Exporters may have to pay tax on the income arising out of the sale of Duty Entitlement Pass Book (DEPB) licences this year. The DEPB benefit is an incentive given to exporters by the government, whereby exporters are given a licence to import goods duty free in proportion to their exports. And this licence is saleable. On February 17, the Central Board of Direct Taxes (CBDT) issued a circular which said that the IT department could restart the assessment process which was halted earlier on income arising out of the sale of DEPB licences.
The exporters and the government have been locked in a dispute for several months over whether the income arising out of the sale of DEPB licences was taxable. The process of taxing DEPB benefits had been kept in abeyance since August '03, when a committee was appointed by the CBDT to examine the issue. The committee was appointed soon after the I-T department began taxing DEPB benefits on the face of complaints from the exporters. The assessments were then halted until November 30, after which the date was extended till February 17, '04.
However, the CBDT's latest circular said that it is not possible for it to intervene in the matter. This means that the I-T department can now levy tax on DEPB benefits. This could put exporters in a fix, as many of them receive DEPB benefits worth several crores, which has now become taxable.
Tax consultant Jitendra Sanghavi told ET, "The issue should have been kept in abeyance till a clear decision is arrived (at) on the subject." Another senior tax consultant, TP Ostwal, said, "While making a commercial decision, the exporters calculate the DEPB benefits too. In order to bring certainty to the tissue govt must decide on it."
The issue has been a matter of contention between the tax authorities and exporters, the latter claiming that the tax benefits are one of the factors taken into account while making an export decision.
Exporters are eligible for tax benefits, under 80 HHC of the Income-tax Act. However, the I-T department began taxing the DEPB benefits from '02-03, triggering the dispute.
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