2013 (6) TMI 225 - HC - Income Tax

Profit on transfer of the Duty Entitlement Pass Book Scheme - whether required to be taken into consideration and not the quantum of sale proceeds for the purpose of sub-section iii(d) of Section 28 and Section 80 HHC - Held that - As decided in Topman Exports s case 2012 (2) TMI 100 - SUPREME COURT OF INDIA 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 in favor of assessee.

Summary

Issues:
Interpretation of Section 28 and Section 80 HHC of the Income Tax Act regarding the profit on transfer of Duty Entitlement Pass Book Scheme for deduction purposes.

Analysis:

Issue 1: Interpretation of Section 28 and Section 80 HHC

The High Court considered the substantial question of law regarding the interpretation of Section 28 and Section 80 HHC of the Income Tax Act in relation to the profit on transfer of the Duty Entitlement Pass Book Scheme. The question revolved around whether the profit on transfer of the scheme or the quantum of sale proceeds should be taken into consideration for the purpose of deduction under the mentioned sections.

Issue 2: Precedent Set by Hon'ble Apex Court

During the arguments, both parties conceded that the issue at hand had already been addressed by the Hon'ble Apex Court in the case of Topman Exports versus Commissioner of Income-Tax. The Supreme Court held that where an assessee has an export turnover exceeding Rs. 10 crores and has made profits on transfer of DEPB under clause (d) of section 28, the benefit of addition to export profits under section 80 HHC is not applicable. Instead, the assessee is entitled to the exclusion of a smaller figure from the "profits of the business" under Explanation (baa) to section 80HHC. The Court emphasized the strict interpretation of taxing statutes and the entitlement to exemption based on the language of the statute.

Issue 3: Decision and Direction of the High Court

Based on the precedent set by the Hon'ble Apex Court, the High Court allowed the appeal, setting aside the order of the Income-Tax Appellate Tribunal. The Assessing Officer was directed to compute the deduction under Section 80HHC of the Income Tax Act on export proceeds in line with the judgment in the Topman Exports case. The question framed in the case was answered in favor of the assessee, and the parties were directed to bear their own costs.

This judgment clarifies the interpretation of Section 28 and Section 80 HHC of the Income Tax Act with respect to the profit on transfer of the Duty Entitlement Pass Book Scheme, providing guidance on the computation of deductions for eligible assessees with export turnovers exceeding Rs. 10 crores.