M/s. S.P.G.Ramasamy Nadar & Sons, Virudhunagar V. ACIT, Virudhunagar

CO 132/CHNY/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 5727 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Question of law; Tax effect
• Section: 143(3); 80HHC; 28

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL:C- BENCH: CHENNAI (BEFORE SHRI HARI OM MARATHA, JM & SHRI AB RAHAM P GEORGE, AM) ITA NOS.1657 & 1659/MDS/10 & CO NOS. 130 & 132/MDS/10 ASST. YEARS 2000-01 & 2004-05 THE ACIT, CIR.I.VIRUDHUNAGAR VS. M/S S.P.G.R AMASAMY NADAR & SONS, 77/1 SOUTH CAR ST., VIRHDUNAGAR PAN AAFFS3172E (APPELLANT) (RESPO NDENT-CROSS OBJECTOR) APPELLANT BY: SHRI K.E.B.RANGARAJAN,JR.STANDING COUNSEL RESPONDENT CROSS-OBJECTOR BY: SHRI G.BASKAR & SHRI N.CHANDRASEKAR ORDER PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS AND CROSS OBJECTIONS OF T HE REVENUE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST THE ORDERS DATED 28-06-2010 OF THE CIT(A)-II, MADURAI FOR THE RESPECTIVE ASSESSMENT YEARS. SINCE GROUNDS RAISED B Y THE REVENUE AS WELL AS ASSESSEE IN ITS CROSS OBJECTIONS ARE SIMILAR, THESE APPEALS AND CROSS OBJECTIONS ARE DISPOSED BY A CONSOLIDATED ORDER. 2. GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HEL D PROFITS ARISING ON SALE OF DEPB ALONE WAS TO BE REDUCED FROM THE PROFITS OF THE BUS INESS, FOR WORKING OUT THE DEDUCTION UNDER SEC. 80HHC OF THE INCOME-TAX ACT, 1061 (IN SH ORT THE ACT). AS PER THE ASSESSEE, ENTIRE SALE PROCEEDS OF OF DEPB HAD TO BE REDUCED FROM THE PROFIT OF THE BUSINESS. ITA NOS.1657&9 & CO 30 AND 32//MDS/10 2 FURTHER AS PER THE REVENUE, THE CIT(A) ALSO FELL IN ERROR WHEN HE IGNORED THAT ASSESSEE WAS NOT ENTITLED TO DEDUCTION IN VIEW OF THIRD PROVISO TO SEC.80HHC(3) OF THE ACT, SINCE ITS EXPORT TURN OVER EXCEEDED ` 10 CRORES. 3. SHORT FACTS APROPOS ARE THAT FOR A.Y 2000-01 ORI GINAL ASSESSMENT WAS COMPLETED UNDER SEC. 143(3) OF THE ACT, WHEREIN 90% OF PROFIT ON TRANSFER OF DEPB WAS REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SEC. 80HHC OF THE ACT. FURTHER, THE EXPORT TURNOVER OF T HE ASSESSEE HAVING EXCEEDED ` 10 CRORES DEDUCTION OF 90% ON SUCH PROFITS WAS ALSO NO T ALLOWED. RELIANCE WAS PLACED ON THIRD PROVISO TO SEC. 80HHC(3) OF THE ACT FOR DENYI NG THE CLAIM. FOR ASST. YEAR 2004-05 ALSO, WHILE COMPLETING THE ASSESSMENT UNDER SEC. 14 3(3) OF THE ACT, THE SAME TREATMENT AS DONE FOR A.Y 2000-01 WAS GIVEN TO THE DEPB TRANSFER AMOUNTS RECEIVED BY THE ASSESSEE. 4. ASSESSEE PREFERRED APPEALS FOR BOTH THE YEARS BE FORE THE CIT(A) WHEREUPON CIT(A) HELD THAT PROFITS ON TRANSFER OF DEPB ALONE W ERE TO BE CONSIDERED AND NOT THE FACE VALUE OF THE DEPB. ON FURTHER APPEAL FILED BY T HE DEPARTMENT, THIS TRIBUNAL SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES VIDE ITS ORDERS DATED 05-02-2009 AND 04-11- 2008 IN ITA NO.1033/MDS/2008 AND ITA NO.1433/MDS//0 7 RESPECTIVELY, AND REMITTED THE ISSUE BACK TO THE FILE OF THE AO FOR CONSIDERAT ION AFRESH. 5. IN THE SECOND ROUND OF PROCEEDINGS, AO, THOUGH H E CONSIDERED THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. ITO [(2009) 29 DTR 153] WAS OF THE OPINION THAT THE SAID DECISION WAS CONFINED TO INTERPRETATION OF PROFIT ON ITA NOS.1657&9 & CO 30 AND 32//MDS/10 3 TRANSFER OF DEPB AND DID NOT CONSIDER WHETHER DEDUCT ION UNDER SEC. 80HHC WAS TO BE GIVEN ON 90% OF SUCH PROFITS WHERE EXPORT TURNOVER EXCEEDED ` 10 CRORES. FURTHER APPEALS WERE FILED BY TLHE ASSESSEE BEFORE LD.CIT(A ) FOR BOTH THE YEARS. LD. CIT(A) WAS OF THE OPINION THAT EXPORT INCENTIVE SHOULD NOT BE CONSIDERED AS INDEPENDENT INCOME, NOT RELATED TO EXPORT BUSINESS. ACCORDING TO HIM, F ACE VALUE OF DEPB AMOUNT WAS COVERED UNDER SEC.28(IIIB) OF THE ACT AND THEREFORE , WAS QUALIFIED FOR DEDUCTION UNDER FIRST PROVISO TO SEC.80HHC. LD. CIT(A) ALSO HELD T HAT 90% OF FACE VALUE OF DEPB AMOUNT WAS REQUIRED TO BE CONSIDERED FOR WORKING OU T DEDUCTION UNDER SEC. 80HHC OF THE ACT AND PROFIT ARISING OUT OF TRANSFER OF DEPB A LONE WAS COVERED UNDER SEC. 28(IIID) OF THE ACT. RELIANCE WAS PLACED BY LD. CIT(A) ON TH E DECISION OF THE SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA). 6. NOW BEFORE US, LD.DR ASSAILING THE ORDER OF LD. CIT(A), POINTED OUT THAT THE DECISION OF THE SPECIAL BENCH IN THE CASE OF TOPMAN EXPORTS (SUPRA) WAS REVERSED BY THE HON. MUMBAI HIGH COURT IN THE CASE OF CIT VS. K ALPATHARU COLOUR AND CHEMICALS (233 CTR 313) AND FURTHER ACCORDING TO HIM, LD. CI T(A) FAILED TO NOTE THAT ASSESSEE HAD AN EXPORT TURNOVER EXCEEDING ` 10 CRORES AND ITS CASE WAS COVERED UNDER THIRD PROVISO TO SEC.80HHC (3) OF THE ACT. PER CONTRA, L D.AR SUPPORTED THE ORDERS OF LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS. LD.CIT(A) HAD RELIED ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF TO PMAN EXPORTS CITED SUPRA BY HOLDING THAT THE FACE VALUE ON EXPORT INCENTIVE WAS COVERED BY SEC.28(IIIB) OF THE ACT AND QUALIFIED FOR DEDUCTION UNDER FIRST PROVISO TO SEC. 80HHC OF THE ACT. HE ALSO HELD THAT ITA NOS.1657&9 & CO 30 AND 32//MDS/10 4 PROFITS ARISING ON TRANSFER OF EXPORT INCENTIVE WAS COVERED UNDER SEC. 28(IIID) OF THE ACT. HON. MUMBAI HIGH COURT IN THE CASE OF KAPLATHARU CO LOUR & CHEMICALS (SUPRA) AFTER CONSIDERING THE ABOVE DECISION OF THE SPECIAL BENC H IN TOPMAN EXPORTS, HELD AS UNDER AT PARAS 23 TO 35 OF ITS ORDER: 23. THE SUBMISSION WHICH HAS BEEN URGED BEFORE THE COURT BY THE ASSESSEE IS THAT S. 28(IIID) BRINGS WITHIN THE FOLD OF INCOM E CHARGEABLE TO TAX ANY PROFIT ON THE TRANSFER OF THE DEPB SCHEME. ACCORDING TO TH E ASSESSEE, THE EXPRESSION PROFIT MEANS THE DIFFERENCE BETWEEN TH E SALE CONSIDERATION REALIZED FROM THE TRANSFER OF THE DEPB RECEIPTS AND THE FACE VALUE OF THE DEPB CREDIT THAT HAS BEEN TRANSFERRED. THE TRIBUNAL , WHILE ACCEPTING THE CONTENTION OF THE ASSESSEE HAS ALSO HELD THAT IT IS ONLY THIS DIFFERENCE WHICH WOULD FALL WITHIN THE PURVIEW OF CL. (IIID) AND THA T THE DEPB CREDIT WOULD FALL WITHIN THE PURVIEW OF CL. (IIIB) [CLAUSE (IIIB) DEA LS WITH A CASH ASSISTANCE RECEIVED OR RECEIVABLE UNDER ANY SCHEME OF THE GOVE RNMENT OF INDIA. 24. EXPORT INCENTIVES, SUCH AS IMPORT LICENSES, CAS H ASSISTANCE, DUTY DRAWBACK, DEPB CREDIT, OR DUTY FREE REPLENISHMENT C ERTIFICATES ARE ALL INTENDED TO ENCOURAGE EXPORTS. THE OBJECT OF THESE INCENTIVES IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT. UNDER THE IT ACT, 1961, NOT ONLY THE PROFITS ON SAL E OF AN IMPORT LICENCE AND PROFITS ON TRANSFER OF DEPB CREDIT/DFRC, BUT ALSO T HE DUTY DRAWBACK RECEIVED BY AN ASSESSEE ARE CONSIDERED AS PROFITS O F BUSINESS. DUTY DRAWBACK IS NOTHING BUT RECEIVING BACK THE AMOUNT OF DUTY AC TUALLY PAID BY THE ASSESSEE. SIMILARLY, THE DEPB CREDIT IS A CREDIT TO BE UTILIZED IN PAYING THE CUSTOMS DUTY ON GOODS TO BE IMPORTED. WHEN THE DUTY DRAWBACK RECEIVED BY THE ASSESSEE CONSTITUTES PROFITS OF BUSINESS, THEN, IT IS OBVIOUS THAT THE AMOUNT REALIZED ON TRANSFER OF THE DEPB CREDIT WOULD ALSO BE BUSINESS PROFITS. THUS, THE AMOUNT RECEIVED ON TRANSFER OF DEPB CREDIT WOUL D BE PROFITS OF BUSINESS COVERED UNDER S. 28(IIID). 25. CLAUSE (IIIA) TREATS AS INCOME CHARGEABLE TO TA X, PROFITS ON THE SALE OF AN IMPORT LICENCE. WHEN THE LICENCE IS SOLD, THE ENTIR E AMOUNT IS RECEIVED AS PROFIT. THE ENTIRE AMOUNT THAT IS RECEIVED ON THE S ALE OF A LICENCE IS CONSIDERED AS PROFITS OF BUSINESS UNDER S. 28(IIIA) . SIMILARLY, THE ENTIRE AMOUNT OF CASH ASSISTANCE RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER A SCHEME OF THE GOVERNMENT OF INDIA I S TREATED AS INCOME FOR THE PURPOSES OF CHARGEABILITY TO TAX. BY CI. (IIIC) THE ENTIRE DUTY OF CUSTOMS OR ITA NOS.1657&9 & CO 30 AND 32//MDS/10 5 EXCISE REPAID OR REPAYABLE AS DRAWBACK AGAINST EXPO RTS IS ALSO TREATED AS INCOME THAT WOULD BE SUBJECT TO TAX. UNDER THE EXIM POLICY, THE SCHEME RELATING TO THE DEPB ENTITLEMENT IS IN THE NATURE O F AN OPTION WHICH IS MADE AVAILABLE TO AN EXPORTER WHO DOES NOT WISH TO GO TH ROUGH THE LICENSING PROCEDURE. THE TRANSFER OF A DEPB CREDIT IS SIMILAR TO TRADING IN A LICENCE. AS WE HAVE NOTED, WHEN A LICENCE IS SOLD, THE HOLDE R RECEIVES THE ENTIRE AMOUNT AS PROFIT WHICH IS TREATED BY THE LEGISLATUR E AS PROFITS OF BUSINESS WITHIN THE MEANING OF S. 28. LOGICALLY AND AS A MAT TER OF FIRST PRINCIPLE, THERE WOULD BE NO JUSTIFICATION FOR THIS COURT TO TREAT T HE AMOUNT WHICH IS RECEIVED BY AN EXPORTER ON THE TRANSFER OF THE DEPB CREDIT A NY DIFFERENTLY THAN THE PROFITS WHICH ARE MADE ON THE SALE OF AN IMPORT LIC ENCE UNDER CI. (IIIA). BOTH WOULD HAVE TO BE TREATED AS PROFITS OF BUSINESS UND ER S. 28(IIID). 26. PRIOR TO THE INSERTION OF CI. (IIID) IN S. 28, THE DISPUTE WAS, WHETHER THE PROFITS OF BUSINESS SUCH AS THE AMOUNT RECEIVED ON TRANSFER OF DEPB WOULD CONSTITUTE EXPORT PROFIT FOR THE PURPOSES OF DEDUCT ION UNDER S. 8OHHC OR NOT. ACCORDING TO THE EXPORTERS, THE ENTIRE AMOUNT RECEI VED ON TRANSFER OF A DEPB CREDIT WOULD CONSTITUTE EXPORT PROFIT AND ACCORDING TO THE REVENUE IT WOULD NOT. THUS, THERE WAS NO DISPUTE THAT THE ENTIRE AMO UNT RECEIVED ON TRANSFER OF DEPB WAS PROFITS OF BUSINESS BUT THE DISPUTE WAS WH ETHER OR NOT SUCH PROFITS WOULD CONSTITUTE EXPORT PROFITS. 27. BY THE FINANCE ACT OF 2005, PARLIAMENT RESOLVED THE CONTROVERSY BY INSERTING A SPECIFIC CLAUSE, NAMELY, CI. (IIID) IN S. 28 TO THE EFFECT THAT PROFITS ON TRANSFER OF DEPB, I.E., THE AMOUNT RECEIVED ON T RANSFER OF DEPB IS INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. AS REGARDS THE DEDUCTION UNDER S. 80 H HC, THE LEGISLATURE SUBSTITUTED EXPLN. (BAA) IN S. 8OHHC SO AS TO EXCLU DE 90 PER CENT OF THE PROFITS RECEIVED ON TRANSFER OF DEPB FROM THE PROFI TS OF BUSINESS FOR THE PURPOSES OF S. 8OHHC AND INSERTED THE SECOND AND TH IRD PROVISOS TO S. 8OHHC(3). BY THE SECOND PROVISO IT WAS PROVIDED THA T IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER NOT EXCEEDING RS . 10 CRORES, THE PROFITS COMPUTED UNDER S. 8OHHC(3) SHALL BE INCREASED BY 90 PER CENT OF THE SUM REFERRED TO IN S. 28(IIID). BY THE THIRD PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES, THE PROFITS COMPUTED UNDER S. 8OHHC (3) SHALL BE INCREASED BY 9 0 PER CENT OF THE SUM REFERRED TO IN S. 28(IIID) SUBJECT TO THE TWO 28. A DMITTEDLY, IN THE ASSESSMENT YEAR IN QUESTION, THE ASSESSEE HAD AN EXPORT TURNOV ER EXCEEDING RS. 10 CRORES AND DID NOT FULFIL THE CONDITIONS SET OUT IN THE TH IRD PROVISO TO S. 8OHHC(3), INTRODUCED BY THE FINANCE ACT OF 2005. AS A RESULT THE ASSESSEE WAS NOT ENTITLED TO A DEDUCTION UNDER S. 8OHHC ON THE AMOUN T RECEIVED ON TRANSFER OF DEPB. ITA NOS.1657&9 & CO 30 AND 32//MDS/10 6 29. TO GET OVER THIS DIFFICULTY, THE ASSESSEE CONTE NDS THAT THE PROFITS ON TRANSFER OF DEPB IN S. 28 (IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB SO THAT THE ASSESSEE GETS A DEDUCTION UNDER S. 8OHH C ON THE FACE VALUE OF THE DEPB. THERE IS NO MERIT IN THE ABOVE CONTENTION FOR THE FOLLOWING REASONS (A) WHAT IS RECEIVED ON TRANSFER OF THE DEPB CREDIT IS THE PROFIT, BECAUSE DEPB CREDIT UNDER THE DEPB SCHEME IS GIVEN AT A PER CENTAGE OF THE FOB VALUE OF THE EXPORTS, SO AS TO NEUTRALIZE THE INCID ENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT. THE DEPB CRED IT IS ALSO GIVEN TO AN EXPORTER WHO HAS EXPORTED GOODS WITHOUT IMPORTING R AW MATERIALS REQUIRED FOR THE EXPORT. DEPB CREDIT IS GIVEN FOR PAYING CUS TOMS DUTY ON IMPORT OF GOODS WHICH MAY OR MAY NOT BE UTILIZED IN THE EXPOR T GOODS. WHEN THE DEPB CREDIT IS NOT UTILIZED FOR PAYING CUSTOMS DUTY BUT IS TRANSFERRED FOR ANY SUM, THEN SUCH SUM WOULD BE PROFITS ON TRANSFER OF DEPB COVERED UNDER S. 28 (IIID); (B) EVEN THE ASSESSEE HAS NOT DISPUTED BEFORE THE C OURT THAT THE ENTIRE AMOUNT RECEIVED ON TRANSFER OF DEPB IS BUSINESS INC OME CHARGEABLE TO TAX AS PROFITS OF BUSINESS. HOWEVER, IT IS CONTENDED TH AT THE FACE VALUE OF THE DEPB WOULD NOT BE COVERED UNDER S. 28(IIID) BECAUSE IT IS A CREDIT EARNED BY THE ASSESSEE. WHERE THE DUTY PAID IS RECEIVED BACK AS DUTY DRAWBACK IT IS ALSO AN AMOUNT EARNED BY THE ASSESSEE, BUT SUCH A RECEIP T IS STILL CONSIDERED AS PROFITS OF BUSINESS. SIMILARLY, THE AMOUNT REALIZED ON TRANSFER OF DEPB, BE IT EQUIVALENT TO THE FACE VALUE OF THE DEPB; MORE THAN THE FACE VALUE OF DEPB, OR LESS THAN THE FACE VALUE OF DEPB, WOULD BE PROFI T ON TRANSFER OF DEPB COVERED UNDER S. 28(IIID); (C) THE FACT THAT THE ASSESSEE HAD ACCOUNTED FOR TH E DEPB CREDIT IMMEDIATELY AFTER MAKING AN APPLICATION SEEKING DEPB CREDIT WOU LD MAKE NO DIFFERENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT UNDER S. 28(IIID). WHAT CONSTITUTES PROFITS UNDER S . 28(IIID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORDS, THE AMOUNT EQUIVALENT TO THE FACE VALUE OF DEPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTITUTE PROFITS OF B USINESS UNDER S. 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINE SS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO T HE ASSESSEE WOULD NOT BE A GROUND TO HOLD THAT SUCH PROFIT WAS NOT COVERED UND ER S. 28(IIID). WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSINESS PROFITS UNDER S. 28(IIID) IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE, THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB CREDIT W OULD BE TAXED AS PROFITS OF BUSINESS UNDER S. 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB CREDIT ITA NOS.1657&9 & CO 30 AND 32//MDS/10 7 TOOK PLACE. THEREFORE, THE ARGUMENT OF THE ASSESSEE THAT IF THE FACE VALUE OF THE DEPB CREDIT IS HELD TO BE COVERED UNDER S. 28 ( IIID), IT WOULD AMOUNT TO DOUBLE TAXATION IS WITHOUT ANY MERIT. 30. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISS UE CAN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A F ORM OF AN EXPORT INCENTIVE. THE SUPREME COURT IN RAVINDRANATHAN NAIRS CASE (SU PRA) HAS HELD THAT ALL THE INCOMES WHICH FALL WITHIN CLS. (IIIA) TO (IIIE) OF S. 28 ARE INCENTIVE INCOMES. AS AN INCENTIVE, THAT IS MADE AVAILABLE T O THE EXPORTER THERE IS NO COST THAT IS ATTACHED TO THE GRANT OF THE INCENTIVE . THE INCENTIVE, AS WE HAVE ALREADY NOTED, IS CALCULATED AS A PERCENTAGE OF THE FOB VALUE OF THE GOODS EXPORTED. THE TRIBUNAL IN THE PRESENT CASE RECOGNIZ ED THE DIFFICULTY IN REDUCING THE FACE VALUE OF THE DEPB CREDIT FROM THE SALE CONSIDERATION WHEN IT OBSERVED, IN PARA 48 OF ITS JUDGMENT, THAT NO D OUBT, THE EXPORTER DOES NOT DIRECTLY PURCHASE THE DEPB FROM THE MARKET BY INCUR RING ANY COST. HAVING SO OBSERVED, THE TRIBUNAL STILL CONSIDERED IT APPRO PRIATE TO HOLD THAT CI. (IIID) WOULD ONLY REFER TO THE DIFFERENCE BETWEEN THE SALE CONSIDERATIONAND THE VALUE OF THE DEPB CREDIT. WE FIND NO BASIS OR JUSTI FICATION FOR THE TRIBUNAL TO HAVE DONE SO. 31. WE DO NOT FIND ANY LOGICAL JUSTIFICATION IN BIF URCATING THE VALUE OF THE SALE CONSIDERATION REALIZED BY THE EXPORTER ON THE TRANS FER OF THE DEPB CREDIT. FOR ONE THING CI. (IIID) OF S. 28 MUST COVER WITHIN ITS PURVIEW, THE ENTIRETY OF THE SALE CONSIDERATION WHICH IS REALIZED BY THE EXP ORTER ON THE TRANSFER OF THE DEPB CREDIT SINCE THAT REPRESENTS THE PROFIT WHICH THE EXPORTER OBTAINS ON THE TRANSFER OF THE CREDIT. NO PART OF THE CREDIT T HAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CI. ( IIIB) OF S. 28 WHICH DEALS WITH CASH ASSISTANCE, RECEIVED OR RECEIVABLE AGAINS T ANY SCHEME OF THE GOVERNMENT OF INDIA. AS THE LEGISLATIVE HISTORY OF THE PROVISION WOULD SHOW CI. (IIIB) WAS ENACTED BY PARLIAMENT AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES ; (II) CASH COMPENSATORY SUPPORT; AND (III) DUTY DRAWBACK. THE DEPB SCHEME W AS NOT EVEN IN EXISTENCE WHEN CI. (IIIB) CAME TO BE ENACTED INTO S . 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE W. E.F. 1ST APRIL, 1997. CLAUSE (IIID) OF S. 28 WAS INSERTED BY THE AMENDING ACT OF 2005, W.E.F. 1ST APRIL, 1998. THE VALUE OF THE DEPB CREDIT CAN BY NO MEANS BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA. 32. THE TRIBUNAL HAS RELIED TO A CONSIDERABLE EXTEN T ON A SPEECH MADE BY THE THEN FINANCE MINISTER ON THE FLOOR OF PARLIAMENT IN SUPPORT OF ITS CONCLUSION THAT ONLY THE PREMIUM REALIZED BY AN EXPORTER ON TH E SALE OF THE DEPB CREDIT WOULD FALL WITHIN THE PURVIEW OF CI. (IIID) OF S. 2 8 AND NOT THE FACE VALUE OF THE ITA NOS.1657&9 & CO 30 AND 32//MDS/10 8 DEPB. THE ENTIRE APPROACH OF THE TRIBUNAL IS WITH R ESPECT MISCONCEIVED AND UNSUSTAINABLE. THE FINANCE MINISTER SOUGHT TO INTRO DUCE CI. (IIID) IN S. 28 IN VIEW OF THE DECISION OF THE DELHI BENCH OF THE TRIB UNAL IN THE CASE OF P&G ENTERPRISES (SUPRA). THE DISPUTE IN THAT CASE RELAT ED TO TAXING THE ENTIRE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT THAT WAS RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEP B CREDIT. AS A MATTER OF FACT, IN THAT CASE THE ASSESSEE HAD CLAIMED THAT TH E ENTIRE RECEIPT ON THE TRANSFER OF THE DEPB CREDIT INCLUDING THE FACE VALU E OF THE CREDIT AS PROFITS UNDER S. 28(IIIA). THE TRIBUNAL IN THAT CASE HELD T HAT THE ENTIRETY OF THE AMOUNT WOULD BE COVERED BY S. 28(IV). HOWEVER, THE VIEW OF THE TRIBUNAL WAS THAT SINCE EXPIN. (BAA) IN S. 8OHHC DID NOT ENVISAG E THE EXCLUSION OF PROFITS COVERED BY S. 28(IV), SUCH PROFITS COULD NOT BE EXC LUDED WHILE COMPUTING THE DEDUCTION UNDER S. 8OHHC. HENCE, THERE WAS NO DISPU TE IN CONSIDERING THE ENTIRETY OF THE RECEIPTS ON THE TRANSFER OF THE DEP B CREDIT AS PROFITS OF BUSINESS. THE DISPUTE WAS ONLY IN NOT TREATING THE RECEIPTS BY WAY OF TRANSFER OF THE DEPB CREDIT AS EXPORT RECEIPTS WHILE COMPUTI NG THE DEDUCTION UNDER S. 8OHHC. CONSEQUENTLY, THE ENTIRETY OF THE RECEIPTS O N THE TRANSFER OF THE DEPB CREDIT WHICH WAS SOUGHT TO BE INCLUDED IN S. 2 8(IV) WAS BROUGHT IN BY THE PARLIAMENTARY AMENDMENT IN THE FORM OF AN INSER TION OF CI. (IIID) IN S. 28 WITH RETROSPECTIVE EFFECT. THERE WAS NO CONTROVERSY REGARDING THE TAXABILITY OF THE QUANTUM OF RECEIPTS ON THE TRANSFER OF THE D EPB CREDIT. HENCE, FOR THESE REASONS WE ARE OF THE VIEW THAT IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANCE MINISTER THAT THE INSERTION OF CI. (III D) IN S. 28 WAS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. 33. THE SUBMISSION THAT PRIOR TO THE INSERTION OF C I. (IIID) IN S. 28, THE FACE VALUE OF THE DEPB CREDIT REALIZED ON THE TRANSFER O F SUCH CREDIT CONSTITUTED EXPORT PROFITS, BUT NOT THE AMOUNT REALIZED IN EXCE SS OF THE FACE VALUE OF THE DEPB IS SIMILARLY WITHOUT ANY BASIS. THIS IS BECAUS E (I) THE OBJECT OF DEPB WAS TO FURNISH AN INCENTIVE TO EXPORTERS SO AS TO A DJUST THE CREDIT AGAINST THE CUSTOMS DUTY PAYABLE ON ANY GOODS IMPORTED INTO IND IA. HOWEVER, WHERE AN EXPORTER INSTEAD OF UTILIZING THE CREDIT, TRANSFERS THE CREDIT AT A PREMIUM, IT CANNOT BE SAID THAT THE EXPORTER HAS UTILIZED THE C REDIT; (II) THE LEGISLATURE CONSIDERS THAT THE CUSTOMS DUTY AND EXCISE DUTY PAI D ON RAW MATERIALS USED IN THE EXPORT PRODUCT, WHEN REPAID OR REPAYABLE AS DUTY DRAWBACK, WOULD NOT CONSTITUTE EXPORT PROFIT. SIMILARLY, WHEN THE DEPB CREDIT IS NOT UTILIZED IN THE BUSINESS BUT IS TRANSFERRED FOR VALUE, THE AMOUNT R ECEIVED ON THE TRANSFER WOULD BE B PROFITS AND NOT EXPORT PROFITS IRRESPECT IVE OF WHETHER THE AMOUNT WHICH IS REALIZED IS EQUAL TO, LARGER THAN OR LESS THAN THE FACE VALUE OF THE DEPB CREDIT. PARLIAMENT HAS CONSIDERED THAT THE ENT IRETY OF THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB SHALL CONSTITU TE PROFITS OF BUSINESS UNDER S. 28(IIID). SINCE SUCH PROFITS ARE NOT EXPOR T PROFITS PARLIAMENT DIRECTED ITA NOS.1657&9 & CO 30 AND 32//MDS/10 9 THAT NINETY PER CENT OF THOSE PROFITS WOULD BE EXCL UDED WHILE COMPUTING THE DEDUCTION UNDER S. 8OHHC; (III) PARLIAMENT CONSIDER ED THAT AN EXPORTER WHO INSTEAD OF UTILIZING THE DEPB CREDIT FOR PAYING CUS TOMS DUTY ON IMPORTED GOODS, MAKES A PROFIT BY TRANSFERRING THE DEPB, WOU LD FORM A SEPARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF TH E DEPB CREDIT AS BUSINESS PROFITS AND NOT EXPORT PROFITS. EXPORTERS WHO TRANS FER THE DEPB CREDIT AND MAKE A PROFIT CANNOT BE PLACED ON PAR WITH THOSE EX PORTERS WHO UTILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPORTED GOODS; (IV) THE FACT THAT PARLIAMENT DID NOT CONSIDER THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB TO BE EXPORT PROFIT CANNOT BE A GROUND TO HOLD THAT THE RECEIPTS ON THE TRANSFER OF DEPB CREDIT ARE NOT BUSINESS PROFITS. C OUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITS THAT THE ENTIRE AMOU NT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS BUSINESS PROFIT, BUT IT WAS C ONTENDED THAT WHAT IS INCLUDED IN S. 28(IIID) IS THE AMOUNT RECEIVED ON T HE TRANSFER OF THE DEPB CREDIT IN EXCESS OF THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED TO THE EXTENT OF THE FACE VALUE OF THE DEPB WOULD BE COVER ED UNDER S. 28(IIIB). THERE IS NO MERIT IN THIS CONTENTION BECAUSE (A) TH E DEPB CREDIT WAS NOT IN EXISTENCE WHEN S. 28(IIIB) WAS INSERTED BY THE FINA NCE ACT OF 1990. DEPB CREDIT WAS INTRODUCED W.E.F. 1ST APRIL, 1997 WHICH WAS AFTER THE INSERTION OF CI. (IIIB) IN S. 28; (B) S. 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMEN T PURSUANT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON THE TRANS FER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE MEANING OF CI. (IIIC) AND (C). WHEN S. 28(IIID) SPECIFICALLY DEALS WITH PROFITS REALIZED ON THE TRA NSFER OF THE DEPB CREDIT, IT WOULD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIP LE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. 34. FOR ALL THESE REASONS, WE HAVE COME TO THE CONC LUSION THAT THE VIEW OF THE TRIBUNAL ON THE TWO QUESTIONS OF LAW FORMULATED BY THE REVENUE IS UNSUSTAINABLE. IN THE CIRCUMSTANCES, WE ALLOW THE A PPEAL BY ANSWERING THE FIRST QUESTION OF LAW AS FORMULATED IN THE NEGATIVE . 35. INSOFAR AS THE SECOND QUESTION IS CONCERNED, WE ARE NOT IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE FACE VALUE O F THE DUTY ENTITLEMENT PASSBOOK REALIZED ON THE TRANSFER OF THE ENTITLEMEN T IS CHARGEABLE TO TAX UNDER S. 28(IIIB). WE HAVE ALREADY CLARIFIED THAT T HE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHIN THE PURVIEW OF S. 2 8(IIID). WE ANSWER THE SECOND QUESTION OF LAW ACCORDINGLY IN THE AFORESAID TERMS. ITA NOS.1657&9 & CO 30 AND 32//MDS/10 10 8. IN OUR OPINION, ALL THE QUESTIONS RAISED IN THES E APPEALS HAS BEEN DEALT WITH BY THE HON. MUMBAI HIGH COURT IN THE CASE OF KALPATHA RU COLOUR & CHEMICALS LTD. (SUPRA). WE ARE THEREFORE OF THE OPINION THAT THE MATTER NEE DS TO BE REVISITED BY THE AO . THEREFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUT HORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE AO FOR DENOVO CONSIDERATION BASED ON THE DECISION OF THE HON. MUM BAI HIGH COURT IN THE CASE OF KALPATHARU COLOUR & CHEMI CALS LTD. (SUPRA), TO THE EXTENT IT REVERSED THE PRINCIPLES LAID DOWN BY THE SPECIAL BE NCH OF THE TRIBUNAL IN TOPMAN EXPORTS CASE (SUPRA). AO IS FREE TO CONSIDER ANY OT HER DECISIONS, IF ANY, OF HIGHER JUDICIAL AUTHORITY WHICH ARE AVAILABLE WHILE CONSI DERING THE ISSUE AFRESH. WITH THESE DIRECTIONS THE APPEALS ARE DISPOSED OF. 9. APPEALS OF THE REVENUE ARE THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 10. ASSESSEE IN ITS CROSS-OBJECTIONS FOR BOTH THE Y EARS RAISE THE GRIEVANCE THAT THE CIT(A) FAILED TO TAKE NOTE THAT THE ISSUE IN APPEAL S WAS ONLY REGARDING EXCLUSION OF ENTIRE SALE PROCEEDS OR ONLY PROFIT ON SALE OF LIC ENCES, FROM PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SEC.80HHC OF THE ACT. FOR A.Y 2004-05 IN ITS CROSS OBJECTION A GROUND HAS ALSO BE EN RAISED TO THE EFFECT THAT THE TAX EFFECT IN THIS CASE WAS LESS THAN ` 2 LAKHS AND HENCE REVENUES APPEAL WAS NOT MAINTAINABLE. SINCE WE HAVE REMITTED THE ISSUE REGA RDING COMPUTATION OF DEDUCTION UNDER SEC.80HHC BACK TO THE FILE OF THE AO FOR CONS IDERATION AFRESH IN THE LIGHT OF THE DECISION OF THE HON. MUMBAI HIGH COURT IN THE CASE OF KALPATHARU COLOUR & CHEMICALS LTD. (SUPRA) AS ALSO ANY OTHER DECISIONS OF HIGHER JUDICIAL AUTHORITIES, WE ARE OF THE ITA NOS.1657&9 & CO 30 AND 32//MDS/10 11 OPINION THAT THE CROSS-OBJECTIONS HAVE BECOME INFRU CTUOUS. INSOFAR AS THE SUBMISSION OF THE LD. AR THAT FOR A.Y 2004-05 TAX EFFECT WAS LESS THAN ` 2 LAKHS, WE ARE NOT INCLINED TO CONSIDER IT SINCE THE ISSUES INVOLVED IN BOTH THE Y EARS ARE SIMILAR AND THEREFORE, IT WOULD NOT BE APPROPRIATE TO SET ASIDE THE ISSUE BACK TO T HE FILE OF THE AO FOR ONE YEAR WHILE DISMISSING THE APPEAL OF THE REVENUE FOR THE OTHER YEAR, SINCE DOING SO MIGHT GIVE RISE TO AN INCONGRUENT SITUATION WHERE ON THE SAME ISSUE DIVERGENT VIEW POINT MIGHT RESULT, FOR DIFFERENT YEARS. 11. IN THE RESULT, CROSS-OBJECTIONS OF THE ASSESSEE ARE DISMISSED. 12. TO SUMMARISE THE RESULT, APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES WHEREAS, CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 18 - 03- 2011. . SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 18TH MARCH, 2011. CC: THE ASSESSEE 2)THE ASSESSING OFFICER 3)THE C IT(A) 4) THE CIT, 5)THE D.R 6)GUARD FILE. NBR ITA NOS.1657&9 & CO 30 AND 32//MDS/10 12