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TMI Blog2013 (3) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal is right in law and on facts in holding that while computing the profit of the business under Explanation (BA) of Section 80HHC, 90 percent of the profits on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of the DEPB credit? 2. After hearing learned counsel Mr. Manish Bhatt appearing for the Revenue. Notice was issued to the other side on 21st December, 2011 for final disposal of this matter only with regard to Question No. 'A'. 3. Assessing Officer was of the opinion that the respondent -assessee had wrongly claimed deduction of DEPB credit and DEPB premium., and therefore, deduction u/s. 80HHC of the Act was disallowed. . 4. CIT(Appeals) was of the opinion that assessee's export exceeded Rs.10.00 crores, and therefore, it was not eligible for deduction u/s. 80HHC of the Act. 5. When challenged before the Tribunal, it set-aside the order of CIT(Appeals) and remanded the file to the adjudicating authorities for reconsideration, relying on the decision in case of M/s. Topman Exports reported in 318 ITR (80). Challenging the impugned order of the Tribunal, this Tax Appeal is preferred proposing aforeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , section 80HHC of the Act provides for deduction in export profit at the rates specified in sub-section (1b) thereof. For ascertaining the eligible export profit of an assessee for deduction under section 80HHC of the Act, a formula is envisaged in sub-section (3) by virtue of which, profit eligible for deduction would be worked out by way of ascertaining the business profit of the assessee and multiplying the same by a fraction of export profit over total profit. In other words, the eligible export profit of the assessee would be a portion of its business profit wherein export turnover would be the numerator and the total turnover would form the denominator. By virtue of explanation (baa) to section 80HHC, certain incomes have to be excluded from the computation of the business profit. These include 90 per cent of the sums referred to in clause (iiia) to clause (iiie) of section 28 and other receipts by way of property, commission, interest, rent, etc. 23. We have also noticed that for computation of total turnover by virtue of explanation (ba), sums referred to clause (iiic) to clause (iiie) of section 28 have also been excluded. 24. It is in this respect that clause (iiid) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le transferring such credit. The Bombay High Court in appeal by the Revenue, came to the conclusion that what is received on transfer of DEPB credit is the profit. The amount equivalent to face value of DEPB as well as the amount received in excess of DEPB would constitute the profit of business under section 28(iiid). The Bombay High Court referred to the decision of the Apex Court in the case of Ravindranathan Nair (supra) and proceeded to hold that clauses (iiia) to (iiic) of section 28 of the Act pertained to incentive incomes. The Bombay High Court also traced the history behind introduction of clause (iiid) to section 28 and referred to the Finance Minister s speech for introduction of such amendment and ultimately concluded that the entire amount received by the assessee upon transfer of DEPB credit would be included within section 28(iiid) and consequently 90 per cent thereof would have to be excluded for the purpose of section 80HHC by virtue of explanation (baa). 27. In the case of K.Ravindranathan Nair (supra), the Apex Court was examining the claim of an assessee for deduction under section 80HHC of the Act with respect to business profits which included besides, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit and Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. 23. We are of the view that Department has correctly applied AS-2 as could be seen from the following illustration : Expenditure Amount (Rs) Income Amount (Rs.) Opening Stock 100 Sales 1,000 Purchases (including customs duty paid) 500 Duty drawback received 100 Manufacturing overheads 300 Clocking 200 Administrative, selling and distribution exp. 200 Net profit 200 1,300 1,300 Note : In above example, Department is allowing deduction on profit of Rs. 100 under Section 80-IB of the 1961 Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the speech referring to this clause reads as under: We are now dealing with only the period 1-4- 1998 to 31-3-2005. That is a period of about seven years. This problem did not arise before 1-4-1998. This problem does not arise after 1-4-2 5. In this period of seven years, the relevant section I am not getting into an exposition of the law are section 28 and section 80HHC. These are the two sections which are relevant. Now, the department's interpretation is that DEPB credit sale I will explain that it is is not export profit. What is a DEPB credit sale ? A DEPB credit sale is, that on your DEBP Passbook, if you have certain credits in your favour, you can import items against the credit without paying duty. But you can also sell the credit to another importer. If you actually import, it is part of export-import. If you sell it to another importer and make a profit on that the premium, it is not export profit. It is simply business profit because the income you earn is not in foreign exchange, it is in Indian rupees. It does not arise out of export activity or important activity. It arises because you are trading in a License which has a premium in the market. So, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the particular provisions introduced by the Finance Bill. 33. In the case of M/s.Surana Steels Pvt. Ld. Dy. I.T.Commissioner, reported in AIR 1999 SC 1455, the Apex Court referred to the speech of the Finance Minister for introducing section 115J to interpret the said provisions. 34. In addition to the above principles adopted by the Apex Court, the principles of mischief rule also referred to as the Heydon's rule in interpreting the Legislative provisions is by now well-known and well settled. In the case of Bengal Immunity Co. v. State of Bihar, AIR 1955 SC 661, the Apex Court observed as under: It is a sound rule of construction of statute firmly established in England as far back as 1584 when Heydon's case was decided that for the sure and true interpretation of all Statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered: 1st What was the common law before making the Act, 2nd what was the mischief and defect for which the common law did not provide, 3rd What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth, and 4th the true reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by assessee would be his income under section 28 of the Act. If we treat only the premium on sale of DEPB credit covered under section 28(iiid), it would lead to anomalous situation. An assessee who retains the DEPB credit would pay tax on entire amount while one who transfers it would offer only to difference for tax. 37. Much was sought to be made out of the difference in language between clause (iiic) and (iiid) of section 28 of the Act. While in clause (iiic) language used is any duty of customs or excise re-paid or re-payable as drawback ... whereas in clause (iiid) words used are any profit on transfer of Duty Drawback Pass Book Scheme .... . To our mind this difference in language does not convey intention of the Legislature to treat the two benefits differently. The difference in language appears to be on account of difference in the two schemes while DEPB is freely transferable, Duty Drawback scheme is not. 38. Contention that the Revenue's stand would lead to double taxation is not well founded. None of the assessee's have established before us that out of the total consideration received upon sale of DEPB credit, the face value thereof was offered to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of and in such cases, no actual benefit is available to an assessee whereas in the cases covered by sub-sections (iiib) or (iiic), there is no scope of non-utilization of the cash assistance or drawback mentioned therein and as such, those are automatically chargeable to tax. We are concerned with entirely different situation and the decision of the Calcutta High Court would not govern the present set of cases. 41. The decision in the case of Kheda District Cooperative Milk Producers Union (supra), on which heavy reliance was placed by the counsel for the assessee, was a case where the assessee received certain raw materials without payment through the Government from UNICEF. The question was what could be treated the value of such raw material. The Division Bench noted that the assessee received raw material in the forms of soya flour and skimmed milk powder without any payment. Such raw material was for the purpose of manufacturing high protein food. Such raw material was received under an agreement with the Government of India, under which the Government of India undertook to arrange for the raw material under the aegis of UNICEF. As against the supply of raw material fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the conclusion that on transfer of DEPB credit by an assessee only the amount in excess of the face value thereof would form part of profit as envisaged in clause (iiid) of section 28. We, therefore, answer the question in favour of the Revenue and against the assessees. 45. Before concluding we reiterate that we have proceeded on the basis of three unquestioned premises (i) that the statutory provisions applicable in all cases is same as obtained in the assessment year 2003-04, (ii) that all assessees at the relevant time had turnover of more than 10 crores and (iii) that the cases involved are instances of transfer of DEPB credits. 46. In the result, to the extent mentioned above, decisions of the Tribunal involved in respective appeals are reversed. The appeals are allowed accordingly. 47. At this stage, learned Senior Advocate Shri Soparkar requested that the Court may grant certificate under Articles 133 and 133A of the Constitution as the case involves substantial question of law of general importance. We are of the opinion that looking to the nature of controversy, the all India repercussion on large number of assessees as also the question of interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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