2011 (4) TMI 858 - HC - Income Tax

Sale of DEPB - whether total sale consideration inclusive of face value of DEPB and premium amount received thereof represents profit chargeable under sections 28? - Held that - As decided in CIT v. Kalpataru Colours & Chemicals (2010 (6) TMI 63 - BOMBAY HIGH COURT) when Section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB - face value is not required to be deducted from the sale proceeds - the entire amount of sale proceeds is taxable under section 28(iiid) - It is not permissible to bifurcate the proceeds of the DEPB into face value for section 80 HHC r.w.s. 28(iiid) - matter was remanded to the Tribunal for fresh decision in accordance with law.

Issues involved:
1. Interpretation of profit under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961.
2. Calculation of profit on transfer of DEPB entitlement.
3. Deduction of face value of DEPB from sale price for profit calculation.
4. Determination of deduction under Section 80HHC of the Income Tax Act, 1961.
5. Exclusion of 90% amount of DEPB while calculating profits.
6. Consideration of export turnover for entitlement to deduction u/s 80HHC.
7. Impact of Mumbai High Court's judgment on bifurcation of DEPB proceeds.
8. Applicability of conditions for deduction u/s 80HHC based on export turnover exceeding Rs.10 crores.

Analysis:

1. The primary issue in this appeal pertains to the interpretation of profit under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961. The appellant questions whether the total sale consideration, including the face value of DEPB and premium amount, constitutes profit chargeable under the mentioned sections. The ITAT's decision not to consider the entire amount inclusive of premium as profit is being challenged.

2. Another aspect under consideration is the calculation of profit on the transfer of DEPB entitlement. The ITAT's approach of deducting the face value of DEPB from the sale price for determining profit under the relevant sections is being contested. The appellant argues that the face value should not be treated as the cost incurred by the assessee to acquire the DEPB.

3. The issue of deduction under Section 80HHC of the Income Tax Act, 1961 is also raised, specifically regarding the artificial cost interpolation and the exclusion of 90% of the DEPB amount while calculating profits. The appellant questions the ITAT's decision on the computation of deduction under Section 80HHC based on retrospective amendments.

4. Furthermore, the relevance of export turnover exceeding Rs.10 crores in determining the entitlement to deduction u/s 80HHC is being debated. The appellant challenges the ITAT's stance on the conditions set out in the third proviso to sec.80HHC and its impact on the deduction for profit on transfer of export incentives.

5. The judgment of the Mumbai High Court in CIT Vs Kalpataru Colours and Chemicals is cited, highlighting the prohibition on bifurcating DEPB proceeds for section 80 HHC purposes. The impact of this judgment on the present case is being considered, especially concerning the export turnover conditions for claiming deductions under Section 80HHC.

6. The Court, after considering previous orders on similar matters, decides to dispose of the appeal accordingly. The appellant's reliance on earlier judgments and the remand of similar cases to the Tribunal for fresh decisions are crucial in the resolution of the present appeal. The respondent is granted liberty to challenge the order if aggrieved.

This detailed analysis covers the various legal and interpretational aspects addressed in the judgment, providing a comprehensive understanding of the issues involved and the Court's decision-making process.

← Previous Next →