2005 (7) TMI 74 - HC - Income Tax

Whether the export premium received by a supporting manufacturer from an Export House would fall under the expression brokerage, commission charges or any other receipts of similar nature contemplated under sub-clause (i) of clause (baa) of the Explanation to section 80HHC(4A) - We answer the question in favour of the Revenue and hold that the Tribunal is not justified in allowing the claim of the assessee that export premium cannot be excluded from the business profits under clause (baa) of the Explanation to section 80HHC. We hold that the assessee would be entitled to deduction under section 80HHC only to the extent of disclaimer though no disclaimer certificate has been produced and therefore, the assessee is not entitled to get any deduction

Summary

Issues Involved:
1. Whether the export premium received by a supporting manufacturer from an Export House falls under "brokerage, commission charges or any other receipts of similar nature" as per sub-clause (i) of clause (baa) of the Explanation to section 80HHC(4A) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Classification of Export Premium under Section 80HHC(4A)
The primary issue is whether the export premium received by a supporting manufacturer from an Export House should be classified under "brokerage, commission charges or any other receipts of similar nature" as per sub-clause (i) of clause (baa) of the Explanation to section 80HHC(4A) of the Income-tax Act, 1961.

Assessing Officer's Decision:
The Assessing Officer excluded 90% of the export house premium from the business profits, arguing that the premium had no relation to the exports effected by the assessee.

Commissioner of Income-tax (Appeals) Decision:
The Commissioner upheld the Assessing Officer's decision, stating that the premium was a local receipt and not related to the export activities directly.

Income-tax Appellate Tribunal Decision:
The Tribunal allowed the assessee's appeal, holding that the export premium should not be excluded from the business profits under clause (baa) of the Explanation to section 80HHC. It was considered part of the total turnover.

High Court Analysis:
The High Court examined the agreements between the assessee and the Export Houses, which indicated that the export house premium was paid as an incentive, service charges, or commission in Indian currency and was not obtained from the importers of the marine products. The court concluded that these amounts were essentially "miscellaneous income" and should be excluded from the business profits.

Legal Reasoning:
- Clause (baa) of Section 80HHC(4A): The definition of "profits of the business" includes brokerage, commission, interest, rent, charges, or any other receipt of a similar nature. The court found that the export house premium did not fall within these categories.
- Nature of Export House Premium: The premium was considered an additional attraction offered by Export Houses to supporting manufacturers and not directly related to the export turnover.
- Supreme Court Precedents: The court referred to the decisions in IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 (SC) and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC), which supported the exclusion of such premiums from business profits.

Conclusion:
The High Court held that the export house premium should be excluded from the business profits under clause (baa) of the Explanation to section 80HHC. The assessee is entitled to a deduction under section 80HHC only to the extent of the disclaimer certificate issued by the Export House. Since no disclaimer certificate was produced, the assessee is not entitled to any deduction.

Final Judgment:
The appeals filed by the Revenue were allowed, and the order of the Tribunal was set aside. The High Court declared that the assessee is not entitled to any deduction under section 80HHC for the export house premium.