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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 ..... nsfer 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 aforementioned Question 'A' in that regard. As can be noted that decision of Tribunal in M/s. Topman Exports (Supra) has been set-aside by the Bombay High Court in case of C.I.T Vs. Kalpataru Colours and Chemicals, reported in 328 ITR, 451, it is candidly pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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) of section 28 assumes significance. Section 28 of the Act pertains to profits and gains of business of profession and items enumerated in different clauses thereof are to be treated as income chargeable to income tax under the head of profits and gains of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute 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, the sale by way of exports, substantial amounts received by the assessee towards processing charges. The Apex Court while holding that such amount cannot form part of the benefits under section 80HHC of the Act, observed that formula in section 80HHC of the Act provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 29. While trying to appreciate the reasons for introduction of clause (iiid) to section 28, we may at this stage advert to the Legislative history. In case of the P & G Enterprise Pvt. Ltd., ITAT Delhi Bench examined the question of treatment of DEPB benefits upon transfer for the purpose of calculating deduction eligible under section 80HHC of the Act. Case of the Revenue was that 90 per cent of such receipts should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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, the department took the view that it does not fall under section 28 read with section 80HHC. I am not going into the sub sections. Therefore, this not to be counted as exempted export profit. This must be added back as taxable profit. The assessee took a different view. In appeal, the ITAT has observed that the same falls under section 28(iv), not under section 28(iiib) or (iiic). It falls under section 28(iv). Then, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of makers of the Act, pro bono publico." 35. In the case of I.T.Commissioner v. Sodra Devi, 1957 SC 832, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the earlier years. 39. We may notice that having excluded the benefit of DEPB upon sale by virtue of amended explanation (baa), legislature has brought back such benefit by virtue of further proviso to sub-section (3) to section 80HHC subject to certain conditions. For assessee having turnover of less than Rs.10 crores, such benefit is given unconditionally. But for assessee's having turnover of more than Rs.10 crores, Legislature in its wisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 free of cost, the assessee undertook to the Government a corresponding obligation under the agreement to supply free of cost to the Government as a matching contribution a specified quantity of weaning food at a price not exceeding 10 per cent profit over the cost of production. It was on this background that the Division Bench observed that where the grant is coupled with a liability to a matching contribution, its acceptance by itself creates a liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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