Madras High Court
Commissioner Of Income Tax vs M/S. Devi Marine Food Exports Ltd on 27 June, 2022
T.C.A.Nos.890 to 893 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 27.06.2022
CORAM :
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
T.C.A.Nos.890 to 893 of 2010
Commissioner of Income Tax,
Chennai. ... Appellant
Versus
M/s. Devi Marine Food Exports Ltd.,
3/284, Muttukadu Road, Neelankarai,
Chennai - 600 041. ... Respondent
Appeals preferred under Section 260A of the Income Tax Act, 1961,
against the common order dated 18.12.2009 passed by the Income Tax
Appellate Tribunal, “D” Bench, Chennai, in I.T.A.Nos.836, 837, 838 and
839/Mds/2008.
For Appellant : Mrs.R.Hemalatha
Standing Counsel
For Respondent : Mr.A.S.Sriraman
for Mr.S.Sridhar
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T.C.A.Nos.890 to 893 of 2010
COMMON JUDGMENT
(Judgment of the Court was delivered by R.MAHADEVAN, J.)
All the tax case appeals are filed by the Revenue challenging the order
of the Income Tax Appellate Tribunal dated 18.12.2009 relating to the
assessment years 1999-2000, 2000-01, 2001-02 and 2002-03.
2. By order dated 13.12.2010, the aforesaid tax case appeals were
admitted on the following substantial question of law:
"Whether on the facts and circumstances of the case, the Tribunal
was right in remanding the issue of computation of deduction under
section 80HHC with respect to sale of DEPB license in accordance with
the decision of the special bench in the case of Topman exports reported
in 318 ITR AT 87 (Mumbai)."
3. The assessee is engaged in the business of export of sea foods.
They filed their return of income for the relevant assessment years viz.,
1999-2000, 2000-01, 2001-02 and 2002-03, admitting NIL income which
were originally, accepted under section 143(1). Subsequently, the assessing
officer issued notices under section 148 for reopening the assessment under
section 147 relating to the assessment years 1999-2000 and 2000-01; and the
assessee filed their replies, requesting the assessing officer to treat the
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T.C.A.Nos.890 to 893 of 2010
original returns already filed as sufficient compliance. In respect of the
assessment years 2001-02 and 2002-03, after filing of returns of income by
the assessee, the assessing officer selected the cases for scrutiny and
completed the assessment under section 143(3) determining the total income
of the assessee. During the process of assessment, the assessing officer,
inter alia, excluded 90% of the sale proceeds of DEPB from the eligible
profits as against the assessee's claim that only 90% of the profit gained from
the sale of DEPB had to be excluded, while computing deduction under
section 80HHC.
4. Challenging the assessment orders, the assessee preferred
appeals before the appellate authority / Commissioner of Income Tax
(Appeals)- VIII, who, by separate orders dated 28.01.2008, allowed the
appeals filed by the assessee. Aggrieved by the orders of the appellate
authority directing the assessing officer to reduce 90% of profit on sale of
DEPB, the Revenue preferred appeals before the Tribunal. Following the
decision of the Special Bench of Mumbai of the Tribunal in Topman
Exports v. Income Tax Officer [(2009) 318 ITR (AT) 87 (Mumbai) (SB), by
the common order dated 18.12.2009, the Tribunal partly allowed the appeals
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T.C.A.Nos.890 to 893 of 2010
filed by the Revenue. Challenging the order of the Tribunal, the Revenue is
before this court with these appeals.
5. Heard both sides and perused the documents placed before this
court.
6. The only issue that arises for consideration herein is with
respect to the claim of deduction under section 80HHC with respect to sale
of DEPB licence by the assessee.
7. It could be seen that the assessing officer, while computing the
deduction under section 80HHC, reduced 90% of the sale proceeds of DEPB.
According to the assessee, as per section 28(iiid), which refers to any profit
on the transfer of duty entitlement and not to the sale proceeds, only 90% of
the profits earned on the sale of DEPB has to be reduced and not the entire
sale value of DEPB. Accepting the contention of the assessee, the CIT(A)
allowed the appeals by directing the assessing officer to reduce 90% of the
profit on sale of DEPB. However, on appeals by the Revenue, the Tribunal
referred to the decision of the Special Bench of Mumbai Tribunal in
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T.C.A.Nos.890 to 893 of 2010
Topman Exports case (supra), remitted the issue to the record of the
assessing officer for recomputation of deduction under section 80HHC in
accordance with the said decision of the Tribunal and pass a fresh order in
accordance with the relevant law. The said order of the Tribunal is
questioned in these appeals by the Revenue by contending that as against the
said decision in Topman Exports case, an appeal is pending before the High
Court of Mumbai.
8. Today, it is brought to the notice of this court by the learned
counsel appearing for both sides that the appeal arising from the aforesaid
order of the Mumbai Tribunal was subsequently disposed of by the Mumbai
High Court, against which, the assessee preferred SLPs before the Hon'ble
Supreme Court and the same were allowed by the decision reported in
(2012) 18 taxmann.com 120 (SC). The relevant passage of the said decision
is usefully extracted hereunder:
"19. Sub-section (1) of Section 80HHC quoted above makes it
clear that an assessee engaged in the business of export out of India of
any goods or merchandise to which this Section applies shall be
allowed, in computing his total income, a deduction to the extent of
profits referred to in sub-section (1B) derived by him from the export of
such goods or mechandise. Sub-section (1B) of Section 80HHC gives
the percentage of deduction of the profits allowable for the different
assessment years from the assessment years 2001-2002 to 2004-2005.
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T.C.A.Nos.890 to 893 of 2010
Sub-section (3) (a) of Section 80HHC provides that where the export out
of India is of goods or merchandise manufactured or processed by the
assessee, the profits derived from such exports shall be the amount
which bears to the profits of the business, the same proportion as the
export turnover in respect of such goods bears to the total turnover of
the business carried on by the assessee. In CIT vs. K.Ravindranath Nair
(2007) 295 ITR 228/165 Taxmann 282 (SC) the formula in sub-section
(3) (a) of Section 80HHC was stated by this Court to be as follows:-
Profits derived = Profits of the business x Export Turnover from
exports = Total Turnover.
21. Explanation (baa) under Section 80HHC states that
"profits of the business" in the aforesaid formula means the profits of the
business as computed under the head "Profits and Gains of Business or
Profession" as reduced by (1) ninety per cent of any sum referred to in
clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 or of any receipts
by way of brokerage, commission, interest, rent, charges or any other
receipt of similar nature including any such receipts and (2) the profits
of any branch, office, warehouse or any other establishment of the
assessee situated outside India. Thus, ninety per cent of the warehouse
or any other establishment of the DEPB which is "cash assistance"
against exports and is covered under clause (iiib) of Section 28 will get
excluded from the "profits of the business" of the assessee if such DEPB
has accrued to the assessee during the previous year. Similarly, if
during the same previous year, the assessee has transferred the DEPB
and the sale value of such DEPB is more than the face value of the
DEPB, the difference between the sale value of the DEPB and the face
value of the DEPB will represent the profit on transfer of DEPB covered
under clause (iiid) of section 28 and ninety per cent of such profit on
transfer of DEPB certificate will get excluded from "profits of the
business". But, where the DEPB accrues to the assessee in the first
previous year and the assessee transfers the DEPB certificate in the
second previous year, as appears to have happened in the present batch
of cases, only ninety per cent of the profits on transfer of DEPB covered
under clause (iiid) and not ninety per cent of the entire sale value
including the face value of the DEPB does not get excluded from "profits
of the business". Thus, where the ninety per cent of the face value of the
DEPB does not get excluded from "profits of the business" under
explanation (baa) and only ninety per cent of the difference between the
face value of the DEPB and the sale value of the DEPB gets excluded
from "profits of the business", the assessee gets a bigger figure of
"profits of the business" and this is possible when the DEPB accrues to
the assessee in one previous year and transfer of the DEPB takes place
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T.C.A.Nos.890 to 893 of 2010
in the subsequent previous year. The result in such case is that a higher
figure of "profits of the business" becomes the multiplier in the aforesaid
formula under sub-section (3) (a) of section 80HHC for arriving at the
figure of profits derived from exports.
21. To the figure of profits derived from exports worked out as
per the aforesaid formula under sub-section (3) (a) of Section 80HHC,
the additions, as mentioned in first, second, third and fourth proviso
under sub-section (3) are made to profits derived from exports. Under
the first proviso, ninety per cent of the sum referred to in clauses (iiia),
(iiib) and (iiic) of section 28 are added in the same proportion as export
turnover bears to the total turnover of the business carried on by the
assessee. In this first proviso, there is no addition of any sum referred to
in clause (iiid) or clause (iiie). Hence, profit on transfer of DEPB or
DFRC are not to be added under the first proviso. Where therefore in
the previous year no DEPB or DFRC accrues to the assessee, he would
not be entitled to the benefit of the first proviso to sub-section (3) of
section 80HHC because he would not have any sum referred to in clause
(iiib) of section 28 of the Act. The second proviso to sub-section (3) of
section 80HHC states that in case of an assessee having export turnover
exceeding Rs.10 crores during the previous year, after giving effect to
the first proviso, the export profits are to be increased further by the
amount which bears to ninety per cent of any sum referred to in clauses
(iiid) and (iiie) of Section 28, the same proportion as the export turnover
bears to the total turnover of the business carried on by the assessee.
The third proviso to sub-section (3) states that in case of an assessee
having export turnover exceeding Rs.10 crores, similar addition of
ninety per cent of the sums referred to in clause (iiid) of section 28 only
if the assessee has the necessary and sufficient evidence to prove that (a)
he had an option to choose either the duty drawback or the Duty
Entitlement Pass Book Scheme, being the Duty Remission Scheme.
Therefore, if the assessee having export turnover of more than Rs.10
crores does not satisfy these two conditions, he will not be entitled to the
addition of profit on transfer of DEPB under the third proviso to sub-
section (3) of section 80HHC.
22. The aforesaid discussion would show that where an
assessee has an export turnover exceeding Rs.10 crores and has made
profits on transfer of DEPB under clause (d) of section 28, he would not
get the benefit of addition to export profits under third or fourth proviso
to sub-section (3) of section 80HHC, but he would get the benefit of
exclusion of a small figure from "profits of the business" under
explanation (baa) to Section 80HHC of the Act and there is nothing in
Explanation (baa) to Section 80HHC to show that this benefit of
exclusion of a small figure from "profits of the business" will not be
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T.C.A.Nos.890 to 893 of 2010
available to an assessee having an export turnover exceeding Rs.10
crores. In other words, where the export turnover of an assessee
exceeds Rs.10 crores, he does not get the benefit of addition of ninety per
cent of export incentive under clause (iiid) of Section 28 of his export
profits, but he gets a higher figure of profits of the business, which
ultimately results in computation of a bigger export profit. The High
Court, therefore, was not right in coming to the conclusion that as the
assessee did not have the export turnover exceeding Rs.10 crores and as
the assessee did not fulfil the conditions set out in the third proviso to
Section 80HHC (iii), the assessee was not entitled to a deduction under
Section 80HHC on the amount received on transfer of DEPB and with a
view to get over this difficulty the assessee was contending that the
profits on transfer of DEPB under Section 28(iiid) would not include the
face value of the DEPB. It is a well-settled principle of statutory
interpretation of a taxing statute that a subject will be liable to tax and
will be entitled to exemption from tax according to the strict language of
the taxing statute and if as per the words used in explanation (baa) to
Section 80HHC read with the words used in clauses (iiid) and (iiie) of
Section 28, the assessee was entitled to a deduction under Section
80HHC on export profits, the benefit of such deduction cannot be denied
to the assessee.
23. The impugned judgment and orders of the Bombay High
Court are accordingly set aside. The appeals are allowed to the extent
indicated in this judgment. The assessing officer is directed to compute
the deduction under section 80HHC in the case of the appellants in
accordance with this judgment. There shall be no order as to costs."
9. Following the aforesaid decision of the Hon'ble Supreme Court,
in and by which, the issue involved herein, has attained finality, the order
impugned in these appeals is set aside and the matter is remanded to the
assessing officer for computation of the deduction under section 80HHC, in
accordance with the afore-referred decision of the Hon'ble Supreme Court in
Topman Exports v. Commissioner of Income -tax, Mumbai, [(2012) 18
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T.C.A.Nos.890 to 893 of 2010
taxmann.com 120 (SC)], and after providing an opportunity of hearing to
the assessee and passing orders afresh. Such an exercise shall be completed
by the assessing officer within a period of three months from the date of
receipt of a copy of this judgment.
10. All these tax case appeals are disposed of in the above terms.
No costs.
(R.M.D., J.) (M.S.Q., J.)
27.06.2022
Internet : Yes / No
Index : Yes / No
av/rsh
To
1. The Income Tax Appellate Tribunal,
“D” Bench, Chennai.
2. The Commissioner of Income Tax,
Company Circle - 1(4)
Chennai.
3. The Commissioner of Income Tax (Appeals)-VIII
Chennai.
https://www.mhc.tn.gov.in/judis
T.C.A.Nos.890 to 893 of 2010
R. MAHADEVAN, J
and
MOHAMMED SHAFFIQ, J
av/rsh
TCA Nos.890 to 893 of 2010
27.06.2022
(1/2)
https://www.mhc.tn.gov.in/judis
