S. 80HHC – SC reverses Bomaby HC judgment in Kalpataru case, DEPB Face value covered U/s. 28(iiib)

By TG Team Income Tax Featured , Judiciary February 9, 2012

TaxGuru Citation: 2012 taxguru.in 144
Case Name: M/s Top man Exports vs. CIT (Supreme Court of India)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 08/02/2012
Courts: Supreme Court of India

M/s Top man Exports vs. CIT (Supreme Court)– Supreme Court in the case of M/s Topman Exports & Others Vs. CIT reversed Bombay High Court Judgment in the case of CIT vs Kalpataru Colours and Chemicals 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 the Tribunal was not correct in holding that the face value of the DEPB shall be deducted from the sale proceeds of the DEPB. The High Court 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.

Highlights of the Judgment

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.
Face value of DEPB would be taxable as business income under clause (iiib) of section 28 of the Act.
Only “Profit” element embedded in the consideration received on transfer of DEPB would be taxable under clause (iiid) of section 28 of the Act.

The cost of acquiring DEPB 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.
The Court further held 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.
The Court further held that where the export turnover of an assessee exceeds Rs.10crores, 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.

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