2014 (3) TMI 941 - 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 Involved:
Treatment of receipt of the assessee on sale of DEPB scrips for the purpose of computation of deduction under section 80HHC of the Income Tax Act, 1961.

Analysis:

1. Substantial Questions of Law:
The Tax Appeal was admitted framing substantial questions of law regarding the treatment of the receipt of the assessee on the sale of DEPB scrips for computing deductions under section 80HHC of the Income Tax Act, 1961. The questions raised included whether the Income Tax Appellate Tribunal (ITAT) correctly directed the Assessing Officer to allow deductions under section 80HCHC after re-computing the same by excluding 90% of the profits on the transfer of DEPB license. Additionally, it questioned whether the ITAT erred in not considering the whole credit received under the DEPB Scheme as taxable under section 28(iv) of the IT Act, thus potentially rendering the provisions of section 28(iv) redundant. The third question raised was about the harmonious construction of sections 28(iii d) and 28(iv) of the IT Act in relation to the taxation of profit on transfer of DEPB and the credit under the DEPB Scheme.

2. Decision and Precedent:
The issue at hand was found to be squarely covered by the decision of the Supreme Court in the case of Topman Exports vs. Commissioner of Income-Tax. The Supreme Court's ruling in this case, as reported in [2012]342 ITR 49(SC), provided clear guidance on the treatment of DEPB scrips for computing deductions under section 80HHC. As a result, the questions raised were answered in favor of the assessee, leading to the dismissal of the Revenue's Tax Appeal.

In conclusion, the judgment by the Gujarat High Court, delivered by Justice Akil Kureshi, resolved the issues surrounding the treatment of the assessee's receipt on the sale of DEPB scrips for the purpose of computing deductions under section 80HHC. The decision was based on the precedent set by the Supreme Court in a similar case, providing clarity on the correct interpretation of the relevant tax provisions.