M/S. Gold Line Exports 32, Kamarajapuram West,Karur v. The Income Tax Officerward I (1),Karur

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 15.02.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYANTax Case Appeal No. 542 of 2011 M/s. Gold Line Exports# 32, Kamarajapuram West,Karur... Appellant/Appellant Vs. The Income Tax OfficerWard I (1),Karur...Respondent/Respondent ----- Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, Madras 'C' Bench, Chennai, dated 23.12.2010 madein ITA No. 537/Mds/2007 for the Assessment Year 2003-2004and this appeal preferred against the order dated22.01.2017 made in ITA NO.379/05-06/310 on the file of thecommisioner of Income Tax (Appeals) No.4 ,WilliamsRoad,contonment,Thiruchirapalli 620 001 for the assesmentyear 2003-2004 and this Appeal Preferred against the orderdated 17.05.2005 made in PAN: AAARG 4435H GIR G 0448 on thefile of the Income Tax officer,Ward I(1)Karur for theAssement Year 2003-2004 and this appeal Preferred againstthe order dated 30.03.2005 made in PAN GIR NO.AAA RG 4435Hon the file of the Income Tax office Ward I(1),Karur. ----- (Delivered by DR.VINEET KOTHARI, J.)The Assessee has filed the present Appeal underSection 260A of the Income Tax Act, 1961 raisingsubstantial questions of law arising from the order of the https://hcservices.ecourts.gov.in/hcservices/ Income Tax Appellate Tribunal, dated 23.12.2010 whereby thelearned Tribunal dismissed the Appeal of the Assessee onthe issue as to whether the Assessee was entitled to claimonly the Net value of the sale of DEPB (Duty EntitlementsPass Book) after deducting its face value for the purposeof computing the benefit under Section 80HHC of the Actapplying explanation (baa) of the said provision. 2.The learned Tribunal in the impugned order inparagraph No. 8 held as under:- “8.The third issue raised videground No.4, the assessee has claimedthat under Section 28(iiid) only theprofitandtransferofDutyEntitlements Pass Book Scheme waschargeable to income tax under the headprofits and gains of business and theentire value of DEPB received and/orsold. According to the assessee, theface value of the DEPB allotted was tobe treated as cost of such DEPBnotwithstandingthemethodofaccounting employed to account for suchreceipts and should be assessed asprofit on sale in accordance with law.Again this issue is found to be coveredin favour of assessee by the decisionof Hon'ble jurisidictional High Courtin the case of Kalpataru Colours andChemicals (supra). Accordingly, wedismiss this ground taken by theAssessee.” 3.There appears to be a bona fide typing error inthe last lines of the aforesaid quoted portion where thelearned Tribunal has held that the issue is covered (infavour of Assessee). In fact, the view of the Bombay HighCourt relied upon by the learned Tribunal in the case ofCIT Vs. Kalpataru Colours and Chemicals reported in [2010]328 ITR 451 (Bom.) was against the Assessee and not infavour of the Assessee. 4.However, the learned counsel for the Assesseesubmitted that the said view of the Bombay High Court inthe case of Kalpataru Colours and Chemicals supra was lateron revised by the Hon'ble Supreme Court in the case ofTopman Exports Vs. Commissioner of Income tax reported in[2012 18 taxmann.com 120 (SC). The relevant portions ofthe decision of the Hon'ble Supreme Court in this regardare quoted below for ready reference:- 4.However, the learned counsel for the Assesseesubmitted that the said view of the Bombay High Court inthe case of Kalpataru Colours and Chemicals supra was lateron revised by the Hon'ble Supreme Court in the case ofTopman Exports Vs. Commissioner of Income tax reported in[2012 18 taxmann.com 120 (SC). The relevant portions ofthe decision of the Hon'ble Supreme Court in this regardare quoted below for ready reference:- “The aforesaid discussion would showthat where an assessee has an exportturnover exceeding Rs.10 crores and hasmade profits on transfer of DEPB underClause (iiid) of Section 28, he wouldnot get the benefit of addition toexport profits under third or fourthproviso to sub-section (3) of Section80HHC, but he would get the benefit ofexclusion of a smaller figure from'profits of the business' underExplanation (baa) to Section 80HHC andthere is nothing in Explanation (baa)to Section 80HHC to show that thisbenefit of exclusion of a smallerfigure from 'profits of the business'will not be available to an assesseehaving an export turnover exceedingRs.10 crores. In other words, wherethe export turnover of an assesseeexceeds Rs.10 crores, he does not getthe benefit of addition of ninety percent of export incentive under clause(iiid) of Section 28 to his exportprofits, but he gets a higher figure ofprofits of the business, whichultimately results in computation of abigger export profit. The High Court,therefore, was not right in coming tothe conclusion that as the assessee didnot have the export turnover exceedingRs.10 crores and as the assessee didnot fulfil the conditions set out inthird proviso to Section 80HHC (iii),the assessee was not entitled to adeduction under Section 80HHC on theamount received on transfer of DEPB andwith a view to get over this difficultythe assessee was contending that theprofits on transfer of DEPB underSection 28(iiid) would not include theface value of the DEPB. It is a well-settledprincipleofstatutoryinterpretation of a taxing statute thata subject will be liable to tax andwill be entitled to exemption from taxaccording to the strict language of thetaxing statute and if as per the wordsused in Explanation (baa) to Section80HHC read with the words used in clause (iiid) and (iiie) of Section 28,the assessee was entitled to adeduction under Section 80HHC on exportprofits, the benefit of such deductioncannot be denied to the assessee. The impugned Judgement and orders ofthe High Court are accordingly, setaside. The appeals are allowed to theextent indicated in this Judgement.The Assessing Officer is directed tocompute the deduction under Section80HHC in the case of the assessee inaccordance with this Judgement. Case Review:E.D. Sassoon and Co. Limited., v. CIT[1954] 26 IRT 27(SC) followed & reliedupon. CIT vs. Kalpataru Colours and Chemicals [2010] 328 ITR 451 (Bom.) reversed.” 5.He therefore submits that the very foundation ofthe order passed by the learned Tribunal no longer existsand the substantial question of law deserves to be answeredin favour of the Assessee. The questions of law whicharise in the present case are quoted below for readyreference:- “3.Whether on the facts and inthe circumstances of the case theIncome Tax Appellate Tribunal wasright in law in not appreciating thatwhen DEPB receivable is assessed asincome under u/s. 28(iv) of theIncome Tax Act, 1961, the same has tobe treated as export receipts whilecomputing deduction u/s. 80HHC since28(iv) was not referred to inExplanation (baa) to section 80HHC?; 4.Whether on the facts and inthe circumstances of the case theIncome Tax Appellate Tribunal wasright in law in holding that theentireDEPBreceivableswaschargeable to income tax under thehead “Profits and Gains of Business”? “3.Whether on the facts and inthe circumstances of the case theIncome Tax Appellate Tribunal wasright in law in not appreciating thatwhen DEPB receivable is assessed asincome under u/s. 28(iv) of theIncome Tax Act, 1961, the same has tobe treated as export receipts whilecomputing deduction u/s. 80HHC since28(iv) was not referred to inExplanation (baa) to section 80HHC?; 4.Whether on the facts and inthe circumstances of the case theIncome Tax Appellate Tribunal wasright in law in holding that theentireDEPBreceivableswaschargeable to income tax under thehead “Profits and Gains of Business”? 5.Whether on the facts and inthe circumstances of the case theIncome Tax Appellate Tribunal wasright in law in not holding that u/s. 28(iiid), onlyprofit on transfer of duty drawbackand DEPB scheme was chargeable toincome tax under the head “Profitsand Gains of Business” and not theentire value of DEPB?”. 6.Having heard the learned counsels, we are of theopinion that the controversy is no longer res integra andthe same is covered by the aforesaid decision of theHon'ble Supreme Court and the Assessee is entitled to takeonly the Net amount of the sale value after deducting theface value of the DEPB for the purpose of Section 80HHCwhile applying Explanation (baa) of the said provision inthe present case. 7.Accordingly, the Appeal of the Assessee isallowed and the questions of law framed above are answeredin favour of the Assessee and against the Revenue. Noorder as to costs. Sd/- Assistant Registrar(CS viii) //True Copy// Sub Assistant Registrar vsgTo,1.THE INCOME TAX APPELLATE TRIBUNAL,MADRAS C BENCH, CHENNAI. 2.THE COMMISIONER OF INCOME TAX (APPEALS) NO.4 ,WILLIAMSROAD,CONTONMENT,THIRUCHIRAPALLI 620 001ROAD,CONTONMENT,THIRUCHIRAPALLI 620 001 3.THE INCOME TAX OFFICE WARD I(1),KARUR. +1cc to Mr.Philips George , Advocate SR.No. 14008+1cc to Mr.M.Swaminathan, Advocate SR.No. 14245Tax Case Appeal No. 542 of 2011 A.SK(18/03/2019)