Revenue appeal allowed: DEPB credit receipts, face value and excess on transfer taxable as business profits under Section 28(iiid)

HC allowed the revenue's appeal and held that amounts received on transfer of DEPB credits - both the face value and any excess realized - constitute business profits taxable under Section 28(iiid). The court found that taxing the face value when the credit accrued and taxing subsequent gains on transfer does not amount to impermissible double taxation. Clause (iiid) was inserted retrospectively to include such receipts; the Finance Minister's speech did not limit taxation to only amounts in excess of face value. The Tribunal's contrary view was declared unsustainable.

---

---

Issues Involved:
1. Taxability of the entire amount received on the sale of Duty Entitlement Passbook (DEPB) under Section 28(iiid) of the Income Tax Act, 1961.
2. Classification of the face value of DEPB under Section 28(iiib) or Section 28(iiid) for tax purposes.
3. Eligibility for deduction under Section 80HHC based on export turnover and conditions specified in the third proviso to Section 80HHC(3).

Detailed Analysis:

1. Taxability of the Entire Amount Received on the Sale of DEPB:
The core issue was whether the entire amount received from the sale of DEPB should be considered as profits chargeable under Section 28(iiid). The Tribunal had held that only the profit (difference between sale proceeds and face value) should be taxed under Section 28(iiid), while the face value should be taxed under Section 28(iiib). However, the High Court disagreed, stating that the entire amount received on the sale of DEPB credit is profits of business under Section 28(iiid). The Court emphasized that DEPB credits are incentives to neutralize customs duty on exports and should be treated similarly to duty drawbacks, which are fully taxable as business profits.

2. Classification of the Face Value of DEPB:
The Tribunal's view that the face value of DEPB should be taxed under Section 28(iiib) was rejected by the High Court. The Court clarified that the entire sale consideration from the transfer of DEPB, including the face value, falls under Section 28(iiid). The DEPB scheme was introduced after Section 28(iiib) and is not covered under it. The Court emphasized that bifurcating the sale consideration into face value and excess over face value is not justified.

3. Eligibility for Deduction under Section 80HHC:
The assessee's eligibility for deduction under Section 80HHC was challenged based on the conditions in the third proviso to Section 80HHC(3). The Assessing Officer had denied the deduction because the assessee did not fulfill the conditions that (i) the assessee had an option to choose between duty drawback and DEPB, and (ii) the rate of duty drawback was higher than the DEPB rate. The High Court upheld this view, noting that the assessee's export turnover exceeded Rs. 10 Crores and the conditions for additional deduction were not met. Consequently, the assessee was not entitled to the deduction under Section 80HHC for the amount received on the transfer of DEPB.

Conclusion:
The High Court concluded that the entire amount received on the sale of DEPB is taxable under Section 28(iiid) and not bifurcated into face value and profit. The Court remanded the case to the Assessing Officer for fresh orders, ensuring all factual submissions are considered in accordance with the law. The appeal was disposed of without any order as to costs.

---