Case Note & Summary
The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 arose from a decision of the Special Bench of the Income Tax Appellate Tribunal (ITAT) dated 11 August 2009. The assessee, Kalpataru Colours and Chemicals, a trader and exporter in dyes and chemicals, filed a return for Assessment Year 2003-04 declaring total income of Rs.1.06 Crores and claimed a deduction under Section 80HHC of Rs.78.01 Crores. The total export turnover was Rs.12.82 Crores, and the assessee received export incentives of Rs.1.89 Crores, including Rs.1.87 Crores from the sale of Duty Entitlement Passbook (DEPB) credit. The Assessing Officer declined the Section 80HHC deduction on the ground that under the third proviso to sub-section (3), DEPB credit could be considered for deduction only if the assessee had an export turnover of more than Rs.10 Crores and fulfilled two conditions: (i) the assessee must have had an actual export turnover of more than Rs.10 Crores, and (ii) the DEPB credit must be included in the export turnover. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, and the Revenue appealed to the ITAT. The ITAT held that the entire amount received on sale of DEPB does not represent profits chargeable under Section 28(iiid) and that the face value of DEPB should be deducted from the sale proceeds. The Revenue appealed to the High Court. The High Court framed two questions of law: (a) whether the Tribunal was justified in holding that the entire amount received on sale of DEPB does not represent profits chargeable under Section 28(iiid) and that the face value should be deducted; and (b) whether the Tribunal was justified in holding that the face value of DEPB is chargeable under Section 28(iiib) at the time of accrual (when application is filed) and that the excess over face value is chargeable under Section 28(iiid) at the time of sale. The High Court allowed the Revenue's appeal, holding that the face value of DEPB credit accrues when the application is filed and is chargeable under Section 28(iiib) at that time, and the excess of sale proceeds over face value is chargeable under Section 28(iiid) at the time of sale. The court set aside the ITAT's order and restored the Assessing Officer's order.
Headnote
A) Income Tax - Duty Entitlement Passbook (DEPB) - Taxation of DEPB Credits - Sections 28(iiib), 28(iiid), 80HHC Income Tax Act, 1961 - The court held that the face value of DEPB credit accrues when the application is filed with the competent authority and is chargeable under Section 28(iiib) at that time. The excess of sale proceeds over face value is chargeable under Section 28(iiid) at the time of sale. The Tribunal erred in holding that the entire sale proceeds are not profits under Section 28(iiid) and that face value should be deducted from sale proceeds. (Paras 1-10) B) Income Tax - Export Incentives - Deduction under Section 80HHC - Third Proviso to Section 80HHC(3) - Export Turnover Threshold - The court noted that for assessees with export turnover exceeding Rs.10 Crores, DEPB credit can be considered for deduction under Section 80HHC only if the conditions of the third proviso are fulfilled. The Assessing Officer had declined deduction on this ground. (Paras 2-3)
Issue of Consideration
Whether the face value of DEPB credit is chargeable to tax under Section 28(iiib) at the time of accrual (when application is filed) and whether the excess of sale proceeds over face value is chargeable under Section 28(iiid) at the time of sale, and whether the entire sale proceeds of DEPB are not profits chargeable under Section 28(iiid).
Final Decision
Appeal allowed. The order of the ITAT dated 11 August 2009 is set aside. The Assessing Officer's order is restored. The questions of law are answered in favor of the Revenue.
Law Points
- Duty Entitlement Passbook (DEPB) credit
- Section 28(iiib) accrual
- Section 28(iiid) sale profits
- Section 80HHC deduction
- export turnover threshold
- third proviso to Section 80HHC(3)
