2012 (12) TMI 455 - HC - Income Tax

DEPB Credit - Income u/s 28 - Deduction under Section 80 HHC - held that - under Clause (iiia) of Section 28, a reference to Imports and Exports (Control) Act, 1947 should be taken to be a reference to Foreign Trade (Development and Regulation) Act and the scheme for SIL having been notified under the latter Act, which must be read into Section 28(iiia), the profits of sale of SIL would fall to be assessed under Section 28 (iiia). If that is so, the profits of sale of SIL would be assessed as business profits; then 90% thereof would be excluded from the business profits and, thereafter, the excluded profits would be added back under the first proviso to Section 80HHC (3) in the same proportion as the export turnover bears to the turnover of the business carried on by the assessee. This is another way to look at the controversy and resolve it. - Deduction allowed - Decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 80 HHC of the Income Tax Act, 1961 regarding deduction eligibility on DEPB credit.
2. Analysis of whether moneys received on the sale of Special Import License (SIL) qualify for deduction under Section 80 HHC.

Issue 1: Interpretation of Section 80 HHC regarding DEPB Credit:
The High Court examined appeals filed by the Revenue under Section 260A of the Income Tax Act, focusing on whether the assessee could claim a deduction under Section 80 HHC for DEPB credit utilized. The court referred to the Supreme Court judgment in Topman Exports v. Commissioner of Income-Tax, which clarified that DEPB credit is considered as "cash assistance" under Section 28(iiib) and is taxable under "Profits and gains of business or profession." The court held that 90% of the DEPB credit should be excluded from the assessed profits under Section 80 HHC. The court directed the Assessing Officer to re-compute the deductions in line with the law established by the Supreme Court.

Issue 2: Eligibility of SIL Sale Proceeds for Section 80 HHC Deduction:
Regarding moneys received from the sale of SIL, the Revenue argued that it should be excluded from assessed profits under Section 80 HHC. The court disagreed with this interpretation, stating that the exclusion criteria in Explanation (baa) of Section 28 should not be applied to SIL proceeds. The court emphasized that the exclusion applies only to specific receipts mentioned in Section 28 and not to all receipts of a similar nature. Additionally, the court highlighted that the SIL scheme falls under the Foreign Trade (Development and Regulation) Act, and profits from SIL sales should be assessed under Section 28(iiia). The court cited a CBDT circular to support its interpretation. Ultimately, the court ruled in favor of the assessee, directing the Assessing Officer to re-compute the deduction under Section 80 HHC for both DEPB credit and SIL sale proceeds.

In conclusion, the High Court dismissed all appeals of the Revenue, upholding the eligibility of the assessee for deductions under Section 80 HHC for both DEPB credit and moneys received on the sale of SIL, based on the detailed legal analysis and interpretations provided in the judgment.