2014 (3) TMI 939 - HC - Income Tax

Computation of deduction u/s 80HHC of the Act Treatment of Receipts Sale of DEPB scrips Held that - The decision in M/s Topman Exports Versus Commissioner of Income Tax, Mumbai 2012 (2) TMI 100 - SUPREME COURT OF INDIA followed - 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 and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 28(iii)(d) and Explanation (baa) of Section 80 HHC of the Income Tax Act regarding DEPB credit profits.
2. Determining whether DEPB credit can be considered a cost for calculating profits of transfer.
3. Treatment of income from the sale of DEPB license under Section 28 and its impact on profit of business under Explanation (baa) of Section 80HHC.

Analysis:
1. The High Court considered the interpretation of Section 28(iii)(d) and Explanation (baa) of Section 80 HHC of the Income Tax Act in relation to the profits derived from the transfer of DEPB credit. The court examined whether only the profits from such transfers should be considered for deduction under the mentioned sections. The decision of the Supreme Court in the case of Topman Exports v. CIT was cited, concluding that the treatment of DEPB credit sales for deduction under section 80HHC had already been settled by the Supreme Court.

2. The court analyzed whether DEPB credit could be categorized as a cost or value in the calculation of profits from transfer. It was questioned whether DEPB credit itself, granted under the relevant scheme, should be deemed a cost when determining the profit arising from the transfer of DEPB credit. The judgment did not delve into this issue extensively as the decision was primarily based on the precedent set by the Supreme Court in the Topman Exports case.

3. The judgment also addressed the treatment of income generated from the sale of DEPB license under Section 28 of the Income Tax Act and its impact on the profit of business as defined in Explanation (baa) of Section 80HHC. The court examined whether the income from the sale of DEPB license should be considered as profit of business and how it should be treated for the purpose of availing deductions under Section 80HHC. Ultimately, following the precedent established by the Supreme Court, the court dismissed the Revenue's Tax Appeals based on the conclusions drawn from the Topman Exports case.