2010 (8) TMI 420 - HC - Income Tax

Treatment of DEPB, DBK, and DFRC income as business income under Income Tax Act

The High Court held that income from Duty Entitlement Pass Book (DEPB), Duty Draw Back (DBK), and Duty Free Remission Scheme (DFRC) should be treated as ... Chargeable profit - Sale consideration of DEPB - While confirming the view taken by Bombay High Court in CIT v. Kalpataru Colours & Chemicals (2010 - TMI - 76895 - BOMBAY HIGH COURT) that the income from DBK, DEPB and DFRC has to be treated as business income and has to be taken into account for deduction under Section 80HHC, matter remanded back for fresh decision. Issues:1. Interpretation of Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961 regarding the treatment of income from Duty Draw Back (DBK), Duty Entitlement Pass Book (DEPB), and Duty Free Remission Scheme (DFRC) as business income.2. Whether the entire income from DEPB should be considered as profit chargeable under the Income Tax Act.3. Whether the face value of DEPB should be deducted from the sale price for calculating profit under Sections 28(iiid) and 28(iiie).4. Application of Section 80HHC for deduction in relation to income from DBK, DEPB, and DFRC.Analysis:1. The appeal raised substantial questions of law concerning the treatment of income from DEPB, DBK, and DFRC as business income under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961. The Assessing Officer treated the said income as business income, a view upheld on appeal but reversed by the ITAT based on a judgment of the Special Bench, Income Tax Appellate Tribunal, Mumbai.2. The appellant argued that the view taken by the ITAT, Mumbai was reversed by the Bombay High Court in a specific case. The respondent did not dispute this fact. After considering the arguments, the High Court agreed with the Bombay High Court's view that income from DEPB, DBK, and DFRC should be treated as business income and considered for deduction under Section 80HHC.3. The High Court emphasized that the income from DEPB should be included in the profit chargeable under the Income Tax Act. It was held that the face value of DEPB should be deducted from the sale price for calculating profit under Sections 28(iiid) and 28(iiie), as this income is to be considered as profit in the hands of the assessee.4. Consequently, the High Court directed the matter to be remanded to the ITAT for a fresh decision in line with the interpretation provided, emphasizing the need to consider income from DBK, DEPB, and DFRC for deduction under Section 80HHC. The parties were instructed to appear before the Tribunal for further proceedings on a specified date.