Facts of the Case

The appeals were filed by the Commissioner of Income Tax (Appellant) under Section 260A of the Income Tax Act, 1961, against M/S K.R.B.L. Limited (Respondent) concerning the eligibility for deduction under Section 80HHC of the Income Tax Act. The key issue revolved around whether the assessee could claim deductions for the DEPB (Duty Entitlement Pass Book) credit utilized directly and for moneys received from the sale of Special Import License (SIL).

The substantial question of law common to all appeals was whether the Tribunal correctly allowed deductions for DEPB credits, amounting to ₹5,79,74,883, under Section 28(iiic) of the Income Tax Act, 1961, and whether such deductions extend to SIL sale proceeds.

 

Issues Involved

  1. Whether DEPB credits utilized by the assessee qualify for deduction under Section 80HHC.
  2. Whether moneys received on the sale of Special Import Licenses (SIL) are eligible for deductions under Section 80HHC.
  3. Interpretation of Section 28 and Explanation (baa) regarding "profits of the business" and excluded receipts.
  4. Application of the Supreme Court precedent in Topman Exports v. Commissioner of Income Tax (2012) 342 ITR 79 regarding DEPB credits.

 

Petitioner’s Arguments

  • The Revenue contended that only 90% of DEPB credits under enumerated clauses of Section 28 should be considered for deduction.
  • SIL proceeds did not fall under the clauses of Section 28; hence, 90% of such receipts could not be excluded.
  • Revenue argued the Explanation (baa) of Section 80HHC(3) should be split into multiple parts to restrict deductions.

 

Respondent’s Arguments

  • DEPB credits are cash assistance against exports and qualify for deduction under Section 80HHC per Topman Exports.
  • SIL proceeds, though not enumerated, should be assessed as business profits and the deductions should be computed proportionally.
  • The Explanation (baa) must be interpreted contiguously; "other receipts" only refers to receipts like brokerage, commission, interest, rent, or charges.
  • CBDT Circulars support that benefits of Section 80HHC should not be denied due to technicalities in repealed statutes.

 

Court Order / Findings

  1. The Court upheld that DEPB credits utilized by the assessee are eligible for deduction under Section 80HHC, consistent with Topman Exports.
  2. SIL proceeds fall within Section 28(riia) as profits from licenses under the Foreign Trade (Development and Regulation) Act, 1992. These are assessable as business profits.
  3. 90% of DEPB credits and SIL proceeds are excluded from assessed profits for Section 80HHC deductions.
  4. Deductions under Section 80HHC are to be recomputed proportionally to the export turnover relative to total business turnover.
  5. Appeals of the Revenue were dismissed with no costs.

 

Important Clarifications

  • DEPB credits are cash assistance and taxable only when transferred; utilization in business qualifies for deductions.
  • SIL sale proceeds are assessable under Section 28 as business profits; correct computation of deduction under Section 80HHC requires proportionate addition based on export turnover.
  • The judgment reinforces adherence to CBDT Circulars and Supreme Court precedents in computing Section 80HHC deductions.

 

Sections Involved

  • Section 28(iiic), Section 28(riia) – Profits of business
  • Section 80HHC – Deduction for profits from exports
  • Section 260A – Appeals to High Court

 


Link to download the order:

https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:7790-DB/RVE05122012ITA4192009_122538.pdf

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