2011 (2) TMI 290 - HC - Income Tax

DEPB - Whether profit 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 - the matter is covered in favour of the revenue by order of this Court dated 16.8. 2010 in I.T.A. No.299 of 2010 Commissioner of Income Tax v. M/s F.C. Sondhi & Company (P) Ltd - The matter is disposed off by way of remand

Summary

Issues:
1. Interpretation of sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961 regarding profit calculation.
2. Determination of profit on transfer of Duty Entitlement Pass Book (DEPB) entitlement.
3. Calculation of deduction under section 80HHC of the Income Tax Act, 1961.

Analysis:

1. The High Court addressed the first issue concerning the interpretation of sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961. The appellant challenged the ITAT's decision regarding the total sale consideration, including the face value of DEPB and premium amount, representing profit chargeable under these sections. The Court examined whether the entire amount inclusive of the premium of the sale of DEPB should be considered as profit. It also analyzed whether the word "profit" in the mentioned sections signifies the difference between the sale price of DEPB and the face value, disregarding that the entire amount constitutes profit in the assessee's hands. The ITAT's deduction of the face value of DEPB from the sale price for profit calculation was also scrutinized.

2. Moving on to the second issue, the Court deliberated on the determination of profit on the transfer of DEPB entitlement. The ITAT's decision on whether the profit referred to in sections 28(iiid) and 28(iiie) requires any artificial cost to be interpolated by deducting the face value of DEPB from the sale proceeds for calculating the deduction under section 80HHC was examined. Additionally, the Court considered the ITAT's failure to appreciate the computation of deduction under section 80HHC in accordance with the retrospective amendment made by the Taxation Law (Amendment) Act, 2005 from 01.04.1998.

3. Lastly, the Court addressed the calculation of deduction under section 80HHC of the Income Tax Act, 1961. The matter was disposed of based on a previous order by the Court in a similar case, and the appeals were concluded in the same terms. The questions proposed were answered accordingly, and the case was remanded to the ITAT for a fresh decision in compliance with the law. The respondents were granted the liberty to approach the Court if aggrieved by the order, and a photocopy of the order was directed to be placed on the file of the connected case.