Retrospective Amendment to Sections 28 and 80HHC: Delhi High Court Rules in Favour of Exporters
Key ruling: In Sarita Handa v. Union of India, the Delhi High Court allowed three writ petitions challenging the adverse retrospective operation of amendments affecting export deductions under Section 80HHC of the Income-tax Act, 1961. The Court followed the Supreme Court decision in Commissioner of Income-tax v. Avani Exports and declared demands or withdrawal of benefits based on the impugned retrospective application illegal.
Case details
| Lead case | Sarita Handa v. Union of India & Others |
|---|---|
| Petitions | W.P.(C) 3768/2006, 3772/2006 and 10783/2009 |
| Bench | Justice S. Ravindra Bhat and Justice A. K. Chawla |
| Date | 10 January 2018 |
| Provisions | Sections 28 and 80HHC, Income-tax Act, 1961; CBDT Circular No. 2/2006 dated 17 January 2006 |
| Outcome | Writ petitions allowed; rule made absolute |
Background of the dispute
The petitioners challenged the retrospective amendments to Sections 28 and 80HHC and the validity of CBDT Circular No. 2/2006, issued in connection with those amendments. They also sought consequential relief against orders implementing the retrospective provisions.
The controversy concerned export incentives, including the treatment of profits from the transfer of Duty Entitlement Pass Book (DEPB) credits and Duty Free Replenishment Certificates (DFRC). The Taxation Laws (Second Amendment) Act, 2005 introduced conditions affecting the computation of export deductions for earlier assessment years.
Meaning of the relevant provisions
Section 28: Income chargeable as business profits
Section 28 specifies categories of income chargeable under the head "Profits and gains of business or profession". Clauses (iiid) and (iiie), relevant to the historical dispute, address profits on transfer of DEPB and DFRC entitlements, respectively.
Section 80HHC: Historical deduction for export profits
Section 80HHC provided a deduction in respect of eligible profits from export of goods or merchandise, subject to statutory conditions and a prescribed computation. Its deduction regime was phased out, and it is not a generally available deduction for current export income. The litigation remains relevant to assessments and disputes concerning the historical years in which the provision applied.
Third and fourth provisos to Section 80HHC(3)
The disputed amendments placed additional conditions on exporters whose turnover exceeded Rs. 10 crore, including conditions relating to the choice between duty drawback and DEPB and the comparative rates of benefit. The constitutional challenge concerned the prejudicial retrospective application of those conditions, rather than a blanket invalidation of Sections 28 or 80HHC.
Supreme Court decision in Avani Exports
The Gujarat High Court in Avani Exports v. Commissioner of Income-tax, (2012) 348 ITR, addressed the discriminatory and adverse retrospective effect of the conditions. On 30 March 2015, the Supreme Court in Commissioner of Income-tax v. Avani Exports clarified that exporters with turnover below and above Rs. 10 crore should be treated similarly for the disputed benefit. Its order substituted the Gujarat High Court's direction and focused on the severable conditions in the third and fourth provisos.
Accordingly, the result should not be read as striking down every retrospective tax amendment or invalidating Section 80HHC in its entirety. Read the Supreme Court decision in Avani Exports.
Delhi High Court reasoning and final order
The Division Bench referred to the Gujarat High Court decision, the Supreme Court's ruling in Avani Exports, and its own earlier decision in Pawan Kumar Jain v. Union of India, (2014) 46 taxmann.com 341 (Delhi). Applying those decisions, the Court held that the impugned restrictions could not operate retrospectively to the detriment of the petitioners.
The Court allowed the writ petitions, held illegal the demands or curtailment or withdrawal of benefits arising from the impugned retrospective application, and made the rule absolute. The decision concerned the particular statutory amendments and assessment disputes before the Court.
Practical significance for taxpayers
For legacy Section 80HHC matters, the decision supports examination of whether an assessment, demand or denial of deduction was based on the impermissible retrospective conditions. Any relief depends on the relevant assessment year, facts, finality of proceedings and applicable procedural provisions. It does not automatically reopen concluded assessments or create a new deduction for present-day exporters.
Read the Delhi High Court judgment
The judgment dated 10 January 2018 is available in the original PDF retained on this website and in the searchable judgment text.
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Frequently asked questions
Did the Court invalidate Section 80HHC entirely?
No. The decision addressed the adverse retrospective operation of particular amendments and conditions, following the Supreme Court's ruling in Avani Exports.
Can exporters claim Section 80HHC deduction today?
The deduction was phased out for later assessment years. This ruling is principally relevant to historical export deduction disputes, not a fresh deduction for current-year exports.
Which writ petitions were decided together?
W.P.(C) 3768/2006, 3772/2006 and 10783/2009 were allowed by the Delhi High Court on 10 January 2018.