Facts of the Case

The appeals were filed by the Revenue under Section 260A of the Income Tax Act, challenging the entitlement of the assessee, M/s K.R.B.L. Limited, to deductions under Section 80HHC of the Income Tax Act, 1961. The substantial question involved whether the assessee could claim deductions on:

  1. DEPB credit utilized by itself, amounting to ₹5,79,74,883.
  2. Moneys received from the sale of Special Import License (SIL).

The Tribunal had allowed the deduction, and the Revenue appealed, contending that these amounts should not be included in the computation of profits eligible for deduction under Section 80HHC.

 

Issues Involved

  1. Whether the assessee is entitled to deduction under Section 80HHC for DEPB credit utilized in business operations.
  2. Whether moneys received on sale of SIL qualify for exclusion under Section 80HHC, given they are not explicitly covered under Section 28 of the Act.

 

Petitioner’s (Revenue’s) Arguments

  • The DEPB credit utilized by the assessee represents taxable business income under Section 28(iiib) and should not be excluded.
  • The proceeds from the sale of SIL do not fall under the enumerated clauses of Section 28 and hence cannot be reduced from profits for the purpose of Section 80HHC.
  • Claimed that the Explanation (baa) should be read “ejusdem generis” to include SIL proceeds as “other receipts of a similar nature,” making 90% of such receipts ineligible for deduction.

 

Respondent’s (Assessee’s) Arguments

  • DEPB credit utilized by the assessee qualifies for exclusion under Section 80HHC, as clarified by the Supreme Court in Topman Exports vs Commissioner of Income Tax (2012) 342 ITR 79, where DEPB is treated as cash assistance against exports.
  • Proceeds from SIL sale should be treated as business profits under Section 28(iiia) after applying Section 8 of the General Clauses Act, 1897, because the SIL scheme falls under the Foreign Trade (Development & Regulation) Act, 1992.
  • The Explanation (baa) cannot be split to cover receipts like SIL under residual categories; only specific receipts like brokerage, interest, and rent fall in that residual category.

 

Court Order / Findings

  1. DEPB Credit:
    • Court upheld that 90% of DEPB credit utilized by the assessee is excludable from assessed business profits under Section 80HHC, per Supreme Court guidance in Topman Exports.
    • Any transferred DEPB surplus would attract Clause (iiid), but this was not relevant here as the DEPB was self-utilized.
    • Revenue was directed to recompute deductions under Section 80HHC for DEPB credit accordingly.
  2. Sale of SIL:
    • SIL proceeds do not fall under residual receipts of Explanation (baa).
    • Applying Section 8 of General Clauses Act, profits from SIL sale qualify as business profits under Section 28(iiia).
    • 90% of SIL profits are excludable under Section 80HHC, and the excluded amount is added back in proportion to export turnover per the first proviso of Section 80HHC(3).

Result: All Revenue appeals were dismissed. Deduction under Section 80HHC is allowed for both DEPB credit and SIL sale proceeds, with directions to recompute accordingly. No order as to costs.

 

Important Clarifications

  • DEPB credit is considered cash assistance and taxable under business income (Section 28), but 90% can be excluded for Section 80HHC deduction if utilized in business.
  • SIL proceeds are business profits under Section 28(iiia) and eligible for deduction.
  • Explanation (baa) should be read in two parts, not split to include unrelated receipts under “ejusdem generis.”
  • Relevant CBDT circulars support exclusion principles for export-related receipts.

Link to download the order

https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:7229-DB/RVE05122012ITA2012009.pdf

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