COMMISSIONER OF INCOME TAX-I, LUDHIANA vs. M/S TIPSON CYCLES PVT.LTD C-II

ITA/764/2010HC Punjab & HaryanaPHHC01093732201010 January 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL4 pages
AI SummaryRemanded

What were the facts?

The Revenue has filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2001-02. The dispute concerns the taxability of the sale consideration of Duty Entitlement Passbook (DEPB) and the eligibility for deduction under Section 80HHC. The ITAT had decided the issue in favour of the assessee, M/s Tipson Cycles Pvt. Ltd., by relying on a Special Bench decision of the Mumbai Tribunal. The Revenue's appeal is based on the premise that the ITAT erred in its interpretation of Sections 28(iiid) and 28(iiie) and Section 80HHC of the Act, particularly concerning the calculation of profit on DEPB and the conditions for claiming deductions.

What did the High Court hold?

The High Court noted that the matter was covered by its earlier orders dated 16.8.2010 in I.T.A. No.301 of 2010 (CIT v. M/s Victor Forgings) and I.T.A. No.299 of 2010 (CIT v. F.C. Sondhi). In those orders, after noticing the judgment of the Bombay High Court in CIT v. Kalpataru Colours & Chemicals, the appeals were remanded to the Tribunal for fresh decision in accordance with law. Therefore, the High Court disposed of the present appeal in the same terms, remanding the matter to the Tribunal. The Court did not consider it necessary to issue notice to the respondent (assessee) but granted liberty to the respondent to move the Court if they had any grievance against this order. The specific findings on each of the substantial questions of law were not elaborated upon in this order, as the appeal was disposed of based on earlier precedents of the High Court, leading to a remand.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the total sale consideration of DEPB, including any premium, represents profit chargeable under Sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961. 2. Whether the profit on transfer of DEPB entitlement includes the entire amount received, including any premium. 3. Whether the word 'profit' in Sections 28(iiid) and 28(iiie) means the difference between the sale price and the face value of DEPB, or the entire amount received if the cost is nil. 4. Whether the face value of DEPB should be deducted from its sale price for calculating profit under Sections 28(iiid) and 28(iiie), treating it as a cost. 5. Whether an artificial cost should be interpolated by deducting the face value of DEPB from sale proceeds for determining deduction under Section 80HHC. 6. Whether the deduction under Section 80HHC was computed correctly in accordance with the amendment made by the Taxation Laws (Amendment) Act, 2005. 7. Whether 90% of the DEPB amount was rightly excluded while working 'Profits of the Business' as per explanation (baa) to Section 80HHC read with clauses (iiid) and (iiie) of Section 28. 8. Whether the entire amount of DEPB consideration received is profit due to its nil cost. 9. Whether 90% of the profit on transfer of export incentives should not be increased while computing profits under Section 80HHC(3)(a) due to the assessee failing to fulfill conditions in the third or fourth proviso, as its export turnover exceeded Rs. 10 Crores. Assessee's Contentions: The judgment does not explicitly record the assessee's arguments. However, the ITAT's decision in favour of the assessee implies that the assessee argued that profit is the difference between sale price and face value, and that the conditions for Section 80HHC were met or not applicable in the manner the revenue contended. Revenue's Contentions: The revenue contended that the entire sale consideration of DEPB, including premium, represents profit chargeable under Sections 28(iiid) and 28(iiie). It argued that the face value of DEPB should not be deducted as cost, and that the entire amount received is profit. The revenue also argued that the assessee did not fulfill the conditions for deduction under Section 80HHC, especially in light of the amendment by the Taxation Laws (Amendment) Act, 2005, and that 90% of the DEPB amount should not have been excluded from business profits for Section 80HHC calculation. The revenue relied on the Bombay High Court's decision in CIT vs. Kalpataru Colours and Chemicals.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 28(iiid),Section 28(iiie),Section 80HHC

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.764 of 2010 Date of decision: 10.1.2011 Commissioner of Income Tax. -----Appellant. Vs. M/s Tipson Cycles Pvt. Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Rajesh Katoch, Advocate for the appellant. --- ADARSH KUMAR GOEL, J.

1.

This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, Chandigarh in I.T.A. No.61/CHD/2010 for the assessment year 2001-02 proposing to raise following substantial questions of law:- “(i) Whether on the facts and circumstances of the case, the ITAT was right in law in not holding that total sale consideration inclusive of face value of DEPB and premium amount received thereof represents profit chargeable under sections 28(iiid) and 28(iiie) of the Income Tax Act, 1961? (ii) Whether on the facts and circumstances of the case, the ITAT was right in law in not holding that profit on transfer of DEPB entitlement represents the entire amount inclusive of premium of sale of such DEPB?

I.T.A. No.764 of 20

The order continues below.

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