Date:18/10/2004 URL: http://www.thehindubusinessline.com/2004/10/18/stories/2004101801800500.htm

Back FIEO wants move to tax profits on sale of DEPB licences scrapped

Our Bureau

New Delhi , Oct. 17

TAXATION of Duty Entitlement Passbook (DEPB) licences continues to be a vexed issue, whether it is for income-tax or sales tax purposes.

Exporters are unhappy that the United Progressive Alliance Government is doing little to help them tide over the imbroglio on levy of income-tax on profits earned from the sale of DEPB licences.

The Income-Tax Department, they say, has now reopened the assessments of past years (from 1997-98 assessment year) of exporters for levying tax on profits on sale of DEPB licences and issued demand notices aggregating more than Rs 2,000 crore. The exporters are seeking Finance Minister's intervention for withdrawal of the notices.

The profits on sale of DEPB licences are now not being counted for 80HHC benefits (for the assessment years 1998-99 to 2003-04) as the tax department is of the view that they are not strictly export related income. Further, there is also no specific mention in the income-tax law that such profits should be chargeable to tax under the head "profits and gains of business or profession".

"The tax department is going by the letter of the law and not by its spirit. Exports will be badly hit if the Government does not do anything about the demand notices raised by the tax department," Mr Rafeeque Ahmed, President of the Federation of Indian Export Organisations (FIEO), told newspersons here.

He also highlighted that a number of exporters, particularly the small and tiny exporters, would have no option but to close down their units if they are asked to pay taxes on profits earned from sale of DEPB licences. "A number of them have re-invested the profits in expansion and modernisation of the units. The closure of such units will not only affect exports but will also add to unemployment at a time when employment creation is priority for the Government," he said.

He expressed concern over the absence of consistency in the thinking of the tax department.

"It was the officials from the same department who had until assessment year 2001-02 taken a stance that profit on sale of DEPB licences would be treated on par with drawback and other Exim licences and exempted from tax," the FIEO President said.

The FIEO President had in July met the Finance Minister, Mr P. Chidambaram, and requested that DEPB be included in Section 28(iiia) of the Income-Tax Act to ensure that the benefits intended for exporters vide Section 80 HHC read along with Sec 28(iiia), (iiib) and (iiic) indeed accrue to the exporter.

"We were hopeful that the Finance Ministry would bring about suitable amendments in the Finance Bill 2004-05 to include DEPB u/s 28(iii) with effect from April 1, 1997. However, the same has not been done. FIEO along with the chairmen of export promotion councils will approach the Finance Minister again on this issue," Mr Ahmed said.