2011 (3) TMI 129 - HC - Income Tax

Chargeable profit - Sale consideration of DEPB - The matter is covered in favour of the revenue by orders of this Court CIT v. M/s Victor Forgings and CIT v. F.C. Sondhi (2010 - TMI - 203399 - PUNJAB AND HARYANA HIGH COURT) wherein after noticing the judgment of the Bombay High Court in CIT v. Kalpataru Colours & Chemicals (2010 - TMI - 76895 - BOMBAY HIGH COURT) the matter was remanded to the Tribunal for fresh decision in accordance with law

Summary

Issues Involved:
1. Interpretation of profit under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961.
2. Calculation of profit on transfer of DEPB entitlement.
3. Deduction under Section 80HHC of the Income Tax Act, 1961.
4. Applicability of retrospective effect of the Taxation Laws (Amendment) Act, 2005.

Analysis:

Issue 1: Interpretation of profit under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961
The primary issue in this appeal was the interpretation of profit under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961 concerning the consideration of DEPB. The appellant contested the Tribunal's decision regarding the treatment of the entire amount of consideration as profit, citing a judgment by the Mumbai High Court in a similar case. The Tribunal had excluded 90% of the DEPB amount while computing business profits under specific sections of the Act. The appellant argued that the entire amount should be considered as profit. The Court, relying on previous decisions, disposed of the appeal in favor of the revenue, following the precedent set in similar cases.

Issue 2: Calculation of profit on transfer of DEPB entitlement
The second issue revolved around the calculation of profit on the transfer of DEPB entitlement, specifically whether the face value of DEPB and premium amount received should be included in the total sale consideration representing chargeable profit under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961. The Tribunal's decision to deduct the face value of DEPB from the sale price for profit calculation was challenged. The Court upheld the Tribunal's decision, emphasizing the need to deduct the face value as a cost incurred by the assessee, thereby impacting the determination of deduction under Section 80HHC of the Act.

Issue 3: Deduction under Section 80HHC of the Income Tax Act, 1961
The third issue involved the deduction under Section 80HHC of the Income Tax Act, 1961, and whether it was rightly computed in accordance with the amendment made by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 01.04.1998. The appellant argued that the deduction was correctly computed, while the respondent's compliance with conditions related to export turnover was questioned. The Court, relying on previous orders, disposed of the appeal in line with established precedents, without issuing a notice to the respondent but granting them the liberty to challenge the order if necessary.

Issue 4: Applicability of retrospective effect of the Taxation Laws (Amendment) Act, 2005
The final issue addressed the applicability of the retrospective effect of the Taxation Laws (Amendment) Act, 2005 concerning the computation of deductions under the Income Tax Act, 1961. The Court confirmed that the deduction under Section 80HHC was rightly computed in accordance with the retrospective effect of the amendment, emphasizing the need for compliance with the legislative changes made by the Amendment Act.

In conclusion, the High Court's judgment in this case addressed various complex issues related to the interpretation of profit, calculation of DEPB entitlement, deduction under Section 80HHC, and the applicability of retrospective amendments, providing clarity on these matters based on established legal principles and precedents.