2016 (1) TMI 579 - HC - Income Tax

High Court affirms Tribunal decisions on DEPB income deduction & FDR interest exclusion under Section 80HHC

The High Court upheld the Tribunal's decisions on the eligibility of DEPB income for deduction under Section 80HHC and the exclusion of FDR interest from ... DEPB income - whether eligible as a deduction u/s 80HHC being an export incentive granted for promotion of export? - Whether the Taxation Amendment Act, 2005 introduced with effect from 1.4.1998 can be used to deny a benefit accruing to the assessee on account of incentives earlier granted and whether the amendment would be hit by the principle of Promissory estoppel? - Held that:- The Tribunal held that as per clause (iiid) and (iiie) of Section 28 of the Act, any profit on transfer of DEPB scheme was to be considered as profits and gains of business or profession. It was further noticed that an assessee having export turnover exceeding ₹ 10 crores, the profits computed under sub-section (3) of Section 80HHC of the Act shall be further increased by amount which bears to 90% of the sum referred in clause (iiid) and (iiie) of Section 28 of the Act, the same proportion as the export turnover bears to the total turnover. Accordingly, the Assessing Officer was directed to re-compute the deduction under Section 80HHC as amended by Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998. Since, the matter has been remitted back to the Assessing Officer for recomputation, therefore, question Nos. do not survive for consideration. Exclusion of FDR interest from the business income under section 80HHC - Held that:- Tribunal had concluded that interest on Fixed Deposits had accrued on the fixed deposits pledged with FCI and also with the Sales Tax Department. The interest on FDRs did not have an immediate nexus with the export business and, therefore, had to be necessarily treated as income from other sources and not business income derived from export business activity. Once that was so, question is decided against the assessee. Issues:1. Eligibility of DEPB income as a deduction under Section 80HHC.2. Impact of Taxation Amendment Act, 2005 on previously granted benefits and principle of Promissory estoppel.3. Justification of excluding FDR interest from business income under Section 80HHC.Analysis:Issue 1: Eligibility of DEPB income under Section 80HHCThe appellant challenged the order of the Income Tax Appellate Tribunal regarding the eligibility of DEPB income for deduction under Section 80HHC of the Income Tax Act, 1961. The Tribunal directed the Assessing Officer to recompute the deduction under Section 80HHC as per the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998. The Tribunal held that profits from the DEPB scheme should be considered as profits and gains of business or profession. The appellant's appeal on this issue was dismissed as the matter was remitted back to the Assessing Officer for recomputation.Issue 2: Impact of Taxation Amendment Act, 2005 and Promissory EstoppelThe appellant raised concerns regarding the applicability of the Taxation Amendment Act, 2005 to deny benefits accruing to the assessee from previously granted incentives and whether this would violate the principle of Promissory Estoppel. The Tribunal's decision to recompute the deduction under Section 80HHC with retrospective effect from 1.4.1998 addressed this issue. As the matter was remitted for recomputation, the Tribunal found no merit in considering this issue further.Issue 3: Exclusion of FDR interest from business income under Section 80HHCThe appellant contested the exclusion of FDR interest from business income under Section 80HHC. The Tribunal concluded that the interest on Fixed Deposits did not have a direct nexus with the export business activities of the appellant. Citing precedents and legal interpretations, the Tribunal held that the interest on FDRs should be treated as income from other sources, not as business income derived from export activities. Consequently, the appellant's appeal on this issue was dismissed.In conclusion, the High Court dismissed the appeals, upholding the Tribunal's decisions on the eligibility of DEPB income and the exclusion of FDR interest from business income under Section 80HHC. The judgment provided detailed reasoning based on legal interpretations and precedents, ensuring a comprehensive analysis of the issues involved in the appeals.