TMI Blog2012 (5) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay High Court in the case of CIT v . Kalpataru Colours Chemicals [2010] 328 ITR 451/192 Taxman 435, held that the entire amount received by an assessee on sale of DEPB represents profit on transfer of DEPB, under Section 28(iiid) of the Act. In Topman Exports v. CIT [2012] 205 Taxman 119/18 taxmann.com 120 (SC) Hon'ble the Supreme Court has, however, held that the entire amount received by the assessee less the face value of the DEPB would represent profit on transfer of DEPB by the assessee. The view taken by Bombay High Court stands overruled and the judgment of Bombay High Court in CIT v. Topman Exports [IT Appeal No. (L) 3019 of 2009, dated 29.6.2010], has been reversed. It also follows that the view of this Court in CIT v. F.C. Sondhi Co. (P) Ltd. [2011] 203 Taxman 99/16 taxmann.com 167 and in any other connected matter would no longer holds the field and are deemed to be overruled since the view of this Court is based on the judgment of Bombay High Court in the case of Kalpataru Colours Chemicals ( supra ). 2. The facts are being referred from ITA No. 361 of 2011 wherein the common order, dated 30.6.2011, passed by the Chandigarh Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eable to tax under Section 28(iiib) at the time of accrual of income i.e. when the application for Duty Entitlement Passbook is filed with the competent authority pursuant to the exports made and that the profits on the sale of Duty Entitlement Passbook representing the excess of the sale proceeds over the face value is liable to be considered under Section 28(iiid) at the time of sale? 5. In its judgment, on the first question of law formulated under (a), the Bombay High Court held that the Tribunal was not justified when it held that the entire amount received on the sale of the DEPB did not represent profits chargeable under Section 28(iiid) of the Act and that the face value of the DEPB shall be deducted from the sale proceeds of the DEPB. On the second question of law formulated under (b), the Bombay High Court in its judgment did not agree with the Tribunal that the face value of DEPB is to tax under Section 28(iiib) at the time of accrual of income of the Assessee. The High Court, thus, held that the entire sale consideration for transfer of DEPB would fall within the purview of Section 28(iiid) of the Act. In some of the cases, review petitions were filed before the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 28(iiid) of the Act. 8. Eventually, the Tribunal directed the Assessing Officer to compute the deduction under section 80HHC of the Act in line with the aforementioned observations after affording reasonable opportunity to the assessee (A-6). 9. Having heard learned counsel for the parties at length and perusing the paper books with their able assistance, we are of the considered view that the matter is no longer res integra as the same has been finally settled by Hon'ble the Supreme Court in a recent judgment rendered in the case of Topman Exports ( supra ). 10. It would be profitable to first notice a few facts of the case of Topman Exports ( supra ). Topman Exports-assessee was a manufacturer and exporter of fabrics and garments. During the previous year relevant to Assessment Year 2002-03 it sold DEPB and DFRC (Duty Free Replenishment Certificate), which had accrued on export of its products. The assessee filed a return for Assessment Year 2002-03 claiming a deduction of ₹ 83,69,303/- under section 80HHC of the Act. The Assessing Officer held that if the profit on transfer of the export incentives was deducted from the profits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t represent the entire sale value of DEPB but the sale value of DEPB less the face value of DEPB. With these reasons, the Tribunal set aside the orders of the Assessing Officer and CIT (Appeals) and directed the Assessing Officer to compute the deduction under Section 80HHC of the Act accordingly. 12. Against the judgment and orders of the Tribunal, CIT filed appeals in all the cases before the Bombay High Court, which disposed of the appeals in terms of the judgment rendered in the case of Kalpataru Colours Chemicals ( supra ). The judgment rendered by the Bombay High Court was subject matter of challenge before Hon'ble the Supreme Court. Affirming the reasoning of the Tribunal and allowing the appeals of the assessee, their Lordships' of Hon'ble the Supreme Court overruled the judgment of Bombay High Court rendered in the case of Kalpataru Colours Chemicals ( supra ). After noticing paras 4.37 and 4.42 of the Handbook on DEPB issued by the Government of India and paras 7.14, 7.15, 716 and 7.38 of the Export and Import Policy, 1997-2002, as notified by the Central Government vide notification dated 31.3.2000, in para 17 of the judgment it has been observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above DEPB on transfer of DEPB would represent profit on the transfer of DEPB. It has been, thus, opined that while the face value of the DEPB would fall under Clause (iiib) of Section 28 of the Act, the difference between the sale value and the face value of the DEPB would fall under Clause (iiid) of Section 28 of the Act. It has been specifically observed by their Lordships' that the Bombay High Court was not right in taking the view that the entire sale proceeds of the DEPB realised on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB. In paras 24 and 25 of the judgment, Hon'ble the Supreme Court found following errors in the view taken by the Bombay High Court: 24. In taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is not nil because the person acquires it b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment: 37.The aforesaid discussion would show that where an assessee has an export turnover exceeding ₹ 10 crores and has made profits on transfer of DEPB under Clause (d) of Section 28, he would not get the benefit of addition to export profits under third or fourth proviso to Sub-section (3) of Section 80HHC, but he would get the benefit of exclusion of a smaller figure from profits of the business under Explanation (baa) to Section 80HHC of the Act and there is nothing in Explanation (baa) to Section 80HHC to show that this benefit of exclusion of a smaller figure from profits of the business will not be available to an Assessee having an export turnover exceeding ₹ 10 crores. In other words, where the export turnover of an Assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under Clause (iiid) of Section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. 38. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not have the export turnover exceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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