2013 (12) TMI 541 - HC - Income Tax

Whether receipts of DEPB are eligible for deduction u/s 80HHC - Held that - Following Topman Exports Vs. Commissioner of Income Tax 2012 (2) TMI 100 - SUPREME COURT OF INDIA - Receipts on Duty Entitlement Passbook Scheme (DEPB) would form part of the profits and gains of the business, it being the assistance given by the Government of India to an exporter to pay customs duty on its imports - The cash assistance received under the DEPB scheme would fall under Clause (iiib) of Section 28 - This is chargeable to income-tax under the head Profits and gains of business or profession - The Explanation (baa) under Section 80HHC of the Act giving the formula for working out the deduction - profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced by ninety per cent., of any sum referred to in clause (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 - 90% of the DEPB which is cash assistance against exports and is covered under clause (iiib) of Section 28 will get excluded from the profits of the business of the assessee, if such DEPB has accrued to the assessee during the previous year - Decided against Revenue.

Summary

Issues involved:
1. Interpretation of Section 80 HHC for supporting manufacturers regarding DEPB and Duty Draw Back.
2. Applicability of Supreme Court decision in a similar case.
3. Consideration of export incentives as part of sale price for deduction under Section 80 HHC.
4. Discrepancy in treatment of DEPB incentives under Section 28 and Section 80 HHC.

Issue 1: Interpretation of Section 80 HHC for supporting manufacturers regarding DEPB and Duty Draw Back:
The High Court addressed the question of whether the Appellate Tribunal was correct in allowing the assessee, a supporting manufacturer, to claim deduction under Section 80 HHC for DEPB and Duty Draw Back disclaimed by the exporter. The Tribunal's decision was based on the exclusion of duty drawback for calculating relief under Section 80 HHC, as per the Supreme Court ruling in a similar case. The assessee argued that the incentives received were part of the sale price based on a disclaimer certificate. The Assessing Officer disagreed, leading to the reopening of assessment. The Court analyzed the provisions of Section 80 HHC and the Kerala High Court decision, ultimately directing a remittal to the Assessing Officer to determine the value of incentives received by the assessee.

Issue 2: Applicability of Supreme Court decision in a similar case:
The Court considered the applicability of a Supreme Court decision in Commissioner of Income Tax Vs. Baby Marine Exports to the present case. The Tribunal had relied on this precedent to allow the assessee's appeal regarding duty drawback exclusion under Section 80 HHC. The Revenue argued that the Apex Court's ruling in Topman Exports Vs. Commissioner of Income Tax required the assessee to prove the value of DEPB passed on, which was not adequately addressed in the Tribunal's order. The Court emphasized the need to follow the Apex Court's guidance in determining the treatment of DEPB incentives.

Issue 3: Consideration of export incentives as part of sale price for deduction under Section 80 HHC:
The dispute revolved around whether the export incentives, such as DEPB, formed part of the sale consideration for the purpose of claiming deduction under Section 80 HHC. The Assessing Officer contended that the incentives were not part of the sale consideration, leading to the rejection of the assessee's claim. The Commissioner of Income Tax (Appeals) also rejected the plea, stating that benefits could not be passed on to the supporting manufacturer if the export house was ineligible for the deduction under Section 80 HHC. The Court highlighted the need to determine the value transferred as part of the sale consideration to resolve this issue.

Issue 4: Discrepancy in treatment of DEPB incentives under Section 28 and Section 80 HHC:
The Court referenced the Apex Court's decision in Topman Exports Vs. Commissioner of Income Tax to address the treatment of DEPB incentives under Section 28 and Section 80 HHC. The Apex Court clarified that DEPB incentives were part of the profits and gains of the business, falling under specific clauses of Section 28. The Court emphasized the exclusion of DEPB from the profits of the business under Section 80 HHC, based on the formula provided in the Act. The Court directed the Assessing Officer to consider the assessee's claim in light of the Apex Court's ruling and pass orders accordingly under Section 80 HHC.

This detailed analysis of the judgment provides insights into the interpretation of tax laws concerning export incentives for supporting manufacturers and the significance of Supreme Court precedents in resolving such disputes.