3. Interpretation of "Profit" under Section 28(iiid) and 28(iiie):
The Tribunal considered whether the word "profit" in section 28(iiid) and 28(iiie) means the difference between the sale price of DEPB and its face value. The Tribunal noted that the entire sale consideration, inclusive of the face value of DEPB and the premium amount received, represents profit chargeable under section 28(iiid) and 28(iiie). The Tribunal followed the Bombay High Court's decision, which held that the entire amount received on transfer of DEPB credit constitutes profit under section 28(iiid).

4. Inclusion of Face Value of DEPB in the Computation of Profit:
The Tribunal discussed whether the face value of DEPB should be deducted from the sale price of DEPB for calculating profit under section 28(iiid) and 28(iiie). The contention was that DEPB credit has no cost and is awarded as an export incentive. The Tribunal, following the Bombay High Court, held that the entire amount received on transfer of DEPB credit, including the face value, constitutes profit under section 28(iiid).

5. Applicability of the Third Proviso to Section 80HHC(3):
The Tribunal addressed the applicability of the third proviso to section 80HHC(3) for exporters with turnover exceeding Rs. 10 crores. The Tribunal noted that for such exporters, the benefit of 90% exclusion of DEPB profits is allowed only if certain conditions are met. Since the assessees did not fulfill these conditions, the entire amount received on transfer of DEPB should be excluded from the profits of business for determining the deduction under section 80HHC.

Conclusion:
The Tribunal, following the Bombay High Court in Kalpataru Colours & Chemicals, held that the entire amount received on transfer of DEPB credit is to be considered as business income under section 28(iiid) and excluded while computing profits eligible for deduction under section 80HHC for exporters with turnover exceeding Rs. 10 crores. The Tribunal directed the Assessing Officer to compute the deduction accordingly, providing reasonable opportunity to the assessees. The appeals were allowed for statistical purposes.

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