2018 (9) TMI 105 - HC - Income Tax

Deduction u/s 80HHC - face value of Duty Entitlement Pass Book Scheme (DEPB) would fall under Section 28 (iiib) - differential between the sale value and face value of such instruments would fall under Section 28(iiid) thereof or not - Held that - Following an earlier decision of the Tribunal in the assessee s own case for the assessment year 2003-04 the Tribunal remanded the matter to the assessing officer for re-computation. In the decision of the Hon ble Supreme Court of India in the case of TOPMAN EXPORTS Vs. COMMISSIONER OF INCOME TAX 2012 (2) TMI 100 - SUPREME COURT OF INDIA it has been held that when DEPB is sold by a person his profit on transfer thereof less its face value would represent the cost of the said instrument and not the entire sum received by him. Nature of expenditure - whether expenditure for laying down power evacuation line to connect the assessee s plant to the grid belonging to the State Electricity Board would constitute revenue expenditure or capital expenditure? - Held that - In CIT vs- Gujarat Mineral Development Corporation (1997 (9) TMI 101 - SUPREME COURT) it was held that amount paid to Electricity Board for laying electric cables and electric supply transmission lines etc. for assessee s benefication plant for separating waste material from useful material was held to be of revenue expenditure. In National Organic Chemical Industries Ltd. vs- CIT (1993 (2) TMI 48 - BOMBAY HIGH COURT) it was held that expenditure on construction of jetty for facilitating trading operation of the assessee is a revenue expenditure in spite of the fact that the property of the jetty is to remain with the government but the assessee was responsible to keep the jetty in good order.

Summary

Issues:
1. Deduction under Section 80HHC of the Income Tax Act, 1961 regarding the face value of Duty Entitlement Pass Book Scheme (DEPB).
2. Whether expenditure for laying down power evacuation line to connect the assessee's plant to the grid constitutes revenue or capital expenditure.

Analysis:

Issue 1:
The main issue in this case revolves around the computation of deduction under Section 80HHC of the Income Tax Act, specifically concerning the treatment of the face value of DEPB under Section 28 (iiib) and the differential between the sale value and face value under Section 28(iiid). The High Court referred to a Supreme Court decision in the case of TOPMAN EXPORTS Vs. COMMISSIONER OF INCOME TAX, emphasizing that the profit on transfer of DEPB should be calculated as the sale value of DEPB less the face value, representing the cost of the DEPB. The Court clarified that DEPB and profit on transfer of DEPB should be treated as separate items of income under Section 28, thereby avoiding double taxation of the same income. The Tribunal's decision to remand the matter for re-computation based on these principles was upheld, dismissing the appeal.

Issue 2:
The second point of contention in this case pertains to whether the expenditure for laying down a power evacuation line to connect the assessee's plant to the grid constitutes revenue or capital expenditure. The Tribunal held that the expenditure should be treated as revenue expenditure since the power lines were the property of the Electricity Board and did not result in creating a depreciable asset for the assessee. Citing various court decisions, including the Supreme Court, the Tribunal concluded that the expenditure incurred for smooth and efficient running of the business did not result in an enduring benefit, thus qualifying as revenue expenditure. The High Court affirmed the Tribunal's decision, stating that there was no error of law committed in reaching the finding that the expenditure should be treated as revenue expenditure, dismissing the appeal.

In conclusion, the High Court upheld the Tribunal's decisions on both issues, emphasizing the correct treatment of DEPB and the power evacuation line expenditure as per the relevant provisions and judicial precedents.