# MIS TOPMAN EXPORTS v. COMMISSIONER OF INCOME TAX, MUMBAI

- **Citation:** [2012] 4 S.C.R. 684
- **Court:** Supreme Court of India
- **Decided:** 2012-02-08
- **Case number:** Civil Appeal No. 1699 of 2012
- **Bench:** S.H. Kapadia, A.K. Patnaik, Swatanter Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-topman-exports-v-commissioner-of-income-tax-mumbai-28419
- **Pages:** 34

## Headnote

Income Tax Act, 1961 - ss. 28(iiib) & (iiid) and s.80HHC
C - Assessment Year 2002-2003 - Whether the entire amount
received by an assessee on sale of Duty Entitlement Pass
Book ('DEPB') represents profit on transfer of DEPB u/
s.28(iiid) for purpose of computation of deduction in respect
of profits retained for export business u/s. 80HHC - Held:
o DEPB_ is "cash assistance" receivable by a person against
exports under the scheme of the Government of India and
falls under clause (iiib) of s.28 and is chargeable to income
tax under the head "Profits and Gains of Business or
Profession" even before it is transferred by the assessee -
E Under clause(iiid) of s.28, any profit on transfer of DEPB is
chargeable to income tax under the head "Profits and Gains
of Business or Profession" as an item separate from cash
assistance under clause (iiib) - As DEPB has direct nexus
with the cost of imports for manufacturing an export product,
F any amount realized by the assessees over and above the
DEPB on transfer of the DEPB would represent profit on the
transfer of DEPB - While the face value of the DEPB will fall
under clause (iiib) of s.28, the difference between the sale
value and the face value of the DEPB will fall under clause
G (iiid) of s. 28 - High Court 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 - High Court also not right in coming to the conclusion
H
684
MIS TOPMAN EXPORTS v. COMMISSIONER OF
685
INCOME TAX, MUMBAI
that as the assessee did have the export turnover exceeding A
Rs. 1 O crores and as the assessee did not fulfill the conditions
set out in the third proviso to s. 80HHC(iii), it was not entitled
to a deduction u/s. 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 u!s.28(iiid) B
would not include the face value of the DEPB - Where an
assessee has an export turnover exceeding Rs. 10 crores and
has made profits on transfer of DEPB under clause (d) of s. 28,
he would not get the benefit of addition to export profits under
third or fourth proviso to sub-section (3) of s. 80HHC, but he c
would get the benefit of exclusion of a smaller figure from
''profits of the business" under explanation (baa) to s. BOHHC
and there is nothing in explanation (baa) to s. BOHHC to show
that this benefit of exclusion of a smaller figure from ''profits
of the business" will not be available to an assessee having 0
an export turnover exceeding Rs. 10 crores - 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 s. BOHHC
read with the words used in clauses (iiid) and (iiie) of s.28, the E
assessee was entitled to a deduction uls. BOHHC on export
profits, the benefit of such deduction cannot be denied to the
assessee - Interpretation of Statutes - Exemption provision.
Customs - DEPB scheme - Nature and objective of -
F
Held: The objective of DEPB scheme is to neutralize the
incidence of customs duty on the import content of the export
products - Hence, it has direct nexus with the cost of the
imports made by an exporter for manufacturing the export
products - The neutralization of the cost of customs duty under G
the DEPB scheme, however, is by granting a duty credit
against the export product and this credit can be utilized for
paying customs duty on any item which is freely importable -
DEPB is issued against the exports to the exporter and is
transferable by the exporter - Hand Book on DEPB issued by H
686
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A the Government of India - Paragraphs 4.37 and 4.42 - Export
and Import Policy, 1997-2002 as notified by the C

## Text

_Characters 0–39,578 of 67,493. This is a partial read: ask again with offset=39578 for what follows._

A
B
[2012] 4 S.C.R. 684
MIS TOPMAN EXPORTS
v.
COMMISSIONER OF INCOME TAX, MUMBAI
(Civil Appeal No. 1699 of 2012)
FEBRUARY 08, 2012
[S.H. KAPADIA, CJI, A.K. PATNAIK AND
SWATANTER KUMAR, JJ.]
Income Tax Act, 1961 - ss. 28(iiib) & (iiid) and s.80HHC
C - Assessment Year 2002-2003 - Whether the entire amount
received by an assessee on sale of Duty Entitlement Pass
Book ('DEPB') represents profit on transfer of DEPB u/
s.28(iiid) for purpose of computation of deduction in respect
of profits retained for export business u/s. 80HHC - Held:
o DEPB_ is "cash assistance" receivable by a person against
exports under the scheme of the Government of India and
falls under clause (iiib) of s.28 and is chargeable to income
tax under the head "Profits and Gains of Business or
Profession" even before it is transferred by the assessee -
E Under clause(iiid) of s.28, any profit on transfer of DEPB is
chargeable to income tax under the head "Profits and Gains
of Business or Profession" as an item separate from cash
assistance under clause (iiib) - As DEPB has direct nexus
with the cost of imports for manufacturing an export product,
F any amount realized by the assessees over and above the
DEPB on transfer of the DEPB would represent profit on the
transfer of DEPB - While the face value of the DEPB will fall
under clause (iiib) of s.28, the difference between the sale
value and the face value of the DEPB will fall under clause
G (iiid) of s. 28 - High Court 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 - High Court also not right in coming to the conclusion
H
684
MIS TOPMAN EXPORTS v. COMMISSIONER OF
685
INCOME TAX, MUMBAI
that as the assessee did have the export turnover exceeding A
Rs. 1 O crores and as the assessee did not fulfill the conditions
set out in the third proviso to s. 80HHC(iii), it was not entitled
to a deduction u/s. 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 u!s.28(iiid) B
would not include the face value of the DEPB - Where an
assessee has an export turnover exceeding Rs. 10 crores and
has made profits on transfer of DEPB under clause (d) of s. 28,
he would not get the benefit of addition to export profits under
third or fourth proviso to sub-section (3) of s. 80HHC, but he c
would get the benefit of exclusion of a smaller figure from
''profits of the business" under explanation (baa) to s. BOHHC
and there is nothing in explanation (baa) to s. BOHHC to show
that this benefit of exclusion of a smaller figure from ''profits
of the business" will not be available to an assessee having 0
an export turnover exceeding Rs. 10 crores - 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 s. BOHHC
read with the words used in clauses (iiid) and (iiie) of s.28, the E
assessee was entitled to a deduction uls. BOHHC on export
profits, the benefit of such deduction cannot be denied to the
assessee - Interpretation of Statutes - Exemption provision.
Customs - DEPB scheme - Nature and objective of -
F
Held: The objective of DEPB scheme is to neutralize the
incidence of customs duty on the import content of the export
products - Hence, it has direct nexus with the cost of the
imports made by an exporter for manufacturing the export
products - The neutralization of the cost of customs duty under G
the DEPB scheme, however, is by granting a duty credit
against the export product and this credit can be utilized for
paying customs duty on any item which is freely importable -
DEPB is issued against the exports to the exporter and is
transferable by the exporter - Hand Book on DEPB issued by H
686
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A the Government of India - Paragraphs 4.37 and 4.42 - Export
and Import Policy, 1997-2002 as notified by the Central
Government in the Notification No. 1(RE-99)/1997-2202 dated
31st March, 2000 - Paragraphs 7.14, 7.15, 7.16 and 7.38.
8
Words and Phrases - "Profit" - Meaning of - Held: The
word "profit" means the gross proceeds of a business
transaction less the costs of the transaction - 'Profits' imply a
comparison of the value of an asset when the asset is
acquired with the value of the asset when the asset is
transferred and the difference between the two values is the
C
amount of profit or gain made by a person.
The instant appeals were filed against the judgment
of the High Court holding that the entire amount received
by an assessee on sale of the Duty Entitlement Pass
D Book ('DEPB') represents profit on transfer of DEPB
under Section 28(iiid) of the Income Tax Act, 1961 for the
purpose of computation of deduction in respect of profits
retained for export business under Section 80HHC of the
Act.
E
The appellants submitted that DEPB was cash
assistance receivable by a person against exports and
was covered under clause (iiib) of Section 28 of the Act
and it has a direct relation with the costs of the inputs
imported by an exporter from manufacturer of the export
F product, hence, the DEPB cannot form part of the profits
on transfer of DEPB under Section 28(iiid) of the Act; that
as and when DEPB is transferred and the sale value
realized on such transfer of DEPB is more than the face
value of the DEPB, the difference between the sale value
G and face value of the DEPB will constitute profit on
transfer of DEPB and would be covered under clause
(iiid) of Section 28 of the Act; and that if the entire sale
proceeds of the DEPB is treated as profits arising on
transfer of DEPB for the purpose of clause (iiid) of
H Section 28 as contended by the Revenue, then the
M/S TOPMAN EXPORTS v. COMMISSIONER OF
687
INCOME TAX, MUMBAI
assessee will be taxed twice for the same income, once
A
as cash assistance under clause (iiib) of Section 28
equivalent to the face value of the DEPB and for the
second time as profit on transfer of DEPB under clause
(iiid) of Section 28, the face value of the DEPB being part
of the sale proceeds of the DEPB on transfer and that as
B
the legislature could not have intended such double
taxation of the same income, the interpretation suggested
by the Revenue should not be accepted by the Court.
Disposing of the appeals, the Court
c
HELD: 1. For appreciating the nature of the DEPB,
paragraphs 4.37 and 4.42 of the Hand Book on DEPB
issued by the Government of India and paragraphs 7.14,
7.15, 7.16 and 7.38 of the Export and Import Policy, 19972002 as notified by the Central Government in the D
Notification No.1(RE-99)/ 1997-2202 dated 31st March,
2000 are relevant. On a reading of the aforesaid
paragraphs of the Hand Book on DEPB and the Export
and Import Policy of the Government of India, 1997-2002,
it is clear that the objective of DEPB scheme is to
E
neutralize the incidence of customs duty on the import
content of the export products. Hence, it has direct nexus
with the cost of the imports made by an exporter for
manufacturing the export products. The neutralization of
the cost of customs duty under the DEPB scheme,
however, is by granting a duty credit against the export
product and this credit can be utilized for paying customs
duty on any item which is freely importable. DEPB is
issued against the exports to the exporter and is
transferable by the exporter. (Para 10] (703-D; 705-E-F]
F
G
IPCA Laboratories Ltd. v. Deputy C.I. T. (2004) 266 ITR
521 (SC) and Commissioner of the Income Tax vs. Kalpataru
Colours and Chemicals, (ITA (L) 2887 of 2009] - referred to.
2.1. It is clear from the provisions of Section 28 that
H
688
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A under clause (iiib) cash assistance (by whatever name
called) received or receivable by any person against
exports under any scheme of the Government of India is
by itself income chargeable to income tax under the head
"Profits and Gains of Business or Profession". DEPB is
B a kind of assistance given by the Government of India to
an exporter to pay customs duty on its imports and it is
receivable once exports are made and an application is
made by the exporter for DEPB. Therefore, DEPB is
"cash assistance" receivable by a person against expo • .s
c under the scheme of the Government of India and falls
under clause (iiib) of Section 28 and is chargeable to
income tax under the head "Profits and Gains of
Business or Profession" even before it is transferred by
the assessee. [Paras 11, 12] [706-F-H; 707-A]
D
2.2. Under clause (iiid) of Section 28, any profit on
transfer of DEPB is chargeable to income tax under the
head "Profits and Gains of Business or Profession" as
an item separate from cash assistance under clause (iiib).
The word "profit" means the gross proceeds of a
E business transaction less the costs of the transaction.
'Profits', therefore, imply a comparison of the value of an
asset when the asset is acquired with the value of the
asset when the asset is transferred and the difference
between the two values is the amount of profit or gain
F made by a person. As DEPB has direct nexus with the
cost of imports for manufacturing an export product, any
amount realized by the assessees over and above the
DEPB on transfer of the DEPB would represent profit on
the transfer of DEPB. [Para 13] [707-B, G-H; 708-A]
G
2.3. While the face value of the DEPB will fall under
clause (iiib) of Section 28 of the Act, the difference
between the sale value and the face value of the DEPB
will fall under clause (iiid) of Section 28 of the Act and the
High Court was not right in taking the view in the
H impugned judgment that the entire sale proceeds of the
M/S TOPMAN EXPORTS v. COMMISSIONER OF
689
INCOME TAX, MUMBAI
DEPB realized on transfer of the DEPB and not just the
A
difference between the sale value and the face value of
the DEPB represent profit on transfer of the DEPB. (Para
14) (708-B-C]
E.D. Sassoon & Company Ltd. and Others v.
8
Commissioner of Income-Tax, Bombay City (1954) 26 ITR 27
(SC) - relied on.
The Spanish Prospecting Company Limited (1911) I Ch.
92 - referred to.
Black's Law Dictionary (Fifth Edition) - referred to.
c
3.1. The first reason given by the High Court is that
clause (iiia) of Section 28 treats profits on the sale of an
import license as income chargeable to tax and when the
license is sold, the entire amount is treated as profits of D
business under clause (iiia) of Section 28 and thus there
is no justification to treat the amount which is received
by an exporter on the transfer of the DEPB any differently
than the profits which are made on the sale of an import
license under clause (iiia) of Section 28 of the Act. In
E
taking the view that when the import license is sold the
entire amount is treated as profits of business, the High
Court has visualized a situation where the cost of
acquiring the import license is nil. The cost of acquiring
DEPB, on the other hand, is not nil because the person
F
acquires it by paying customs duty on the import content
of the export product and the DEPB which accrues to a
person against exports has a cost element in it.
Accordingly, when DEPB is sold by a person, his profit
on transfer of DEPB would be the sale value of the DEPB
G
less the face value of DEPB which represents the cost
of the DEPB. [Para 15) [708-D-G]
3.2. The second reason given by the High Court in
the impugned judgment is that under the DEPB scheme,
H
690
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A DEPB is given at a percentage of the FOB value of the
exports so as to neutralize the incidence of customs duty
on the import content of the export products, but the
exporter may not himself utilize the DEPB for paying
customs duty but may transfer it to someone else and
B therefore the entire sum received on transfer of DEPB
would be covered under clause (iiid) of Section 28. The
High Court has failed to appreciate that DEPB represents
part of the cost incurred by a person for manufacture of
the export product and hence even where the DEPB is
c not utilized by the exporter but is transferred to another
person, the DEPB continues to remain as a cost to the
exporter. When, therefore, DEPB is transferred by a
person, the entire sum received by him on such transfer
does not become his profits. It is only the amount that he
0 receives in excess of the DEPB which represents his
profits on transfer of the DEPB. [Para 15] [708-G, H; 709A, BJ
3.3. The High Court has sought to meet the argument
of double taxation made on behalf of the assessees by
E holding that where the face value of the DEPB was
offered to tax in the year in which the credit accrued to
the assessee as business profits, then any further profit
arising on transfer of DEPB would be taxed as profits of
business under Section 28(iiid) in the year in which the
F transfer of DEPB took place. This view of the High Cour:t
is contrary to the language of Section 28 of the Act under
which "cash· assistance" received or receivable by any
person against exports such as the DEPB and "profit on
transfer of the DEPB" are treated as two separate items
G of income under clauses (iiib) and (iiid) of Section 28. If
accrual of DEPB and profit on transfer of DEPB are
treated as two separate items of income chargeable to tax
under clauses (iiib) and (iiid) of Section 28 of the Act, then
DEPB will be chargeable as income under clause (iiib) of
H Section 28 in the year in which the person applies for
M/S TOPMAN EXPORTS v. COMMISSIONER OF
691
INCOME TAX, MUMBAI
DEPB credit against the exports and the profit on transfer
A
of the DEPB by that person will be chargeable as income
under clause (iiid) of Section 28 in his hands in the year
in which he makes the transfer. Accordingly, if in the
same previous year the DEPB accrues to a person and
he also earns profit on transfer of the DEPB, the DEPB
8
will be business profits under clause (iiib) and the
difference between the sale value and the DEPB (face
value) would be the profits on the transfer of DEPB under
clause (iiid) for the same assessment year. Where,
however, the DEPB accrues to a person in one previous
C
year and the transfer of DEPB takes place in a
subsequent previous year, then the DEPB will be
chargeable as income of the person for the first
assessment year chargeable under clause (iiib) of
Section 28 and the difference between the DEPB credit
and the sale value of the DEPB credit would be income
D
in his hands for the subsequent assessment year
chargeable under clause (iiid) of Section 28. The
interpretation suggested by this Court, therefore, does
not lead to double taxation of the same income, which the
legislature must be presumed to have avoided. [Para 16]
E
[709-C-H; 710-A-C]
3.4. The High Court has held that as the assessees
had an export turnover exceeding Rs.10 crores and did
not fulfill the conditions set out in the third proviso to
Section 80HHC(3) of the Act, the assessees were not
entitled to a deduction under Section 80HHC on the
amount received on transfer of DEPB and to get over this
difficulty the assessees have contended that the profits
F
on transfer of DEPB in Section 28(iiid) would not include G
the face value of the DEPB so that the assessees get a
deduction under Section 80HHC on the face value of the
DEPB. This finding of the High Court is not based on an
accurate understanding of the scheme of Section 80HHC
of the Act. [Para 17] [710-D, E]
H
692
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A
4.1. Sub-section (1) of Section 80HHC 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
8 sub-section (1 B), derived by him from the export of such
goods or merchandise. Sub-section (1 B) of Section
80HHC gives the percentages of deduction of the profits
allowable for the different assessment years from the
assessment years 2001-2002 to 2004-2005. Sub-section
(3)(a) of Section 80HHC provides that where the export
C 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
D the business carried on by the assessee. In the case of
K. Ravindranathan Nair, the formula in sub-section (3)(a)
of Section 80HHC was stated by this Court to be as
follows:
E
Profits derived = Profits of the business x Export
Turnoverfrom exports Total Turnover [Para 19) [714-B-F]
4.2. 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
F 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
G 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 DEPB which is "cash assistance" against exports
and is covered under clause (iiib) of Section 28 will get
H
M/S TOPMAN EXPORTS v. COMMISSIONER OF
693
INCOME TAX, MUMBAI
excluded from the "profits of the business" of the
A
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
B
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 c
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 0
ninety per cent of the entire sale value including the face
value of the DEPB will get excluded from the "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
E
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 in the
subsequent previous year. The result in such case is that
F
a higher figure of "profits of the business"' becomes the
multiplier in the aforesaid formula under sub-section (3)(a)
of Section SOHHC for arriving at the figure of profits
derived from exports. [Para 20] [714-F-H; 715-A-F]
G
4.3. To the figure of profits derived from exports
worked out as per the aforesaid formula under subsection (3)(a) of Section SOHHC, the additions as
mentioned in first, second, third and fourth proviso under
H
694
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A 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
B 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 ~dded
under the first proviso. Where therefore in the previous
year no DEPB or DFRC accrues to the assessee, he
c 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
0 turnover not 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
E export turnover bears to the total turnover of the business
carried on by the assessee. The third proviso to subsection (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
F 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;
and (b) the rate of drawback credit attributable to the
customs duty was higher than the rate of credit allowable
G under 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
H
M/S TOPMAN EXPORTS v. COMMISSIONER OF
695
INCOME TAX, MUMBAI
third proviso to sub-section (3) of Section 80HHC. [Para A
21] [715-G, H; 716-A-F]
4.4. 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 8
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 smaller 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 C
benefit of exclusion of a smaller figure from "profits of the
business" will not be 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 D
per cent of export incentive under clause (iiid) of Section
28 to 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 E
as the assessee did have the export turnover exceeding
Rs.10 crores and as the assessee did not fulfill 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 F
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 G
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 H
696
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A under Section 80HHC on export profits, the benefit of
such deduction cannot be denied to the assessee. [Para
22) [716-G-H; 717-A-F]
Commissioner of Income-Tax v. K. Ravindranathan
8
Nair (2007) 295 ITR 228 (SC) - referred to.
c
D
E
F
5. The Assessing Officer is directed to compute the
deduction under Section 80HHC in the case of the
appellants in accordance with this judgment. [Para 23)
[717-G]
Case Law Reference:
(2004) 266 ITR 521 (SC)
referred to
Para 3
IT A (L) 2887 of 2009
referred to
(1954) 26 ITR 27 (SC) relied on
Para 5
Para 13
(2007) 295 ITR 228 (SC)
referred to
Para 19
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1699 of 2012 etc.
From the Judgment & Order dated 29.06.2010 of the High
Court of Judicature at Bombay in Income Tax Appeal No. (L)
3019 of 2009.
WITH
Civil Appeal Nos. 1700, 1701, 1704, 1705, 1706, 1707, 1708,
1709, 1710, 1711, 1728, 1729, 1730, 1731, 1732, 1733, 1734,
1735, 1736, 1737, 1738, 1739, 1740, 1741, 1712, 1713, 1714,
1715, 1716, 1717, 1718, 1719, 1720, 1721, 1722, 1723-1724,
G 1725, 1726-1727, 1742, 1743, 1744, 1745, 1746, 1747, 1748,
1749, 1750, 1754, 1755, 1756, 1757, 1758-1759, 1760, 1761,
1762, 1763, 1764, 1765, 1766, 1767, 1768, 1769, 1770, 1771,
1772, 1773, 1774, 1775, 1776, 1777, 1778, 1779, 1780, 1781,
1782, 1783, 1784, 1785, 1786, 1787, 1788, 1789, 1790, 1791,
1792, 1793, 1794, 1795, 1796-1799, 1800, 1801, 1802, 1803,
H
M/S TOPMAN EXPORTS v. COMMISSIONER OF
697
INCOME TAX, MUMBAI
1804, 1805, 1806, 1807, 1808, 1809, 1810, 1811, 1812, 1813,
A
1814, 1815, 1816, 1817, 1818, 1819, 1820, 1821, 1822, 1823,
1824, 1825, 1826, 1827, 1828, 1829, 1830, 1831, 1832, 1833,
1834, 1835, 1836, 1837, 1838, 1839, 1840, 1841, 1842, 1843,
1844, 1845, 1846, 1847, 1848, 1850, 1851, 1852, 1853, 1854,
1855-1856, 1858, 1859, 1860, 1861, 1862, 1863, 1864, 1865,
B
1866, 1867, 1868, 1869, 1870, 1871-1872, 1873, 1874, 1875,
1876, 1877, 1878, 1879, 1880-1881, 1882-1883 1884-1885,
1886, 1887, 1888, 1889, 1890, 1891, 1892, 1893, 1894, 1895,
1896, 1897, 1898, 1899, 1900, 1901, 1902, 1903, 1904, 1905,
1906, 1907, 1908, 1909, 1910, 1911, 1912, 1913 of 2012.
c
S. Ganesh, Shyam Divan, R.P. Bhatt, V. Shakhar, Porus
Kaka, Kavin Gulati, R.N. Karanjawala, Ruby Singh Ahuja,
Ronak Dhillon, Deepti Sarin, Akhileshwar Sharma, Manik
Karanjawala (for Karanjawala & Co.), S.C. Tiwari, Jatin Zaveri,
D
Gaurav Aggarwal, Nikhil Nayyar, T.V.S. Raghavendra Sreyas,
Rajendra Singhvi, Maitreyi Singhvi, K.K.L. Gautam, Brij
Bhushan, M.P. Shorawala, Jyoti Saxena, Sashi Kiran, Atulbhai
K. Jasani, Rashmikumar Manila! Vithlani, Aditi Singh, S. Ravi
Shankar, Vibha Datta Makhijia, Rustom, B. Hathikhanawala, Dr.
P. Daniel, Bharat L. Gandhi, Vijay Kumar, Jay Savla, Renuka
E
Sahu, Ragvesh Singh, P.S. Sudheer, Rishi Maheswari, V.
Lakshmikumaran, Tarun Jain, M.P. Devanath, Vandana Sehgal,
Rohal Thawani, Hardeep Singh Anand, Ankur Saigal, Abhay A.
Jena, Bina Gupta, Gaurav Singh, N.D.B. Raju, Akhileshwar
Sharma, Bharathi Raju, N. Ganpathy, A.R. Thadani, Ashwani
F
Kumar, Arijit Prasad, D.D. Kamat, Aman Ahluwalia Kunal Bahri,
Fuzail A. Ayyubi Abhigya, Jatin Rajput, Deepakshi Jain, Vishal
Saxena, B.V. Balaram Das for the appearing parties.
The Judgment of the Court was delivered by
A.K. PATNAIK, J. 1. Delay condoned. Leave granted in
Special Leave Petitions.
G
2. These are appeals by way of special leave under Article
136 of the Constitution against the judgment and orders of the
H
698
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A
Bombay High Court holding that the entire amount received by
an assessee on sale of the Duty Entitlement Pass Book {for
short 'the DEPB') represents profit on transfer of DEPB under
Section 28(iiid) of the Income Tax Act, 1961 {for short 'the Act')
for the purpose of the computation of deduction in respect of
B
profits retained for export business under Section 80HHC of
the Act.
3. For appreciating the controversy between the parties,
we will state the facts of only the lead case of Mis Topman
Exports (hereinafter referred to as 'the assessee'). The
C assessee is a manufacturer and exporter of fabrics and
garments. During the previous year relevant to the assessment
year 2002-2003, the assessee sold the DEPB and DFRC
(Duty Free Replenishment Certificate) which had accrued to the
assessee on export of its products. The assessee filed a return
D for the assessment year 2002-2003 claiming a deduction of
Rs.83,69,303/- under Section 80HHC of the Act. The
Assessing Officer held that if the profit on transfer of the export
incentives was deducted from the profits of the assessee, the
figure would be a loss and there will be no positive income of
E the assessee from its export business and the assessee will
not be entitled to any deduction under Section 80HHC of the
Act as has been held by this Court in IPCA Laboratories Ltd.
v. Deputy C.I. T. (2004) 266 ITR 521 (SC). Aggrieved, the
assessee filed an appeal before the Commissioner of Income
F
Tax (Appeals) and contended that the profits on the transfer of
DEPB and DFRC were not the sale proceeds of DEPB and
DFRC amounting to Rs.2,06,84,841/- and Rs.1,65,616/-
respectively, but the difference between the sale value and face
value of DEPB and DFRC amounting to Rs.14,35,097/- and
G Rs.19,902/- respectively and if these figures of profits on
transfer of DEPB and DFRC are taken, the income of
assessee would be positive and the assessee would be entitled
to the deduction under Section 80HHC of the Act. The
Commissioner of Income Tax (Appeals) rejected this contention
H of the assessee and held that the assessee had received an
M/S TOPMAN EXPORTS v. COMMISSIONER OF
699
INCOME TAX, MUMBAI [A.K. PATNAIK, J.]
amount of Rs.2,06,84,841/- on sale of DEPB and an amount
A
of Rs.1,65,612/- on sale of DFRC and the costs of acquisition
of the DEPB and DFRC are to be taken as nil and hence the
entire sale proceeds of DEPB and DFRC realized by the
assessee are to be treated as profits on transfer of DEPB and
DFRC for working out the deduction under section 80HHC of
B
the Act and directed the Assessing Officer to work out the
deduction under Section 80HHC of the Act accordingly.
4. Aggrieved, the assessee filed an appeal before the
Income Tax Appellate Tribunal (for short 'the Tribunal'). A
C
Special Bench of the Tribunal heard the appeal and held that .
there was a direct relation between the entitlement under the
DEPB Scheme and the custom duty component in the cost of
imports used in the manufacture of the export product. The
Tribunal further held that DEPB accrues to the exporter soon
after export is made and application is filed for DEPB and
D
DEPB is a "cash assistance" receivable by the assessee and
is covered under clause (iiib) of Section 28 of the Act, whereas
profit on the transfer of DEPB takes place on a subsequent
date when the DEPB is sold by the assessee and is covered
under clause (iiid) of Section 28 of the Act. The Tribunal
E
compared the language of Section 28(iiib) of the Act in which
the expression "cash assistance" is used, with the language
of Section 28(iiia), (iiid) and (iiie) of the Act in which the
expression "profit" is used and held that the words "profit on
transfer'' in Section 28 (iiid) and (iiie) of the Act would not
F
represent the entire sale value of DEPB but the sale value of
DEPB less the face value of the DEPB. With these reasons,
the Tribunal set aside the orders of the Assessing Officer and
the Commissioner of Income Tax (Appeals) and directed the
Assessing Officer to compute the deduction under Section
G
80HHC of the Act accordingly.
5. This judgment of the Special Bench of the Tribunal was
followed by the Tribunal in all the cases in appeal before us.
Against the judgment and orders of the Tribunal, the
H
700
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A Commissioner of Income Tax, .Mumbai filed appeals in all the
cases under Section 260A of the Act before the High Court and
by the impugned orders the High Court disposed of the
appeals in terms of the judgment delivered in Commissioner
of the Income Tax vs. Kalpataru Colours and Chemicals (ITA(L)
B 2887 of 200!:1). In Commissioner of the Income Tax vs.
c
D
E
Kalpataru Colours and Chemicals (supra), the High Court
formulated the following two substantial questions of law:
"(a) Whether the Tribunal is justified in holding that the
entire amount received on the sale of the Duty Entitlement
Passbook does not represent profits chargeable under
Section 28(iiid) of the Income Tax Act, 1961 and that the
face value of the Duty Entitlement Passbook shall be
deducted from the sale proceeds;
(b) Whether the Tribunal is justified in holding that the face
value of the Duty Entitlement Passbook is chargeable to
tax under Section 28(iiib) at the time of accrual of income
i.e. when the application for Duty Entitlement Passbook is
filed with the competent authority pursuant to the exports
made and that the profits on the sale of Duty Entitlement
Passbook representing the excess of the sale proceeds
over the face value is liable to be considered under
Section 28(iiid) at the time of sale."
In its judgment, on the first question of law formulated under (a),
F the High Court held that the Tribunal was not justified in holding
that the entire amount received on the sale of the DEPB does
not represent profits chargeable under Section 28(iiid) of the
Act and in holding that the face value of the DEPB shall be
deducted from the sale proceeds of the DEPB. On the second
G question of law formulated under (b), the High Court in its
judgment did not agree with the Tribunal that the face value of
DEPB is chargeable to tax as income of the assessee under
Section 28(iiib) of the Act and instead held that the entirety of
sale consideration for transfer of DEPB would fall within the
H purview of Section 28(iiid) of the Act. In some of the cases, the
M/S TOPMAN EXPORTS v. COMMISSIONER OF
701
INCOME TAX, MUMBAI [A.K. PATNAIK, J.]
appellants filed review petitions before the High Court, but the
A
High Court dismissed the review petitions.
6. Learned counsel for the appellants submitted, relying on
the provisions of the DEPB Scheme, that the Tribunal was right
in coming to the conclusion that DEPB was cash assistance
B
receivable by a person against exports and accrued to the
exporter as soon as he files an application for DEPB. They
submitted that DEPB was therefore chargeable to income tax
under the head "Profits and Gains of Business or Profession"
under clause (iiib) of Section 28 of the Act. They submitted that
C
the contention of the Revenue that DEPB would be income
chargeable to tax only on transfer and would be covered under
clause (iiid) of Section 28 of the Act is not correct. They
submitted that it will be clear from different provisions of the
DEPB Scheme that the object of granting DEPB to an exporter
is to neutralize the incidence of custom duties which has been
D
incurred on the import component of the export product and this
neutralization is achieved by grant of duty credit of the amount
specified in the DEPB Scheme. They submitted that the
Tribunal, therefore, was right in coming to the conclusion that
there was a direct relation between the DEPB and the cost of
E
inputs imported for manufacture of the export product.
7. Learned counsel for the appellants submitted that since
DEPB was cash assistance receivable by a person against
exports and was covered under clause (iiib) of Section 28 of
F
the Act and it has a direct relation with the costs of the inputs
imported by an exporter from manufacturer of the export product,
the DEPB cannot form part of the profits on transfer of DEPB
under Section 28(iiid) of the Act. They argued that as and when
DEPB is transferred and the sale value realized on such
G
transfer of DEPB is more than the face value of the DEPB, the
difference between the sale value and face value of tile DEPB
will constitute profit on transfer of DEPB and would be covered
under clause (iiid) of Section 28 of the Act. They argued that if
the intention of the legislature was to cover the entire sale
H
702
SUPREME COURT REPORTS
[2012] 4 S.C.R.
A proceeds arising on transfer of DEPB under clause (iiid) of
Section 28 of the Act then they would have used the expression
"sale proceeds" instead of profit on transfer of DEPB in clause
(iiid) of Section 28 of the Act.
8
8. Learned counsel for the appellants argued that if the
entire sale proceeds of the DEPB is treated as profits arising
on transfer of DEPB for the purpose of clause (iiid) of Section
28 as contended by the Revenue, then the assessee will be
taxed twice for the same income, once as cash assistance
C under clause (iiib) of Section 28 equivalent to the face value of
the DEPB and for the second time as profit on transfer of
DEPB under clause (iiid) of Section 28, the face value of the
DEPB being part of the sale proceeds of the DEPB on transfer.
They submitted that as the legislature could not have intended
such double taxation of the same income, the interpretation
D suggested by the Revenue should not be accepted by the
Court. They submitted that in the present batch of cases, DEPB
accrued to the assessees in the first year when the assessees
made the export and applied for DEPB and the assessee sold
the DEPB in subsequent year and the Revenue has taken a
E stand that in the subsequent year, the entire sale proceeds
comprising both the face value of the DEPB and the profits on
transfer of DEPB are covered under Section 28(iiid) of the Act
and this stand of the Revenue has been accepted by the High
Court in the impugned orders on an incorrect interpretation of
F the DEPB scheme and the provisions of Section 28 of the Act
and 80HHC of the Act.
9. Learned counsel for the Revenue, on the other hand,
supported the impugned judgment and orders of the High Court
G and submitted that profit on transfer of DEPB would represent
the entire sale value realized by the assessee on transfer of
the DEPB. He submitted that the High Court has rightly held
that the assessee does not incur any cost in obtaining the
DEPB. He argued that DEPB is an export incentive granted
H by the Government under DEPB Scheme and it has no direct
M/S TOPMAN EXPORTS v. COMMISSIONER OF
703
INCOME TAX, MUMBAI [A.K. PATNAIK, J.]
relation with the cost of purchases made by the assessee and
A
therefore the assessee is not entitled to deduct the face value
of the DEPB from the sale proceeds for determining the profit
arising on transfer of DEPB and the entire sale proceeds of
the DEPB represent the profits earned by the assessee on
transfer of the DEPB. He argued that the findings of the Tribunal
B
that there is a direct relation between DEPB and the costs
incurred by the assessee for importing inputs for manufacture
of export products is, therefore, not correct and the High Court
was right in setting aside the findings of the Tribunal and in
coming to the conclusion that the entire sale proceeds of DEPB c
represent the profits on transfer of DEPB within the meaning
of clause (iiid) of Section 28 of the Act.
10. For appreciating the nature of the DEPB, paragraphs
4.37 and 4.42 of the Hand Book on DEPB issued by the
Government of India and paragraphs 7.14, 7.15, 7.16 and 7.38
D
of the Export and Import Policy, 1997-2002 as notified by the
Central Government in the Notification No.1 (RE-99)/ 1997-2202
dated 31st March, 2000 are extracted hereinbelow:
Hand Book on DEPB
E
"4.37 Duty Entitlement Passbook Scheme (DEPB)
The Policy relating to Duty Entitlement Passbook (DEPB)
Scheme is given in Chapter-4 of the Policy. The duty credit
under the scheme shall be calculated by taking into
F
account the deemed import content of the said export
product as per SION and the basic custom duty payable
on such deemed imports.