TaxTMI 
TaxTMI 
2016 (1) TMI 121
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....i. Manish Tiwari, FCA, the Learned AR argued on behalf of the assessee. 3. The only issue to be decided in all these appeals is that whether the assessee is entitled for deduction u/s 80HHC of the Act in respect of income earned by selling of Duty Entitlement Pass Book licences in the event of the turnover of the assessee exceeding Rs. 10 crores. Hence all the appeals are taken up together and disposed off by this common order for the sake of convenience. 4. The brief facts of this issue is that the assessee is a partnership firm engaged in the business of export of fabrics and textile materials apart from rendering financial services by advancing loans etc. The assessee claimed deduction u/s 80HHC of the Act in respect of profits derived from its export activities. Admittedly the turnover of the assessee exceeds Rs. 10 crores . The assessee had credited certain sums towards sale of advance licences and debited the export expenses in the profit and loss account in various assessment years. The Learned AO applied the amended provisions of section 80HHC(3) third proviso brought in the statute by Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998. The Le....
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....gued that the conditions stipulated in third proviso to section 80HHC(3) of the Act have been duly complied with by the assessee. 6. We have heard the rival submissions and perused the materials available on record. The Learned DR during the course of hearing fairly conceded that the applicability of Topman Exports decision in the instant case is not disputed. We hold that though it is not clearly discernible from the assessment order as to whether the assessee had duly exercised the option in terms of third proviso to section 80HHC(3) of the Act before the Learned AO, we find that the Learned CITA had an occasion to get into the detailed workings of computation of deduction u/s 80HHC of the Act after due consideration of the amended provisions and the judgements of Topman Exports reported in (2012) 18 taxmann.com 120 (SC) and the decision of the Calcutta High Court in the case of GKW Ltd vs CIT in ITA No. 1 of 2004. We find that the assessee had duly exercised its option of proving that the duty drawback was more than the DEPB scheme before the Learned CITA who had duly appreciated the same in the light of the aforesaid judgements. Against the computation mechanism, the revenue....
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....port products. Hence, it has direct nexus with the cost of the imports made by an exporter for manufacturing the export products. The neutralization of the cost of customs duty under the DEPB scheme, however, is by granting a duty credit against the export product and this credit can be utilized for paying customs duty on any item which is freely importable. DEPB is issued against the exports to the exporter and is transferable by the exporter. [Para 10] It is necessary to consider the relevant provisions of section 28 for determining whether DEPB will fall under clause (iiib) or under clause (iiid) of section 28. [Para 11] It will be clear from the provisions of section 28 that under clause (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India is by itself income chargeable to income tax under the head 'Profits and Gains of Business or Profession'. DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receivable once exports are made and an application is made by the exporter for DEPB. Therefore, t....
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....zed a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it. Accordingly, when DEPB is sold by a person, his profit on transfer of DEPB would be the sale value of the DEPB less the face value of DEPB which represents the cost of the DEPB. The second reason given by the High Court in the impugned judgment is that under the DEPB scheme, DEPB is given at a percentage of the FOB value of the exports so as to neutralize the incidence of customs duty on the import content of the export products, but the exporter may not himself utilize the DEPB for paying customs duty but may transfer it to someone else and, therefore, the entire sum received on transfer of DEPB would be covered under clause (iiid) of section 28. The High Court has failed to appreciate that DEPB represents part of the cost incurred by a person for manufacture of the export product and, hence, even where the DEPB is not utilized by the exporter but is transferred to another perso....
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.... same income, which the legislature must be presumed to have avoided. [Para 16] The High Court has held that as the assessee had an export turnover exceeding Rs. 10 crores and did not fulfil the conditions set out in the third proviso to section 80HHC(3) the assessee was not entitled to a deduction under section 80HHC on the amount received on transfer of DEPB and to get over this difficulty the assessee contended that the profits on transfer of DEPB in section 28(iiid) would not include the face value of the DEPB so that the assessees get a deduction under section 80HHC on the face value of the DEPB. This finding of the High Court is not based on an accurate understanding scheme of section 80HHC. [Para 17] Sub-section (1) of section 80HHC makes it clear that an assessee engaged in the business of export out of India of any goods or merchandise to which this section applies shall be allowed, in computing his total income, a deduction to the extent of profits referred to in sub-section (1B), derived by him from the export of such goods or merchandise. Sub-section (1B) of section 80HHC gives the percentages of deduction of the profits allowable for the different ass....
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.... face value of the DEPB and the sale value of the DEPB gets excluded from 'profits of the business', the assessee gets a bigger figure of 'profits of the business' and this is possible when the DEPB accrues to the assessee in one previous year and transfer of the DEPB takes place in the subsequent previous year. The result in such case is that a higher figure of 'profits of the business' becomes the multiplier in the aforesaid formula under sub-section (3)(a) of section 80HHC for arriving at the figure of profits derived from exports. [Para 20] To the figure of profits derived from exports worked out as per the aforesaid formula under sub-section (3)(a) of section 80HHC, the additions as mentioned in first, second, third and fourth proviso under sub-section (3) are made to profits derived from exports. Under the first proviso, ninety per cent of the sum referred to in clauses (iiia ), (iiib) and (iiic ) of section 28 are added in the same proportion as export turnover bears to the total turnover of the business carried on by the assessee. In this first proviso, there is no addition of any sum referred to in clause (iiid ) or clause (iiie). Hence, pr....
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....rds, where the export turnover of an assessee exceeds Rs. 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid ) of section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not have the export turnover exceeding Rs. 10 crores and as the assessee did not fulfil the conditions set out in the third proviso to section 80HHC (iii), the assessee was not entitled to a deduction under section 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under section 28 (iiid ) would not include the face value of the DEPB. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses (iiid ) and (iii....