The Hindu Business Line : Taxation of profits from DEPB licence sale — PM's council favours going easy on `small exporters'

THE Prime Minister's Economic Advisory Council has concurred with the contention of the revenue department in the controversial issue of taxation of profits from sale of duty entitlement passbook (DEPB) licences.

It has, however, sought to reduce the pain for "small exporters" by specifying a threshold (annual export turnover of Rs 10 crore) below which recovery proceedings are not to be initiated by the tax department.

Informed sources said that the interpretation of the revenue department that profits from transfer of DEPB licences cannot be counted as export profits, and, therefore, not be eligible for Section 80HHC benefits appeared to be the correct one. The advisory council has endorsed this position. Section 80HHC of the Income-Tax Act provided tax exemption on export profits.

Faced with equally convincing but opposing arguments from the exporting community and the revenue department on the issue of taxation of income arising from sale of DEPB licences, the Prime Minister, Dr Manmohan Singh, had in early April referred the issue to his Economic Advisory Council. The Prime Minister had asked the council to look into all legal aspects relating to the taxation of profits arising from transfer of DEPB licences.

The council's recommendation to let go only small exporters has, however, not gone down well with the Federation of Indian Export Organisations (FIEO), which had lead the protest against the Income-Tax department's move to recover tax on a retrospective basis on the incomes earned from transfer of DEPB licences during 1997-2003.

Meanwhile, the federation has said that any move to recover tax from exporters with annual turnover of more than Rs 10 crore might not be legally sustainable. "FIEO does not agree with such a recommendation of the PM's Economic Advisory Council and hopes that the Government would not accept this recommendation. This would be discriminatory, especially when you are recovering tax on a retrospective basis," a FIEO official said.

The real issue that has been agitating the exporting community and the tax department is whether profits from transfer of DEPB licences should be counted as `export income' or `other income.' If considered as `export income', then exporters would be eligible for income-tax exemption on export profits under Section 80HHC of the Income Tax Act.

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