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TMI Blog2010 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... value is covered u/s. 28(iiid) and not the entire amount received on sale of DEPB entitlements represents profits chargeable under Section 28(iiid) of the Income Tax Act, 1961; b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was erred in holding that the entire amount received on sale of DEPB entitlement does not represent profit chargeable u/s.28(iiid) of the Act; c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was erred in holding that the profit referred to in Section 28(iiid) requires any artificial cost to be interpolated; d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was erred in holding that while computing direct c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs attributable to export in order to arrive at profits derived from export. Explanation (d) to subsection (3) defines "direct costs" to mean costs "directly attributable to the trading goods exported out of India, including the purchase price of such goods". Explanation (e) defines "indirect costs" to mean costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover. 5. Explanation (b) to subsection (4C) of Section 80HHC defines the expression "export turnover" as follows: "(b) "export turnover" means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of subsection (2) of any goods or mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which has been urged on behalf of the Revenue, it has to be noted at the outset, that for the purposes of the formula in clause (b) of subsection (3), export turnover has to be reduced by direct and indirect costs attributable to export. Freight and insurance is expressly to be excluded from the sale proceeds received by the assessee, in computing the export turnover. The expression "direct costs" is defined to mean costs directly attributable to the trading goods exported out of India including the purchase price of such goods. Direct costs, therefore, cover the purchase price of the trading goods exported and costs which may be directly attributable to the trading goods. Freight and insurance cannot be regarded as costs directly attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of India" are used in a descriptive sense. In order that the costs can be regarded as direct costs within the meaning of Explanation (b), they must be attributable to the trading goods which are eventually exported out of India. 9. The view which we have taken on the construction of the expression "direct costs" in Explanation (b) to subsection (3) of Section 80HHC is consistent with the interpretation placed by the Supreme Court on the provisions of the Section in C.I.T. vs. Lakshmi Machine Works.{(2007) 160 Taxman 404 (SC)}. While defining the ambit of the expression "costs directly attributable to the trading goods", the Supreme Court observed thus: "Costs directly attributable to trading goods - These costs would generally embrace, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts foreign buyer and, therefore, no cost has been incurred by the assessee. The Delhi High Court relied upon the judgment of a Division Bench of the Calcutta High Court in C.I.T. vs. H.M.Exports Ltd.{(2005) 276 ITR 299}. In our view, the fact that the seller of the goods stands reimbursed in respect of certain expenses is not a consideration which would indicate that those expenses do not form part of the costs incurred by the seller. Costs do not cease to be costs because they are reimbursed to the seller as part of the sale consideration. In the circumstances, while we agree with the final conclusion which has been arrived at by the Delhi High Court, we have done so for the reasons indicated in our judgment. 12. For the aforesaid reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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