2012 (5) TMI 77 - HC - Income Tax

High Court: DEPB credit & profit sale taxed differently. Interest from FDs for business = business income. Differentiate deductions & profits for accurate assessment. Tribunal to apply precedents.

POLYPLEX CORPORATION LTD Versus CIT

The High Court clarified that DEPB credit utilized and profit from its sale fall under different sections of the Income Tax Act. Interest income from ... DEPB credit utilized by the assessee and profit earned on sale of DEPB credit would constitute profits under Section 28 (iiid) – Held that:- In M/s Topman Exports Versus Commissioner of Income Tax, Mumbai (2012 -TMI - 210467 - SUPREME COURT OF INDIA) it has been held by the Supreme Court that DEPB credit which is utilized is covered under Section 28 (iiic) and profits of sale of DEPB are covered by Section 28 (iiid) - The Tribunal was wrong in holding that the DEPB credit was covered by Section 28 (iiid) of the Act.- in favour of assessee. Interest income to be excluded while applying Explanation (baa) to Section 80 HHC – Held that:- Since the assessee has stated that they had earned interest income on FDRs from bank for availing various facilities availing like margin money, packing credit, etc , the Tribunal has not examined the factual matrix and has merely affirmed the decision of the CIT(Appeals)that interest received is assessable under the head “other sources” - remit to the Tribunal to factually examine the aforesaid aspect - in favour of assessee. Applied Explanation (1)(iv) to Section 115JB while computing the book profits – Held that:- As per Explanation (1)(iv) to Section 115JB, it is clear that the book profit shall be reduced by the amount of profits eligible for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A) - AO had added several expenses like dis-allowances of amounts under Section 14A, feasibility report expenses, the deduction as computed by the assessee is not on record - remit to the Tribunal to re-compute the deduction under Explanation (1)(iv) of Section 115JB – in favour of assessee. Issues Involved:1. Interpretation of DEPB credit utilization and profit earned on sale under Section 28 (iiid) of the Income Tax Act, 1961.2. Exclusion of interest income while applying Explanation (baa) to Section 80 HHC.3. Application of Explanation (1)(iv) to Section 115JB while computing book profits.Issue 1: Interpretation of DEPB Credit and Profit under Section 28 (iiid):The High Court addressed whether DEPB credit utilized by the assessee and profit earned on its sale constitute profits under Section 28 (iiid) of the Income Tax Act, 1961. The Court referred to the Topman Exports case, where it was held that DEPB credit utilized falls under Section 28 (iiic) and profits from the sale of DEPB are covered by Section 28 (iiid). The Tribunal's decision was deemed incorrect, and the Assessing Officer was directed to apply the Topman Exports case ratio for computation and appeal effect.Issue 2: Exclusion of Interest Income under Explanation (baa) to Section 80 HHC:Regarding the exclusion of interest income while applying Explanation (baa) to Section 80 HHC, the Tribunal's decision was challenged. The Court agreed with the appellant's contention that interest earned on Fixed Deposit Receipts (FDRs) should be assessable as business income if pledged with the bank for various purposes. The Tribunal was instructed to factually examine whether interest income on FDRs falls under 'business income' and allow netting off against interest paid, following the Supreme Court's directions in ACG Associated Capsules case.Issue 3: Application of Explanation (1)(iv) to Section 115JB for Computing Book Profits:The Court analyzed the application of Explanation (1)(iv) to Section 115JB in computing book profits. Relying on the Ajanta Pharma case, a distinction was drawn between 'profits eligible for deduction under Section 80HHC' and 'deduction of profit' under Section 115JB. The Court emphasized that Section 115JB is a self-contained code taxing deemed income, and adjustments must be made in computing book profits. The Tribunal was directed to re-compute the deduction under Explanation (1)(iv) of Section 115JB based on the Ajanta Pharma case, answering the third question of law in favor of the assessee.This detailed analysis of the judgment comprehensively covers the issues involved and the Court's decisions on each aspect of the case.