TMI Blog2008 (3) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of DEPB entitlement. However, the same was again adjusted under the proviso to sub-s. (3) of s. 80HHC. In the course of assessment proceedings, the AO noticed that assessee was entitled to import entitlement under Duty Exemption Pass Book (DEPB) Scheme and the assessee had sold the said entitlement for Rs. 52,37,512 which was credited to the P L a/c under the head 'License nomination'. The AO asked the assessee to explain as to (i) how such amount could be covered under cls. (iiia), (iiib) and (iiic) of S. 28 of the Act and (ii) why the same should not be treated under s. 28(iv) of the Act. In reply, it was submitted on behalf of the assessee that export incentive by way of DEPB entitlement does not fall under any of the categories mentioned in cl. (baa) of Explanation to s. 80HHC and therefore question of excluding 90 per cent of the same did not arise. It also relied on the Board Instructions dt. 23rd Feb., 1998 to the effect that the profit derived from the sale of export quota is to receive the same treatment as profit derived from sale of import entitlement which is eligible for deduction under s. 80HHC of the Act. However, the AO was not satisfied with the explanation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction to the extent of Rs. 47,13,761 being 90 per cent of Rs. 52,37,512 representing sale of DEPB import entitlement. This figure was adjusted against the negative figure of Rs. 7,52,448. As a result thereof, the eligible amount of 'profits of business' was computed at Rs. 39,61,313 as against Rs. 42,12,976 computed by the assessee. Impliedly, the adjustment of Rs. 2,61,663 made by the AO in the original order of assessment in respect of duty drawback and NOE quota transfer was withdrawn. Consequently, 80 per cent of Rs. 39,61,313 was allowed as deduction under s. 80HHC of the Act. Aggrieved by the order of learned CIT(A), the assessee as well as the Revenue have filed appeals before the Tribunal. The assessee has also filed a cross-objection. 5. The learned counsel for the assessee has raised various contentions before us. The first contention, raised for the first time, by the assessee's counsel is that profit on the sale of import entitlement under the DEPB Scheme falling under s. 28(iiid) cannot be considered as income since such receipt has not been brought within the ambit of the definition of income in s. 2(24) of the Act. Consequently, the same should be excluded from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression 'profits 'and gains'. In this connection, the decision of Hon'ble Allahabad High Court in the case of Agra Chain Manufacturing Co. vs. CIT 1978 CTR (All) 415 : (1978) 114 ITR 840 (All) is also noteworthy. In that case, the assessee had sold the import entitlement and the AO held the same to be assessable as income under s. 28(iv) of the Act. The contention was raised before the Hon'ble High Court that such receipt was a capital receipt being in the nature of bounty or gift and therefore could not be considered as revenue receipt. The Hon'ble High Court rejected such contention by holding that the same could not be considered as a bounty or a gift. Such receipt was held to be revenue receipt. It is clear from the said judgment that even prior to insertion of the cl. (iiid) of s. 28 of the Act, such receipt was considered as income under s. 28 of the Act. Further, in our opinion, if assessee is carrying on a business activity, then any receipt arising from the activity which is incidental to the main activity of the business would be treated as revenue receipt chargeable to tax. For example, the sale of scrap arising from the main business activity has to be held to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood in the commercial parlance. 7. At this juncture, the learned counsel for the assessee was asked to explain as to how the profit should be computed in this case. In response to the same, various submissions have been made by him. Firstly, it is submitted that object behind the grant of DEPB credit is to neutralize the incidence of customs duty on the import contents of the export products. Reference was made to para 7.14 of Exim Policy, 1997-2002 as well as para 4.3 of Foreign Trade Policy, 2004-2009. According to him, credit under the scheme is given equal to an amount mentioned on the instrument of DEPB entitlement against the customs duty liability. It was vehemently submitted that the exporter assessee had already paid an equal amount on its purchases and therefore value of customs duty mentioned on the instrument of DEPB import entitlement should be treated as cost which should be deducted from the sale proceeds of such entitlement while computing the profits on sale of DEPB entitlement. It was further submitted that refund of such duties granted in the form of DEPB is based on the estimated element of taxes/duties borne by the exporter in relation to the products expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Certificate (DFRC) and (iii) Duty Entitlement Pass Book (DEPB). The purpose behind the scheme is to allow the assessee to import the input required for export production without payment of customs duty. We are not concerned with the first two parts of the scheme. It would be suffice to say that advance licence is issued for duty free import of inputs subject to actual user condition. Such licence or material imported is not transferable. DFRC is issued to import of inputs without payment of basic duty and special additional duty but such import is subject to payment of additional customs duty. There are some other conditions for availing such certificate. DEPB is, however, explained in paras 7.14 to 7.17 which, for the benefit of this order, are being reproduced as under: 7.14 For exporters not desirous of going through the licensing route, an optional facility is given under DEPB. The objective of DEPB Scheme is to neutralize the incidence of customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit against the export product. Under the DEPB Scheme, an exporter may apply for credit, as a specified percentage o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept capital asset, without payment of customs duty to the extent of value of credit of DEPB. The purpose seems to give incentive to the exporter on notional basis equal to the amount of duty which assessee would have paid had he imported the goods for export products. It is also seen that credit is not automatic. It is optional and has to be allowed on application made by the exporter. One mayor may not apply considering the premium in the open market on the raw material/goods to be imported. If the raw material is available in the local market at the same rate at which imported material is available, then neither the assessee would be interested in importing such material nor any purchaser would be available in the market for purchasing such import entitlement. If the assessee exporter himself imports the goods. he saves the expenditure by way of customs duty to the extent of credit allowed on the DEPB entitlement. The entire saving would form part of profit automatically which is chargeable to tax. No further adjustment is permissible. However, instead of importing the goods, if the assessee sells the same in the open market then, in our opinion, the entire sale proceed becomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, too, is without force. The perusal of s. 80HHC clearly shows that deduction is permissible with reference to the sale proceed which is received or receivable in convertible foreign exchange. If any part of sale proceed is not received in convertible foreign exchange within the specified time, then deduction is not allowable to that extent. In the present case, the sale of DEPB credit is in Indian rupees and therefore no deduction is permissible but for the provisos to s. 80HHC(3). Further, it is the settled legal position that specific provision overrides the general provisions. The legislature has made specific provisions regarding DEPB credit and therefore deduction has to be computed in accordance with such specific provisions. Consequently, sale of DEPB credit cannot be considered as part sale proceed of exported goods. If the contention of the assessee is accepted then it would render the retrospective amendment as otiose. 13. The decision of the Tribunal in the case of Metro Tyres Ltd. and the judgement of the Hon'ble Gujarat High Court in the case of India Gelatine Chemicals Ltd. relied upon by the learned counsel for the assessee do not help the assessee inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee has been dealt with by the Tribunal at length in the case of Mehta Manufacturers; wherein it has been held that assessee is entitled to deduction under s. 80HHC either with reference to receipts under cls. (iiia) to (iiic) or cls. (iiid) and (iiie) of s. 28 of the Act in view of the provisions of the fifth proviso to s. 80HHC. We have also gone through the Speech of the Finance Minister as well as the circular referred to by the learned counsel for the assessee which, in our opinion, does not indicate anything to support the contention of the assessee. Therefore, following the above decision of the Bench, the contention of the assessee is hereby rejected. 16. The above discussion would dispose of the issues arising from the appeal as well as cross-objection filed by the assessee. In the result, the appeal and cross-objection of assessee are dismissed. 17. Now, we take up the Departmental appeal where the following ground has been raised: "Whether on the facts and on the circumstances of the case, the learned CIT(A)-XIII, Mumbai, is right in directing that the entire sale proceeds on sale of DEPB should be considered for proportionate increase of profits derived fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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