The Hindu Business Line : Recovery proceedings on DEPB taxation to be put on hold till August 31

THE Central Board of Direct Taxes (CBDT) has directed its field formations to keep all recovery proceedings relating to the issue of taxation of profits from sale of duty entitlement passbook (DEPB) licences in abeyance up to August 31.

The revenue department had, in April, instructed the chief commissioners/director general of income-tax (DGIT) to keep the recovery proceedings/assessments on hold up to June 30.

Most of the recovery proceedings related to the period 1997-2003. The latest instruction comes close on the heels of the recommendations of the Prime Minister's Economic Advisory Council, which had made an in-depth study into all legal aspects relating to this issue.

The Advisory Council had concurred with the Revenue Department's interpretation that profits from transfer of DEPB licences cannot be counted as `export profit' and, therefore, not be eligible for Section 80HHC benefits. Section 80HHC of the Income-Tax Act provided tax exemption on export profits.

The council had, 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.

After the recommendations made by the Prime Minister's Economic Advisory Council, the Commerce Minister, Mr Kamal Nath, had written to the Prime Minister's Office that the proposal to have a separate dispensation for small exporters may not be implementable and may even be discriminatory.

Stating that internationally taxes are not exported, the Commerce Minister had underscored the need to exempt the profits arising from sale of DEPB licences from income-tax.

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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