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Apex court set aside the Bombay High court orders=the Bombay High Court holding that the entire amount received by an assessee on sale of the Duty Entitlement Pass Book (for short `the DEPB’) represents profit on transfer of DEPB under Section 28(iiid) of the Income Tax Act, 1961 (for short `the Act’) for the purpose of the computation of deduction in respect of profits retained for export business under Section 80HHC of the Act. =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 (iiie) of Section 28, the assessee was entitled to a deduction under Section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee. 23. The impugned judgment and orders of the Bombay High Court are accordingly set-aside. The appeals are allowed to the extent indicated in this judgment. The Assessing Officer is directed to compute the deduction

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Reportable

 
IN THE SUPREME COURT OF INDIA

 

CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 1699 OF 2012

(Arising out of SLP (C) NO. 26558 OF 2010)

 

M/s Topman Exports … Appellant

 

Versus

 

Commissioner of Income Tax, Mumbai … Respondent
WITH
CIVIL APPEAL No. 1700 OF 2012

(Arising out of SLP (C) No. 27418 of 2010),
CIVIL APPEAL No. 1701 OF 2012

(Arising out of SLP (C) No.27552 of 2010),
CIVIL APPEAL No. 1704 OF 2012

(Arising out of SLP (C) No.27583 of 2010),
CIVIL APPEAL No. 1705 OF 2012

(Arising out of SLP (C) No. 27608 of 2010),
CIVIL APPEAL No. 1706 OF 2012

(Arising out of SLP (C) No.27994 of 2010),
CIVIL APPEAL No. 1707 OF 2012

(Arising out of SLP (C) No.28036 of 2010),
CIVIL APPEAL No. 1708 OF 2012

(Arising out of SLP (C) No.28044; of 2010),
CIVIL APPEAL No. 1709 OF 2012

(Arising out of SLP (C) No.28131 of 2010),
2

 

 

CIVIL APPEAL No. 1710 OF 2012

(Arising out of SLP (C) No.28167 of 2010),
CIVIL APPEAL No. 1711 OF 2012

(Arising out of SLP (C) No.28173 of 2010),
CIVIL APPEAL No. 1728 OF 2012

(Arising out of SLP (C) No.27952 of 2010),
CIVIL APPEAL No. 1729 OF 2012

(Arising out of SLP (C) No.28365 of 2010),
CIVIL APPEAL No. 1730 OF 2012

(Arising out of SLP (C) No.29290 of 2010),
CIVIL APPEAL No. 1731 OF 2012

(Arising out of SLP (C) No.29314 of 2010),
CIVIL APPEAL No. 1732 OF 2012

(Arising out of SLP (C) No.29596 of 2010),
CIVIL APPEAL No. 1733 OF 2012

(Arising out of SLP (C) No.30461 of 2010),
CIVIL APPEAL No. 1734 OF 2012

(Arising out of SLP (C) No.30462 of 2010),
CIVIL APPEAL No. 1735 OF 2012

(Arising out of SLP (C) No.30011 of 2010),
CIVIL APPEAL No. 1736 OF 2012

(Arising out of SLP (C) No.30018 of 2010),
CIVIL APPEAL No. 1737 OF 2012

(Arising out of SLP (C) No.30020 of 2010),
CIVIL APPEAL No. 1738 OF 2012

(Arising out of SLP (C) No.30023 of 2010),
CIVIL APPEAL No. 1739 OF 2012

(Arising out of SLP (C) No.30100 of 2010),
3

 

 

CIVIL APPEAL No. 1740 OF 2012

(Arising out of SLP (C) No.30281 of 2010),

 
CIVIL APPEAL No. 1741 OF 2012

(Arising out of SLP (C) No.30283 of 2010),
CIVIL APPEAL Nos. 1712 OF 2012

(Arising out of SLP (C) No.30289 of 2010),
CIVIL APPEAL No. 1713 OF 2012

(Arising out of SLP (C) No.30306 of 2010),
CIVIL APPEAL No. 1714 OF 2012

(Arising out of SLP (C) No.30345 of 2010),
CIVIL APPEAL No. 1715 OF 2012

(Arising out of SLP (C) No.30374 of 2010),
CIVIL APPEAL No. 1716 OF 2012

(Arising out of SLP (C) No.30375 of 2010),
CIVIL APPEAL No. 1717 OF 2012

(Arising out of SLP (C) No.30379 of 2010),
CIVIL APPEAL No. 1718 OF 2012

(Arising out of SLP (C) No.30381 of 2010),
CIVIL APPEAL No. 1719 OF 2012

(Arising out of SLP (C) No.30393 of 2010),
CIVIL APPEAL No. 1720 OF 2012

(Arising out of SLP (C) No.30411 of 2010),
CIVIL APPEAL No. 1721 OF 2012

(Arising out of SLP (C) No.30426 of 2010),
CIVIL APPEAL No. 1722 OF 2012

(Arising out of SLP (C) No.30468 of 2010),
4

 

CIVIL APPEAL Nos. 1723-1724 OF 2012

(Arising out of SLP (C) No.30521-30522 of 2010),
CIVIL APPEAL No. 1725 OF 2012

(Arising out of SLP (C) No.30549 of 2010),

 
CIVIL APPEAL Nos. 1726-1727 OF 2012

(Arising out of SLP (C) Nos.29853-29854 of 2010),
CIVIL APPEAL No. 1742 OF 2012

(Arising out of SLP (C) No.30215 of 2010),
CIVIL APPEAL No. 1743 OF 2012

(Arising out of SLP (C) No.30378 of 2010),
CIVIL APPEAL No. 1744 OF 2012

(Arising out of SLP (C) No.30380 of 2010),
CIVIL APPEAL No. 1745 OF 2012

(Arising out of SLP (C) No.30388 of 2010),
CIVIL APPEAL No. 1746 OF 2012

(Arising out of SLP (C) No.30390 of 2010),
CIVIL APPEAL No. 1747 OF 2012

(Arising out of SLP (C) No.30543 of 2010),
CIVIL APPEAL No. 1748 OF 2012

(Arising out of SLP (C) No.30546 of 2010),
CIVIL APPEAL No. 1749 OF 2012

(Arising out of SLP (C) No.30572 of 2010),
CIVIL APPEAL No. 1750 OF 2012

(Arising out of SLP (C) No.30574 of 2010),
CIVIL APPEAL No. 1754 OF 2012

(Arising out of SLP (C) No.30657 of 2010),
CIVIL APPEAL No. 1755 OF 2012

(Arising out of SLP (C) No.30569 of 2010),
5

 

 

CIVIL APPEAL No. 1756 OF 2012

(Arising out of SLP (C) No.32066 of 2010),
CIVIL APPEAL No. 1757 OF 2012

(Arising out of SLP (C) No.32069 of 2010),

 
CIVIL APPEAL Nos. 1758-1759 OF 2012

(Arising out of SLP (C) Nos.30733-30734 of 2010),
CIVIL APPEAL No. 1760 OF 2012

(Arising out of SLP (C) No.30597 of 2010),
CIVIL APPEAL No. 1761 OF 2012

(Arising out of SLP (C) No.30626 of 2010),
CIVIL APPEAL No. 1762 OF 2012

(Arising out of SLP (C) No.30634 of 2010),
CIVIL APPEAL No. 1763 OF 2012

(Arising out of SLP (C) No.30644 of 2010),
CIVIL APPEAL No. 1764 OF 2012

(Arising out of SLP (C) No.30665 of 2010),
CIVIL APPEAL No. 1765 OF 2012

(Arising out of SLP (C) No.30671 of 2010),
CIVIL APPEAL No. 1766 OF 2012

(Arising out of SLP (C) No.30680 of 2010),
CIVIL APPEAL No. 1767 OF 2012

(Arising out of SLP (C) No.30684 of 2010),
CIVIL APPEAL No. 1768 OF 2012

(Arising out of SLP (C) No.30689 of 2010),
CIVIL APPEAL No. 1769 OF 2012

(Arising out of SLP (C) No.30721 of 2010),
CIVIL APPEAL No. 1770 OF 2012
6

 

(Arising out of SLP (C) No.30902 of 2010),
CIVIL APPEAL No. 1771 OF 2012

(Arising out of SLP (C) No.31085 of 2010),
CIVIL APPEAL No. 1772 OF 2012

(Arising out of SLP (C) No.31107 of 2010),

 
CIVIL APPEAL No. 1773 OF 2012

(Arising out of SLP (C) No.31131 of 2010),
CIVIL APPEAL No. 1774 OF 2012

(Arising out of SLP (C) No.31134 of 2010),
CIVIL APPEAL No. 1775 OF 2012

(Arising out of SLP (C) No.31304 of 2010),
CIVIL APPEAL No. 1776 OF 2012

(Arising out of SLP (C) No.31385 of 2010),
CIVIL APPEAL No. 1777 OF 2012

(Arising out of SLP (C) No.31450 of 2010),
CIVIL APPEAL No. 1778 OF 2012

(Arising out of SLP (C) No.31849 of 2010),
CIVIL APPEAL No. 1779 OF 2012

(Arising out of SLP (C) No.32531 of 2010),
CIVIL APPEAL No. 1780 OF 2012

(Arising out of SLP (C) No.30628 of 2010),
CIVIL APPEAL No. 1781 OF 2012

(Arising out of SLP (C) No.30635 of 2010),
CIVIL APPEAL No. 1782 OF 2012

(Arising out of SLP (C) No.30646 of 2010),
CIVIL APPEAL No. 1783 OF 2012

(Arising out of SLP (C) No.32532 of 2010),
7

 

CIVIL APPEAL No. 1784 OF 2012

(Arising out of SLP (C) No.30647 of 2010),
CIVIL APPEAL No. 1785 OF 2012

(Arising out of SLP (C) No.32533 of 2010),
CIVIL APPEAL No. 1786 OF 2012

(Arising out of SLP (C) No.30653 of 2010),

 
CIVIL APPEAL No. 1787 OF 2012

(Arising out of SLP (C) No.30673 of 2010),
CIVIL APPEAL No. 1788 OF 2012

(Arising out of SLP (C) No.30674 of 2010),
CIVIL APPEAL No. 1789 OF 2012

(Arising out of SLP (C) No.30675 of 2010),
CIVIL APPEAL No. 1790 OF 2012

(Arising out of SLP (C) No.30677 of 2010),
CIVIL APPEAL No. 1791 OF 2012

(Arising out of SLP (C) No.30686 of 2010),
CIVIL APPEAL No. 1792 OF 2012

(Arising out of SLP (C) No.30708 of 2010),
CIVIL APPEAL No. 1793 OF 2012

(Arising out of SLP (C) No.32534 of 2010),
CIVIL APPEAL No. 1794 OF 2012

(Arising out of SLP (C) No.30906 of 2010),
CIVIL APPEAL No. 1795 OF 2012

(Arising out of SLP (C) No.33218 of 2010),
CIVIL APPEAL Nos. 1796-1799 OF 2012

(Arising out of SLP (C) Nos.34081-34084 of 2010),
CIVIL APPEAL No. 1800 OF 2012

(Arising out of SLP (C) No.34078 of 2010),
8

 

 

CIVIL APPEAL No. 1801 OF 2012

(Arising out of SLP (C) No.32228 of 2010),
CIVIL APPEAL No. 1802 OF 2012

(Arising out of SLP (C) No.32256 of 2010),
CIVIL APPEAL No. 1803 OF 2012

(Arising out of SLP (C) No.33925 of 2010),

 
CIVIL APPEAL No. 1804 OF 2012

(Arising out of SLP (C) No.32308 of 2010),
CIVIL APPEAL No. 1805 OF 2012

(Arising out of SLP (C) No.32339 of 2010),
CIVIL APPEAL No. 1806 OF 2012

(Arising out of SLP (C) No.32384 of 2010),
CIVIL APPEAL No. 1807 OF 2012

(Arising out of SLP (C) No.34046 of 2010),
CIVIL APPEAL No. 1808 OF 2012

(Arising out of SLP (C) No.34047 of 2010),
CIVIL APPEAL No. 1809 OF 2012

(Arising out of SLP (C) No.32946 of 2010),
CIVIL APPEAL No. 1810 OF 2012

(Arising out of SLP (C) No.33708 of 2010),
CIVIL APPEAL No. 1811 OF 2012

(Arising out of SLP (C) No.33692 of 2010),
CIVIL APPEAL No. 1812 OF 2012

(Arising out of SLP (C) No.33084 of 2010),
CIVIL APPEAL No. 1813 OF 2012

(Arising out of SLP (C) No.33157 of 2010),
CIVIL APPEAL No. 1814 OF 2012
9

 

(Arising out of SLP (C) No.33265 of 2010),
CIVIL APPEAL No. 1815 OF 2012

(Arising out of SLP (C) No.33504 of 2010),
CIVIL APPEAL No. 1816 OF 2012

(Arising out of SLP (C) No.35013 of 2010),
CIVIL APPEAL No. 1817 OF 2012

(Arising out of SLP (C) No.35016 of 2010),

 
CIVIL APPEAL No. 1818 OF 2012

(Arising out of SLP (C) No.35028 of 2010),
CIVIL APPEAL No. 1819 OF 2012

(Arising out of SLP (C) No.35029 of 2010),
CIVIL APPEAL No. 1820 OF 2012

(Arising out of SLP (C) No.35030 of 2010),
CIVIL APPEAL No. 1821 OF 2012

(Arising out of SLP (C) No.35031 of 2010),
CIVIL APPEAL No. 1822 OF 2012

(Arising out of SLP (C) No.35032 of 2010),
CIVIL APPEAL No. 1823 OF 2012

(Arising out of SLP (C) No.35129 of 2010),
CIVIL APPEAL No. 1824 OF 2012

(Arising out of SLP (C) No.35865 of 2010),
CIVIL APPEAL No. 1825 OF 2012

(Arising out of SLP (C) No.35866 of 2010),
CIVIL APPEAL No. 1826 OF 2012

(Arising out of SLP (C) No.35867 of 2010),
CIVIL APPEAL No. 1827 OF 2012

(Arising out of SLP (C) No.35868 of 2010),
10

 

CIVIL APPEAL No. 1828 OF 2012

(Arising out of SLP (C) No.33644 of 2010),
CIVIL APPEAL No. 1829 OF 2012

(Arising out of SLP (C) No.57 of 2011),

CIVIL APPEAL No. 1830 OF 2012

(Arising out of SLP (C) No.136 of 2011),

 
CIVIL APPEAL No. 1831 OF 2012

(Arising out of SLP (C) No.138 of 2011),

 

 

CIVIL APPEAL No. 1832 OF 2012

(Arising out of SLP (C) No.131 of 2011),

CIVIL APPEAL No. 1833 OF 2012

(Arising out of SLP (C) No.132 of 2011),

CIVIL APPEAL No. 1834 OF 2012

(Arising out of SLP (C) No.376 of 2011),

CIVIL APPEAL No. 1835 OF 2012

(Arising out of SLP (C) No.302 of 2011),

CIVIL APPEAL No. 1836 OF 2012

(Arising out of SLP (C) No.428 of 2011),

CIVIL APPEAL No. 1837 OF 2012

(Arising out of SLP (C) No.2755 of 2011),

CIVIL APPEAL No. 1838 OF 2012

(Arising out of SLP (C) No.2756 of 2011),

CIVIL APPEAL No. 1839 OF 2012

(Arising out of SLP (C) No.2757 of 2011),

CIVIL APPEAL No. 1840 OF 2012

(Arising out of SLP (C) No.2759 of 2011),

CIVIL APPEAL No. 1841 OF 2012

(Arising out of SLP (C) No. 2388 of 2011,

CIVIL APPEAL No. 1842 OF 2012

(Arising out of SLP (C) No.2585 of 2011),
11

 

CIVIL APPEAL No. 1843 OF 2012

(Arising out of SLP (C) No.2588 of 2011),

CIVIL APPEAL No. 1844 OF 2012

(Arising out of SLP (C) No.2626 of 2011),

CIVIL APPEAL No. 1845 OF 2012

(Arising out of SLP (C) No.2689 of 2011),

CIVIL APPEAL No. 1846 OF 2012

(Arising out of SLP (C) No.2932 of 2011),

 

CIVIL APPEAL No. 1847 OF 2012

(Arising out of SLP (C) No.2953 of 2011),

CIVIL APPEAL No. 1848 OF 2012

(Arising out of SLP (C) No.2742 of 2011),

CIVIL APPEAL No. 1850 OF 2012

(Arising out of SLP (C) No.2693 of 2011),

CIVIL APPEAL No. 1851 OF 2012

(Arising out of SLP (C) No.5377 of 2011),

CIVIL APPEAL No. 1852 OF 2012

(Arising out of SLP (C) No.5379 of 2011),

CIVIL APPEAL No. 1853 OF 2012

(Arising out of SLP (C) No.5972 of 2011),

CIVIL APPEAL No. 1854 OF 2012

(Arising out of SLP (C) No.7859 of 2011),

CIVIL APPEAL Nos. 1855-1856 OF 2012

(Arising out of SLP (C) Nos.7868-7869 of 2011),

CIVIL APPEAL No. 1858 OF 2012

(Arising out of SLP (C) No.8786 of 2011),

CIVIL APPEAL No. 1859 OF 2012

(Arising out of SLP (C) No.9547 of 2011),

CIVIL APPEAL No. 1860 OF 2012

(Arising out of SLP (C) No.9548 of 2011),

CIVIL APPEAL No. 1861 OF 2012

(Arising out of SLP (C) No.9549 of 2011),

CIVIL APPEAL No. 1862 OF 2012
12

 

(Arising out of SLP (C) No.9550 of 2011),

CIVIL APPEAL No. 1863 OF 2012

(Arising out of SLP (C) No.9551 of 2011),

CIVIL APPEAL No. 1864 OF 2012

(Arising out of SLP (C) No.7795 of 2011),

CIVIL APPEAL No. 1865 OF 2012

(Arising out of SLP (C) No.9552 of 2011),

CIVIL APPEAL No. 1866 OF 2012

(Arising out of SLP (C) No.9553 of 2011),

CIVIL APPEAL No. 1867 OF 2012

(Arising out of SLP (C) No.11029 of 2011),

CIVIL APPEAL No. 1868 OF 2012

(Arising out of SLP (C) No.10958 of 2011),

CIVIL APPEAL No. 1869 OF 2012

(Arising out of SLP (C) No.13774 of 2011),

CIVIL APPEAL No. 1870 OF 2012

(Arising out of SLP (C) No.11716 of 2011),

CIVIL APPEAL Nos. 1871-1872 OF 2012

(Arising out of SLP (C) Nos.14068-14069 of 2011),

CIVIL APPEAL No. 1873 OF 2012

(Arising out of SLP (C) No.14070 of 2011),

CIVIL APPEAL No. 1874 OF 2012

(Arising out of SLP (C) No.14071 of 2011),

CIVIL APPEAL No. 1875 OF 2012

(Arising out of SLP (C) No.14072 of 2011),

CIVIL APPEAL No. 1876 OF 2012

(Arising out of SLP (C) No.14073 of 2011),

CIVIL APPEAL No. 1877 OF 2012

(Arising out of SLP (C) No.14074 of 2011),

CIVIL APPEAL No. 1878 OF 2012

(Arising out of SLP (C) No.14075 of 2011),

CIVIL APPEAL No. 1879 OF 2012

(Arising out of SLP (C) No.14076 of 2011),
13

 

CIVIL APPEAL Nos. 1880-1881 OF 2012

(Arising out of SLP (C) Nos.14077-14078 of 2011),

CIVIL APPEAL Nos. 1882-1883 OF 2012

(Arising out of SLP (C) Nos.14079-14080 of 2011),

CIVIL APPEAL Nos. 1884-1885 OF 2012

(Arising out of SLP (C) Nos.16937-16938 of 2011),

CIVIL APPEAL No. 1886 OF 2012

(Arising out of SLP (C) No.16821 of 2011),

CIVIL APPEAL No. 1887 OF 2012

(Arising out of SLP (C) No.16822 of 2011),

CIVIL APPEAL No. 1888 OF 2012

(Arising out of SLP (C) No.16823 of 2011),

CIVIL APPEAL No. 1889 OF 2012

(Arising out of SLP (C) No.16824 of 2011),

CIVIL APPEAL No. 1890 OF 2012

(Arising out of SLP (C) No.16825 of 2011),

CIVIL APPEAL No. 1891 OF 2012

(Arising out of SLP (C) No.15474 of 2011),

CIVIL APPEAL No. 1892 OF 2012

(Arising out of SLP (C) No.16968 of 2011),

CIVIL APPEAL No. 1893 OF 2012

(Arising out of SLP (C) No.16969 of 2011),

CIVIL APPEAL No. 1894 OF 2012

(Arising out of SLP (C) No.17643 of 2011),

CIVIL APPEAL No. 1895 OF 2012

(Arising out of SLP (C) No.16505 of 2011),

CIVIL APPEAL No. 1896 OF 2012

(Arising out of SLP (C) No.17645 of 2011),

CIVIL APPEAL No. 1897 OF 2012

(Arising out of SLP (C) No.17644 of 2011),

CIVIL APPEAL No. 1898 OF 2012

(Arising out of SLP (C) No.16695 of 2011)

CIVIL APPEAL No. 1899 OF 2012

(Arising out of SLP (C) No.22460 of 2011),
14

 

CIVIL APPEAL No. 1900 OF 2012

(Arising out of SLP (C) No.22180 of 2011),

CIVIL APPEAL No. 1901 OF 2012

(Arising out of SLP (C) No.22446 of 2011),

CIVIL APPEAL No. 1902 OF 2012

(Arising out of SLP (C) No.22449 of 2011),

CIVIL APPEAL No. 1903 OF 2012

(Arising out of SLP (C) No.22447 of 2011),

CIVIL APPEAL No. 1904 OF 2012

(Arising out of SLP (C) No.22772 of 2011),

 

 

CIVIL APPEAL No. 1905 OF 2012

(Arising out of SLP (C) No.26556 of 2011),

CIVIL APPEAL No. 1906 OF 2012

(Arising out of SLP (C) No.27677 of 2011),

CIVIL APPEAL No. 1907 OF 2012

(Arising out of SLP (C) No.28775 of 2011),

CIVIL APPEAL No. 1908 OF 2012

(Arising out of SLP (C) No.27044 of 2011),

CIVIL APPEAL No. 1909 OF 2012

(Arising out of SLP (C) No.27048 of 2011),

CIVIL APPEAL No. 1910 OF 2012

(Arising out of SLP (C) No.28776 of 2011),

CIVIL APPEAL No. 1911 OF 2012

(Arising out of SLP (C) No.28067 of 2011),

CIVIL APPEAL No. 1912 OF 2012

(Arising out of SLP (C) No.28607 of 2011)

AND

CIVIL APPEAL No. 1913 OF 2012

(Arising out of SLP (C) No.29542 of 2011)
15

 

J U D G M E N T
A. K. PATNAIK, J.

 

Delay condoned. Leave granted in Special Leave Petitions.

 

2. These are appeals by way of special leave under Article

 

136 of the Constitution against the judgment and

 

orders of the Bombay High Court holding that the

 

entire amount received by an assessee on sale of the

 

Duty Entitlement Pass Book (for short `the DEPB’)

 

represents profit on transfer of DEPB under Section

 

28(iiid) of the Income Tax Act, 1961 (for short `the Act’)

 

for the purpose of the computation of deduction in

 

respect of profits retained for export business under

 

Section 80HHC of the Act.

 
3. For appreciating the controversy between the parties,
we will state the facts of only the lead case of M/s

 

Topman Exports (hereinafter referred to as `the

 

assessee’). The assessee is a manufacturer and

 

exporter of fabrics and garments. During the previous

 

year relevant to the assessment year 2002-2003, the

 

assessee sold the DEPB and DFRC (Duty Free

 

Replenishment Certificate) which had accrued to the
16

 
assessee on export of its products. The assessee filed

 

a return for the assessment year 2002-2003 claiming a

 

deduction of Rs.83,69,303/- under Section 80HHC of

 

the Act. The Assessing Officer held that if the profit on

 

transfer of the export incentives was deducted from the

 

profits of the assessee, the figure would be a loss and

 

there will be no positive income of the assessee from

 

its export business and the assessee will not be

 

entitled to any deduction under Section 80HHC of the

 

Act as has been held by this Court in IPCA

 

Laboratories Ltd. v. Deputy C.I.T. (2004) 266 ITR 521

 

(SC). Aggrieved, the assessee filed an appeal before the

 

Commissioner of Income Tax (Appeals) and contended

 

that the profits on the transfer of DEPB and DFRC

 

were not the sale proceeds of DEPB and DFRC

 

amounting to Rs.2,06,84,841/- and Rs.1,65,616/-

 

respectively, but the difference between the sale value

 

and face value of DEPB and DFRC amounting to

 

Rs.14,35,097/- and Rs.19,902/- respectively and if

 

these figures of profits on transfer of DEPB and DFRC

 

are taken, the income of assessee would be positive
17

 
and the assessee would be entitled to the deduction

 

under Section 80HHC of the Act. The Commissioner of

 

Income Tax (Appeals) rejected this contention of the

 

assessee and held that the assessee had received an

 

amount of Rs.2,06,84,841/- on sale of DEPB and an

 

amount of Rs.1,65,612/- on sale of DFRC and the

 

costs of acquisition of the DEPB and DFRC are to be

 

taken as nil and hence the entire sale proceeds of

 

DEPB and DFRC realized by the assessee are to be

 

treated as profits on transfer of DEPB and DFRC for

 

working out the deduction under section 80HHC of the

 

Act and directed the Assessing Officer to work out the

 

deduction under Section 80HHC of the Act

 

accordingly.

 

4. Aggrieved, the assessee filed an appeal before the

 

Income Tax Appellate Tribunal (for short `the

 

Tribunal’). A Special Bench of the Tribunal heard the

 

appeal and held that there was a direct relation

 

between the entitlement under the DEPB Scheme and

 

the custom duty component in the cost of imports

 

used in the manufacture of the export product. The
18

 
Tribunal further held that DEPB accrues to the

 

exporter soon after export is made and application is

 

filed for DEPB and DEPB is a “cash assistance”

 

receivable by the assessee and is covered under clause

 

(iiib) of Section 28 of the Act, whereas profit on the

 

transfer of DEPB takes place on a subsequent date

 

when the DEPB is sold by the assessee and is covered

 

under clause (iiid) of Section 28 of the Act. The

 

Tribunal compared the language of Section 28(iiib) of

 

the Act in which the expression “cash assistance” is

 

used, with the language of Section 28(iiia), (iiid) and

 

(iiie) of the Act in which the expression “profit” is used

 

and held that the words “profit on transfer” in Section

 

28 (iiid) and (iiie) of the Act would not represent the

 

entire sale value of DEPB but the sale value of DEPB

 

less the face value of the DEPB. With these reasons,

 

the Tribunal set aside the orders of the Assessing

 

Officer and the Commissioner of Income Tax (Appeals)

 

and directed the Assessing Officer to compute the

 

deduction under Section 80HHC of the Act

 

accordingly.
19

 
5. This judgment of the Special Bench of the Tribunal
was followed by the Tribunal in all the cases in appeal

 

before us. Against the judgment and orders of the

 

Tribunal, the Commissioner of Income Tax, Mumbai

 

filed appeals in all the cases under Section 260A of the

 

Act before the High Court and by the impugned orders

 

the High Court disposed of the appeals in terms of the

 

judgment delivered in Commissioner of the Income Tax

 

vs. Kalpataru Colours and Chemicals (ITA(L) 2887 of

 

2009). In Commissioner of the Income Tax vs.

 

Kalpataru Colours and Chemicals (supra), the High

 

Court formulated the following two substantial

 

questions of law:

 

“(a) Whether the Tribunal is justified in

holding that the entire amount received on

the sale of the Duty Entitlement Passbook

does not represent profits chargeable under

Section 28(iiid) of the Income Tax Act, 1961

and that the face value of the Duty

Entitlement Passbook shall be deducted from

the sale proceeds;

 

(b) Whether the Tribunal is justified in

holding that the face value of the Duty

Entitlement Passbook is chargeable to tax

under Section 28(iiib) at the time of accrual of

income i.e. when the application for Duty

Entitlement Passbook is filed with the

competent authority pursuant to the exports
20

 
made and that the profits on the sale of Duty

Entitlement Passbook representing the excess

of the sale proceeds over the face value is

liable to be considered under Section 28(iiid)

at the time of sale.”

 

In its judgment, on the first question of law formulated

 

under (a), the High Court held that the Tribunal was not

 

justified in holding that the entire amount received on the

 

sale of the DEPB does not represent profits chargeable

 

under Section 28(iiid) of the Act and in holding that the face

 

value of the DEPB shall be deducted from the sale proceeds

 

of the DEPB. On the second question of law formulated

 

under (b), the High Court in its judgment did not agree with

 

the Tribunal that the face value of DEPB is chargeable to

 

tax as income of the assessee under Section 28(iiib) of the

 

Act and instead held that the entirety of sale consideration

 

for transfer of DEPB would fall within the purview of Section

 

28(iiid) of the Act. In some of the cases, the appellants filed

 

review petitions before the High Court, but the High Court

 

dismissed the review petitions.

 
6. Learned counsel for the appellants submitted, relying

 

on the provisions of the DEPB Scheme, that the Tribunal

 

was right in coming to the conclusion that DEPB was cash
21

 
assistance receivable by a person against exports and

 

accrued to the exporter as soon as he files an application for

 

DEPB. They submitted that DEPB was therefore chargeable

 

to income tax under the head “Profits and Gains of Business

 

or Profession” under clause (iiib) of Section 28 of the Act.

 

They submitted that the contention of the Revenue that

 

DEPB would be income chargeable to tax only on transfer

 

and would be covered under clause (iiid) of Section 28 of the

 

Act is not correct. They submitted that it will be clear from

 

different provisions of the DEPB Scheme that the object of

 

granting DEPB to an exporter is to neutralize the incidence

 

of custom duties which has been incurred on the import

 

component of the export product and this neutralization is

 

achieved by grant of duty credit of the amount specified in

 

the DEPB Scheme. They submitted that the Tribunal,

 

therefore, was right in coming to the conclusion that there

 

was a direct relation between the DEPB and the cost of

 

inputs imported for manufacture of the export product.

 
7. Learned counsel for the appellants submitted that

 

since DEPB was cash assistance receivable by a person

 

against exports and was covered under clause (iiib) of
22

 
Section 28 of the Act and it has a direct relation with the

 

costs of the inputs imported by an exporter from

 

manufacturer of the export product, the DEPB cannot form

 

part of the profits on transfer of DEPB under Section 28(iiid)

 

of the Act. They argued that as and when DEPB is

 

transferred and the sale value realized on such transfer of

 

DEPB is more than the face value of the DEPB, the

 

difference between the sale value and face value of the

 

DEPB will constitute profit on transfer of DEPB and would

 

be covered under clause (iiid) of Section 28 of the Act. They

 

argued that if the intention of the legislature was to cover

 

the entire sale proceeds arising on transfer of DEPB under

 

clause (iiid) of Section 28 of the Act then they would have

 

used the expression “sale proceeds” instead of profit on

 

transfer of DEPB in clause (iiid) of Section 28 of the Act.

 
8. Learned counsel for the appellants argued that if the

 

entire sale proceeds of the DEPB is treated as profits arising

 

on transfer of DEPB for the purpose of clause (iiid) of

 

Section 28 as contended by the Revenue, then the assessee

 

will be taxed twice for the same income, once as cash

 

assistance under clause (iiib) of Section 28 equivalent to the
23

 
face value of the DEPB and for the second time as profit on

 

transfer of DEPB under clause (iiid) of Section 28, the face

 

value of the DEPB being part of the sale proceeds of the

 

DEPB on transfer. They submitted that as the legislature

 

could not have intended such double taxation of the same

 

income, the interpretation suggested by the Revenue should

 

not be accepted by the Court. They submitted that in the

 

present batch of cases, DEPB accrued to the assessees in

 

the first year when the assessees made the export and

 

applied for DEPB and the assessee sold the DEPB in

 

subsequent year and the Revenue has taken a stand that in

 

the subsequent year, the entire sale proceeds comprising

 

both the face value of the DEPB and the profits on transfer

 

of DEPB are covered under Section 28(iiid) of the Act and

 

this stand of the Revenue has been accepted by the High

 

Court in the impugned orders on an incorrect interpretation

 

of the DEPB scheme and the provisions of Section 28 of the

 

Act and 80HHC of the Act.

 
9. Learned counsel for the Revenue, on the other hand,

 

supported the impugned judgment and orders of the High

 

Court and submitted that profit on transfer of DEPB would
24

 
represent the entire sale value realized by the assessee on

 

transfer of the DEPB. He submitted that the High Court

 

has rightly held that the assessee does not incur any cost in

 

obtaining the DEPB. He argued that DEPB is an export

 

incentive granted by the Government under DEPB Scheme

 

and it has no direct relation with the cost of purchases

 

made by the assessee and therefore the assessee is not

 

entitled to deduct the face value of the DEPB from the sale

 

proceeds for determining the profit arising on transfer of

 

DEPB and the entire sale proceeds of the DEPB represent

 

the profits earned by the assessee on transfer of the DEPB.

 

He argued that the findings of the Tribunal that there is a

 

direct relation between DEPB and the costs incurred by the

 

assessee for importing inputs for manufacture of export

 

products is, therefore, not correct and the High Court was

 

right in setting aside the findings of the Tribunal and in

 

coming to the conclusion that the entire sale proceeds of

 

DEPB represent the profits on transfer of DEPB within the

 

meaning of clause (iiid) of Section 28 of the Act.

 
10. For appreciating the nature of the DEPB, paragraphs

 

4.37 and 4.42 of the Hand Book on DEPB issued by the
25

 
Government of India and paragraphs 7.14, 7.15, 7.16 and

 

7.38 of the Export and Import Policy, 1997-2002 as notified

 

by the Central Government in the Notification No.1(RE-99)/

 

1997-2202 dated 31st March, 2000 are extracted

 

hereinbelow:

 
Hand Book on DEPB
“4.37 Duty Entitlement Passbook Scheme

(DEPB)

 

The Policy relating to Duty Entitlement

Passbook (DEPB) Scheme is given in Chapter-

4 of the Policy. The duty credit under the

scheme shall be calculated by taking into

account the deemed import content of the

said export product as per SION and the

basic custom duty payable on such deemed

imports. The value addition achieved by

export of such product shall also be taken

into account while determining the rate of

duty credit under the scheme.

 
4.42 Utilization of DEPB credit.
The credit under DEPB shall be utilized for

payment of customs duty on any item which

is freely importable.
Export and Import Policy, 1997-2002
7.14 For exporters not desirous of going

through the licensing route, an optional

facility is given under DEPB. The objective of

Duty Entitlement Passbook Scheme is to

neutralize the incidence of Customs duty on
26

 
the import content of the export product.

The neutralization shall be provided by way

of grant of duty credit against the export

product.

 

Under the Duty Entitlement Passbook

Scheme (DEPB), an exporter may supply for

credit, as a specified percentage of FOB value

of exports, made in freely convertible

currency. The credit shall be available

against such export products and at such

rates as may be specified by the Director

General of Foreign Trade by way of public

notice issued in this behalf, for import of raw

materials, intermediates, components, parts

packing material etc.

 

The holder of Duty Entitlement Passbook

Scheme (DEPB) shall have the option to pay

additional customs duty, if any, in cash as

well.
Validity 7.15. The DEPB shall be valid for a

period of 12 months from the date of issue.

 

7.16 The DEPB and/or the items imported

against it are freely transferable. The

transfer of DEPB shall however be for import

at the port specified in the DEPB which shall

be the port from where exports have been

made. However, imports from a port other

than the port of export shall be allowed under

TRA facility as per the terms and conditions

of the notification issued by Department of

Revenue.
7.38 (i) An application for grant of credit

under DEPB may be made to the licensing

authority concerned in the form given in

Appendix-11C alongwith the documents

prescribed therein. The provisions of

paragraphs 7.2 shall be applicable for DEPB
27

 
also. The FOB value in free foreign exchange

shall be converted into Indian rupees as per

the authorized dealer’s T/T buying rate,

prevalent on the date of

negotiation/purchase/collection of

document. The DEPB rate of credit shall be

applied on the FOB value so arrived. In case

of advance payment, the FOB value in free

foreign exchange shall be converted into

Indian rupees as per the authorized dealer’s

T/T buying rate, prevalent on the date of

receipt of advance payment.

 

(ii) The DEPB shall be initially issued with

non transferable endorsement in such cases

where realization has not taken place to

enable the exporter to effect import for his

own use. However, upon receipt of

realization, the DEPB shall be endorsed

transferable. In such cases where the

applicant applies for DEPB after realization,

the DEPB shall be issued with transferable

endorsement.”

 
On a reading of the aforesaid paragraphs of the Hand Book

 

on DEPB and the Export and Import Policy of the

 

Government of India, 1997-2002, it is clear that the

 

objective of DEPB scheme is to neutralize the incidence of

 

customs duty on the import content of the export 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
28

 
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.

 
11. We may now consider the relevant provisions of

 

Section 28 for determining whether DEPB will fall under

 

clause (iiib) or under clause (iiid) of Section 28. The

 

relevant provisions of Section 28 of the Act are reproduced

 

hereunder:

 
Section 28. Profits and Gains of Business or

Profession.–The following income shall be

chargeable to income-tax under the head “Profits

and gains of business or profession”,–

……………………………………………………………….

 

(iiia) profits on sale of a licence granted under the

Imports (Control) Order, 1955, made under the

Imports and Exports (Control)Act, 1947 (18 of

1947);

 

(iiib) cash assistance (by whatever name called)

received or receivable by any person against

exports under any scheme of the Government of

India;]

 

(iiic) …………………………………………………………

 

(iiid) any profit on the transfer of the Duty

Entitlement Pass Book Scheme, being the Duty

Remission Scheme under the export and import

policy formulated and announced under section 5
29

 
of the Foreign Trade (Development and

Regulation) Act, 1992 (22 of 1992)

 

(iiie) any profit on the transfer of the Duty Free

Replenishment Certificate, being the Duty

Remission Scheme under the export and import

policy formulated and announced under section 5

of the Foreign Trade (Development and

Regulation) Act, 1992 (22 of 1992).”

 

 

12. It will be clear from the aforesaid 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. We have, therefore, no

 

doubt that DEPB is “cash assistance” receivable by a person

 

against exports under the scheme of the Government of

 

India and falls under clause (iiib) of Section 28 and is

 

chargeable to income tax under the head “Profits and Gains
30

 
of Business or Profession” even before it is transferred by

 

the assessee.

 

13. Under clause (iiid) of Section 28, any profit on

 

transfer of DEPB is chargeable to income tax under the

 

head “Profits and Gains of Business or Profession” as an

 

item separate from cash assistance under clause (iiib). The

 

word “profit” means the gross proceeds of a business

 

transaction less the costs of the transaction. To quote from

 

Black’s Law Dictionary (Fifth Edition):

 
“Profit. Most commonly, the gross proceeds of a

business transaction less the costs of the

transaction, i.e. net proceeds. Excess of revenues

over expenses for a transaction; sometimes used

synonymously with net income for the period.

Gain realized from business or investment over

and above expenditures.”

 

 

This Court in E.D. Sassoon & Company Ltd. and Others v.

 

Commissioner of Income-Tax, Bombay City (1954) 26 ITR 27

 

(SC) has quoted the following observations of Lord Justice

 

Fletcher Moulton in The Spanish Prospecting Company

 

Limited [(1911) I Ch. 92] on the meaning of the word

 

“profits”:
31

 
“…. `Profits’ implies a comparison between the

state of a business at two specific dates usually

separated by an interval of a year. The

fundamental meaning is the amount of gain

made by the business during the year. This can

only be ascertained by a comparison of the assets

of the business at the two dates.”

 
`Profits’, therefore, imply a comparison of the value of an

 

asset when the asset is acquired with the value of the asset

 

when the asset is transferred and the difference between the

 

two values is the amount of profit or gain made by a person.

 

As DEPB has direct nexus with the cost of imports for

 

manufacturing an export product, any amount realized by

 

the assessees over and above the DEPB on transfer of the

 

DEPB would represent profit on the transfer of DEPB.

 
14. We are, thus, of the considered opinion that while the

 

face value of the DEPB will fall under clause (iiib) of Section

 

28 of the Act, the difference between the sale value and the

 

face value of the DEPB will fall under clause (iiid) of Section

 

28 of the Act and the High Court was not right in taking the

 

view in the impugned judgment that the entire sale

 

proceeds of the DEPB realized on transfer of the DEPB and
32

 
not just the difference between the sale value and the face

 

value of the DEPB represent profit on transfer of the DEPB.

 

15. We may now point out the errors in the impugned

 

judgment of the High Court. The first reason given by the

 

High Court is that clause (iiia) of Section 28 treats profits on

 

the sale of an import license as income chargeable to tax

 

and when the license is sold, the entire amount is treated as

 

profits of business under clause (iiia) of Section 28 and thus

 

there is no justification to treat the amount which is

 

received by an exporter on the transfer of the DEPB any

 

differently than the profits which are made on the sale of an

 

import license under clause (iiia) of Section 28 of the Act. In

 

taking the view that when the import license is sold the

 

entire amount is treated as profits of business, the High

 

Court has visualized 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
33

 
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 person, the DEPB continues to remain as a cost to

 

the exporter. When, therefore, DEPB is transferred by a

 

person, the entire sum received by him on such transfer

 

does not become his profits. It is only the amount that he

 

receives in excess of the DEPB which represents his profits

 

on transfer of the DEPB.
34

 
16. The High Court has sought to meet the argument of

 

double taxation made on behalf of the assessees by holding

 

that where the face value of the DEPB was offered to tax in

 

the year in which the credit accrued to the assessee as

 

business profits, then any further profit arising on transfer

 

of DEPB would be taxed as profits of business under

 

Section 28(iiid) in the year in which the transfer of DEPB

 

took place. This view of the High Court, in our considered

 

opinion, is contrary to the language of Section 28 of the Act

 

under which “cash assistance” received or receivable by any

 

person against exports such as the DEPB and “profit on

 

transfer of the DEPB” are treated as two separate items of

 

income under clauses (iiib) and (iiid) of Section 28. If

 

accrual of DEPB and profit on transfer of DEPB are treated

 

as two separate items of income chargeable to tax under

 

clauses (iiib) and (iiid) of Section 28 of the Act, then DEPB

 

will be chargeable as income under clause (iiib) of Section

 

28 in the year in which the person applies for DEPB credit

 

against the exports and the profit on transfer of the DEPB

 

by that person will be chargeable as income under clause

 

(iiid) of Section 28 in his hands in the year in which he
35

 
makes the transfer. Accordingly, if in the same previous

 

year the DEPB accrues to a person and he also earns profit

 

on transfer of the DEPB, the DEPB will be business profits

 

under clause (iiib) and the difference between the sale value

 

and the DEPB (face value) would be the profits on the

 

transfer of DEPB under clause (iiid) for the same

 

assessment year. Where, however, the DEPB accrues to a

 

person in one previous year and the transfer of DEPB takes

 

place in a subsequent previous year, then the DEPB will be

 

chargeable as income of the person for the first assessment

 

year chargeable under clause (iiib) of Section 28 and the

 

difference between the DEPB credit and the sale value of the

 

DEPB credit would be income in his hands for the

 

subsequent assessment year chargeable under clause (iiid)

 

of Section 28. The interpretation suggested by us, therefore,

 

does not lead to double taxation of the same income, which

 

the legislature must be presumed to have avoided.

 
17. The High Court has held that as the assessees had an

 

export turnover exceeding Rs.10 crores and did not fulfill

 

the conditions set out in the third proviso to Section

 

80HHC(3) of the Act, the assessees were not entitled to a
36

 
deduction under Section 80HHC on the amount received on

 

transfer of DEPB and to get over this difficulty the assessees

 

have 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 of the Act.

 
18. The relevant provisions of Section 80HHC are quoted

 

hereinbelow:
“Section 80HHC- Deduction in respect of

profits retained for export business.– [(1)

Where an assessee, being an Indian company or

a person (other than a company) resident in

India, is engaged in the business of export out of

India of any goods or merchandise to which this

section applies, there shall, in accordance with

and subject to the provisions of this section, be

allowed, in computing the total income of the

assessee, [a deduction to the extent of profits,

referred to in sub-section (1B),] derived by the

assessee from the export of such goods or

merchandise:
……………………………………………………………….

 

(1B) For the purposes of sub-sections (1) and

(1A), the extent of deduction of the profits shall

be an amount equal to–
37

 
(i) eighty per cent thereof for an assessment

year beginning on the 1st day of April, 2001;

 

(ii) seventy per cent thereof for an assessment

year beginning on the 1st day of April, 2002;

 

(iii) fifty per cent thereof for an assessment year

beginning on the 1st day of April, 2003;

 

(iv) thirty per cent thereof for an assessment

year beginning on the 1st day of April,

2004,]

 

and no deduction shall be allowed in respect of

the assessment year beginning on the 1st day of

April, 2005 and any subsequent assessment

year.]
……………………………………………………………….

 

(3) For the purposes of sub-section (1),–

 

(a) where the export out of India is of goods or

merchandise manufactured [or processed] by the

assessee, the profits derived from such export

shall be the amount which bears to the profits of

the business, the same proportion as the export

turnover in respect of such goods bears to the

total turnover of the business carried on by the

assessee;
……………………………………………………………….

 

Provided that the profits computed under clause

(a) or clause (b) or clause (c) of this sub-section

shall be further increased by the amount which

bears to ninety per cent of any sum referred to in

clause (iiia) (not being profits on sale of a licence

acquired from any other person), and clauses

(iiib) and (iiic) of section 28, the same proportion as

the export turnover bears to the total turnover of

the business carried on by the assessee :
38

 

 

Provided further that in the case of an asseesee

having export turnover not exceeding rupees ten

crores during the previous year, the profits

computed under clause (a) or clause (b) or clause

(c) of this sub-section or after giving effect to the

first proviso, as the case may be, shall be further

increased by the amount which bears to ninety

per cent of any sum referred to in clause (iiid) or

clause (iiie), as the case may be, of section 28,

the same proportion as the export turnover bears

to the total turnover of the business carried on by

the assessee;

 

Provided also that in the case of an assessee

having export turnover exceeding rupees ten

crores during the previous year, the profits

computed under clause (a) or clause (b) or clause

(c) of this sub-section or after giving effect to the

first proviso, as the case may be, shall be further

increased by the amount which bears to ninety

per cent of any sum referred to in clause (iiid) of

section 28, the same proportion as the export

turnover bears to the total turnover of the

business carried on by the assessee, if the

assessee has necessary and sufficient evidence to

prove that,–

 

(a) he had an option to choose either the duty

drawback or the Duty Entitlement Pass

Book Scheme, being the Duty Remission

Scheme; and

 

(b) the rate of drawback credit attributable to

the customs duty was higher than the rate

of credit allowable under the Duty

Entitlement Pass Book Scheme, being the

Duty Remission Scheme.

 

Provided also that in the case of an assessee

having export turnover exceeding rupees ten

crores during the previous year, the profits
39

 
computed under clause (a) or clause (b) or clause

(c) of this sub-section or after giving effect to the

first proviso, as the case may be, shall be further

increased by the amount which bears to ninety

per cent of any sum referred to in clause (iiie) of

section 28, the same proportion as the export

turnover bears to the total turnover of the

business carried on by the assessee, if the

assessee has necessary and sufficient evidence to

prove that–

 

(a) he had an option to choose either the

duty drawback or the Duty Free

Replenishment Certificate, being the

Duty Remission Scheme; and

 

(b) the rate of drawback credit attributable

to the customs duty was higher than

the rate of credit allowable under the

Duty Free Replenishment Certificate,

being the Duty Remission Scheme.

 

Explanation.–For the purposes of this clause,

`rate of credit allowable’ means the rate of credit

allowable under the Duty Free Replenishment

Certificate, being the Duty Remission Scheme

calculated in the manner as may be notified by

the Central Government:]

 

……………………………………………………………….

 

Explanation:- For the purposes of this section,-

 

(baa) `profits of the business’ means the profits of

the business as computed under the head

`Profits and gains of business or profession’

as reduced by-

 

(1) ninety per cent of any sum referred to in

clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of

Section 28 or of any receipts by way of

brokerage, commission, interest, rent,
40

 
charges or any other receipt of a similar

nature included in such profits; and

 

(2) the profits of any branch, office,

warehouse or any other establishment of

the assessee situate outside India”

 
19. Sub-section (1) of Section 80HHC quoted above 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 assessment years from the assessment

 

years 2001-2002 to 2004-2005. Sub-section (3)(a) of

 

Section 80HHC provides that where the export out of India

 

is of goods or merchandise manufactured or processed by

 

the assessee, the profits derived from such exports shall be

 

the amount which bears to the profits of the business, the

 

same proportion as the export turnover in respect of such

 

goods bears to the total turnover of the business carried on

 

by the assessee. In Commissioner of Income-Tax v. K.
41

 
Ravindranathan Nair (2007) 295 ITR 228 (SC), the formula

 

in sub-section (3)(a) of Section 80HHC was stated by this

 

Court to be as follows:

 

Profits derived = Profits of the business x Export Turnover

from exports Total Turnover

 
20. Explanation (baa) under Section 80HHC states that

 

“profits of the business” in the aforesaid formula means the

 

profits of the business as computed under the head “Profits

 

and Gains of Business or Profession” as reduced by (1)

 

ninety per cent of any sum referred to in clauses (iiia), (iiib),

 

(iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of

 

brokerage, commission, interest, rent, charges or any other

 

receipt of similar nature including any such receipts and (2)

 

the profits of any branch, office, warehouse or any other

 

establishment of the assessee situated outside India. Thus,

 

ninety per cent of the DEPB which is “cash assistance”

 

against exports and is covered under clause (iiib) of Section

 

28 will get excluded from the “profits of the business” of the

 

assessee if such DEPB has accrued to the assessee during

 

the previous year. Similarly, if during the same previous

 

year, the assessee has transferred the DEPB and the sale
42

 
value of such DEPB is more than the face value of the

 

DEPB, the difference between the sale value of the DEPB

 

and the face value of the DEPB will represent the profit on

 

transfer of DEPB covered under clause (iiid) of Section 28

 

and ninety per cent of such profit on transfer of DEPB

 

certificate will get excluded from “profits of the business”.

 

But, where the DEPB accrues to the assessee in the first

 

previous year and the assessee transfers the DEPB

 

certificate in the second previous year, as appears to have

 

happened in the present batch of cases, only ninety per cent

 

of the profits on transfer of DEPB covered under clause (iiid)

 

and not ninety per cent of the entire sale value including the

 

face value of the DEPB will get excluded from the “profits of

 

the business”. Thus, where the ninety per cent of the face

 

value of the DEPB does not get excluded from “profits of the

 

business” under explanation (baa) and only ninety per cent

 

of the difference between the 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
43

 
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.

 
21. 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, profit on transfer of DEPB or DFRC are not to

 

be added under the first proviso. Where therefore in the

 

previous year no DEPB or DFRC accrues to the assessee, he

 

would not be entitled to the benefit of the first proviso to

 

sub-section (3) of Section 80HHC because he would not

 

have any sum referred to in clause (iiib) of Section 28 of the
44

 
Act. The second proviso to sub-section (3) of Section

 

80HHC states that in case of an assessee having export

 

turnover not exceeding Rs.10 crores during the previous

 

year, after giving effect to the first proviso, the export profits

 

are to be increased further by the amount which bears to

 

ninety per cent of any sum referred to in clauses (iiid) and

 

(iiie) of Section 28, the same proportion as the export

 

turnover bears to the total turnover of the business carried

 

on by the assessee. The third proviso to sub-section (3)

 

states that in case of an assessee having export turnover

 

exceeding Rs.10 crores, similar addition of ninety per cent of

 

the sums referred to in clause (iiid) of Section 28 only if the

 

assessee has the necessary and sufficient evidence to prove

 

that (a) he had an option to choose either the duty

 

drawback or the Duty Entitlement Pass Book Scheme, being

 

the Duty Remission Scheme; and (b) the rate of drawback

 

credit attributable to the customs duty was higher than the

 

rate of credit allowable under the Duty Entitlement Pass

 

Book Scheme, being the Duty Remission Scheme.

 

Therefore, if the assessee having export turnover of more

 

than Rs.10 crores does not satisfy these two conditions, he
45

 
will not be entitled to the addition of profit on transfer of

 

DEPB under the third proviso to sub-section (3) of Section

 

80HHC.

 

22. The aforesaid discussion would show that where an

 

assessee has an export turnover exceeding Rs.10 crores and

 

has made profits on transfer of DEPB under clause (d) of

 

Section 28, he would not get the benefit of addition to export

 

profits under third or fourth proviso to sub-section (3) of

 

Section 80HHC, but he would get the benefit of exclusion of

 

a smaller figure from “profits of the business” under

 

explanation (baa) to Section 80HHC of the Act and there is

 

nothing in explanation (baa) to Section 80HHC to show that

 

this benefit of exclusion of a smaller figure from “profits of

 

the business” will not be available to an assessee having an

 

export turnover exceeding Rs.10 crores. In other words,

 

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
46

 
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 fulfill 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 (iiie)

 

of Section 28, the assessee was entitled to a deduction

 

under Section 80HHC on export profits, the benefit of such

 

deduction cannot be denied to the assessee.

 
23. The impugned judgment and orders of the Bombay

 

High Court are accordingly set-aside. The appeals are

 

allowed to the extent indicated in this judgment. The

 

Assessing Officer is directed to compute the deduction
47

 
under Section 80HHC in the case of the appellants in

 

accordance with this judgment. There shall be no order as

 

to costs.

 
……………………..CJI.

(S.H. Kapadia)

 

 

………………………..J.

(A. K. Patnaik)

 
………………………..J.

(Swatanter

Kumar)

New Delhi,

February 08, 2012.

 

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