2013 (6) TMI 132 - HC - Income Tax

Calculation of profits from transfer of DEPB licenses - what treatment the DEPB credits should be given for the purpose of computing assessee s claim of deduction u/s 80IA and 80IB - whether Tribunal erred in not applying the ratio of judgment of Topman Exports vs. CIT 2012 (2) TMI 100 - SUPREME COURT OF INDIA & relying on Liberty India 2009 (8) TMI 63 - SUPREME COURT - whether Tribunal erred by not holding that the ratio of decision in case of Liberty India supra and Topman Exports (supra) not consistent with each other and can coexist and in-fact supplement each other? - Held that - Tribunal did not commit any error. The question which the assessee raises in the present Tax Appeal was precisely before the Apex Court in the case of Liberty India (supra) wherein context of the deduction u/s 80IA and 80IB held that the benefits of DEPB (as also duty drawback, rebate, etc.) would constitute independent source of income beyond the first degree nexus between the profits and the industrial undertaking. Thus this decision leaves no scope for any doubt or debate. In contrast, the decision in the case of Topman Exports (supra) was rendered in the background of deduction u/s 80HHC. The question was to what extent the receipts of sale of DEPB scrips should be ignored for the purpose of computing such deduction. It was in this background the Supreme Court held not the entire sale proceeds but the profit margin, which would be a part of the sale proceeds, should be ignored while computing the deduction. Both the judgments, therefore, operate in different fields. The Tribunal correctly applied the ratio laid down in Liberty India (supra) since the facts in the present appeal are identical. - Decided against the assessee.

Summary

Issues:
1. Interpretation of the judgment in the case of Topman Exports vs. CIT regarding calculation of profits from transfer of DEPB licenses.
2. Application of the decision in Liberty India case in conjunction with the Topman Exports judgment.
3. Determination of eligible profit under Sections 80IA and 80IB of the Income-tax Act concerning DEPB credits.
4. Dispute over whether the profit margin from sale of DEPB scrips should be considered for deduction under Section 80IB.

Analysis:
1. The primary issue in this judgment revolves around the treatment of DEPB credits for computing the assessee's deduction under Sections 80IA and 80IB of the Income-tax Act for the assessment year 2002-03. The assessee contended that only the profit margin from the sale of DEPB scrips should be considered for deduction, citing the Topman Exports case. However, the revenue authority and the Tribunal rejected this argument, relying on the decision in the Liberty India case. The Tribunal's decision was based on the understanding that DEPB benefits constitute independent income beyond the direct nexus with the industrial undertaking, as clarified by the Supreme Court.

2. The appellant argued that the Tribunal erred in following the Liberty India decision and should have favored the assessee based on the Topman Exports judgment. The counsel for the appellant emphasized that the specific issue raised in this case was not addressed in the Liberty India case. However, the Court disagreed with this contention, stating that the question raised by the assessee was indeed considered in the Liberty India case, as evidenced by the facts presented in the judgment.

3. The Supreme Court's ruling clarified that DEPB benefits, along with duty drawback and rebates, constitute independent income sources beyond the direct nexus with the industrial undertaking. This decision established a clear distinction between the treatment of such benefits under Sections 80IA and 80IB of the Act. While the Topman Exports case focused on the deduction under Section 80HHC and the exclusion of profit margin from DEPB sale proceeds, the Liberty India case addressed the broader concept of independent income sources in the context of industrial undertakings.

4. Ultimately, the Court upheld the Tribunal's decision, emphasizing that the judgments in the Liberty India and Topman Exports cases operate in different contexts and fields. The Tribunal correctly applied the principles established in the Liberty India case to the present appeal, as the facts align with the scenario addressed in that judgment. Consequently, the Tax Appeal was dismissed based on the consistent application of legal precedents and interpretations of the Income-tax Act.

This detailed analysis of the judgment highlights the nuanced legal interpretations and precedents considered by the Court in resolving the issues raised by the appellant regarding the treatment of DEPB credits for deduction purposes under the Income-tax Act.