{"id":4283,"date":"2012-02-09T15:07:26","date_gmt":"2012-02-09T15:07:26","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4283"},"modified":"2012-02-09T15:07:26","modified_gmt":"2012-02-09T15:07:26","slug":"ms-topman-exports-vs-cit-supreme-court-s-80hhc-28iiid-depb-sale-proceeds-is-not-profits","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/ms-topman-exports-vs-cit-supreme-court-s-80hhc-28iiid-depb-sale-proceeds-is-not-profits\/","title":{"rendered":"M\/s Topman Exports vs. CIT (Supreme Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (topman_80HHC_DEPB.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\ns. 80HHC\/ 28(iiid): DEPB sale proceeds is not \u201cprofits\u201d <\/strong><\/p>\n

The assessee sold the Duty Entitlement Pass Book (“DEPB”) which had accrued on export of its products. S. 28 (iiid) provides that \u201cany profit on the transfer\u201d of the DEPB shall be business profits. Under Explanation (baa) to s. 80HHC, 90% of \u201cthe sum referred to in s. 28(iiid)\u201d has to be reduced from the business profits. Under the third Proviso to s. 80HHC (3), in the case of an assessee having an export turnover exceeding Rs. 10 crores, the profits referred to in s. 80HHC (3) can be increased by 90% of \u201cthe sum referred to in s. 28 (iiid)\u201d only if two conditions are satisfied. If the said conditions are not satisfied, no relief on account of DEPB can be granted u\/s 80HHC. In Topman Exports vs. ITO<\/a><\/strong> 318 ITR 87 (Mum)(SB)(AT) the Special Bench of the Tribunal held that \u201cthe sum referred to in s. 28(iiid)\u201d meant only the \u201cprofits\u201d on transfer of the DEPB and not the entire sale proceeds. The Tribunal held that the amount received on account of DEPB had to be bifurcated into the \u201cface value\u201d of the DEPB and the \u201cprofit\u201d and that while the \u201cface value\u201d was assessable u\/s 28(iiib), the \u201cprofit\u201d was assessable u\/s 28(iiid). The consequence was that only the \u201cprofit\u201d suffered the rigors of the third Proviso to s. 80HHC (3) and not the \u201cface value\u201c. On appeal by the revenue, the High Court (CIT vs. Kalpataru Colours and Chemicals<\/a><\/strong> 328 ITR 421 (Bom)) reversed the Tribunal and held that the sale proceeds could not be bifurcated into \u201cprofits\u201d and \u201cface value\u201d and the entire sale proceeds was \u201cprofits\u201d<\/em> for s. 80HHC r.w.s. 28(iiid). On appeal by the assessee, HELD reversing the High Court:<\/p>\n

DEPB is \u201ccash assistance\u201d receivable against exports under the scheme of the Government. While the face value of the DEPB falls under clause (iiib) of s. 28, the difference between the sale value and the face value of the DEPB (the “profit”) will fall under clause (iiid) of s. 28. The High Court was not right in taking the view that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB<\/strong>. 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 DEPB is transferred, the entire sum received 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<\/strong>.<\/p><\/blockquote>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

DEPB is \u201ccash assistance\u201d receivable against exports under the scheme of the Government. While the face value of the DEPB falls under clause (iiib) of s. 28, the difference between the sale value and the face value of the DEPB (the “profit”) will fall under clause (iiid) of s. 28. The High Court was not right in taking the view that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB<\/strong>. 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 DEPB is transferred, the entire sum received 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<\/strong><\/p>\n

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