2005 (3) TMI 75 - HC - Income Tax

Deduction under the proviso to sub-section (3) of section 80HHC - Whether turnover on sales to export house undertaken by the assessee as a supporting manufacturer be included in the export turnover for the purpose of computation of deduction under the proviso to sub-section (3) of section 80HHC of the Income-tax Act, 1961 - We are of the view that the benefits available to exporter and supporting manufacturer have to be separately computed in accordance with the specific provisions of the Act. While section 80HHC(1) read with section 80HHC(3) provides for computation and deduction of profit on direct exports, section 80HHC(1A) read with section 80HHC(3A) provides for computation and deduction of export profit for a supporting manufacturer. Since sales turnover of sales made by the appellant to the export houses do not answer the description of export turnover provided that the definition clause noted by us above, the Assessing Officer rightly excluded such turnover from export turnover while computing relief available to the appellant under the proviso to section 80HHC(3)

Issues Involved:
1. Inclusion of turnover on sales to export houses in "export turnover" for deduction under section 80HHC(3) of the Income-tax Act, 1961.
2. Computation of deduction for direct and indirect exports.
3. Interpretation of section 80HHC and its provisos.
4. Eligibility of supporting manufacturers for deductions.

Detailed Analysis:

1. Inclusion of Turnover on Sales to Export Houses in "Export Turnover":
The primary issue is whether the turnover from sales to export houses by a supporting manufacturer should be included in the "export turnover" for the purpose of computing deductions under section 80HHC(3) of the Income-tax Act, 1961. The court examined the definition of "export turnover" and concluded that it pertains only to direct exports. The term "export turnover" as defined in Explanation (b) below section 80HHC means the sale proceeds received in or brought into India by the assessee in convertible foreign exchange for goods exported out of India, excluding freight or insurance beyond the customs station.

2. Computation of Deduction for Direct and Indirect Exports:
The assessee, a cashew exporter, claimed deductions for both direct and indirect exports for the assessment year 1992-93. The Assessing Officer granted separate deductions under sections 80HHC(1) and 80HHC(1A) but excluded sales to export houses from the "export turnover" while computing relief under the proviso to section 80HHC(3). The court upheld this exclusion, stating that the export turnover for the purpose of the proviso to sub-section (3) includes only direct exports.

3. Interpretation of Section 80HHC and Its Provisos:
The court emphasized that section 80HHC provides separate provisions for direct exporters and supporting manufacturers. Sub-section (1) grants deductions for direct exports, while sub-section (1A) provides for supporting manufacturers who sell goods to export houses. The method of computing the profit for supporting manufacturers is detailed in sub-section (3A). The court noted that the Tribunal misunderstood the scope of section 80HHC by conflating the benefits available to direct exporters and supporting manufacturers.

4. Eligibility of Supporting Manufacturers for Deductions:
The court clarified that supporting manufacturers are eligible for deductions under sub-section (1A) and the computation method is specified in sub-section (3A). The court rejected the assessee's contention that sales to export houses should be included in the "export turnover" for computing deductions under the proviso to sub-section (3). The court referred to the apex court's ruling in IPCA Laboratory Ltd. v. Deputy CIT, which stated that benefits not explicitly available under the section cannot be conferred by misinterpreting its words.

Conclusion:
The court concluded that the benefits available to exporters and supporting manufacturers must be computed separately according to the specific provisions of the Act. The sales turnover of goods sold by the appellant to export houses does not constitute "export turnover" for the purpose of computing relief under the proviso to section 80HHC(3). The court allowed the appeal filed by the Department, setting aside the Tribunal's order and restoring the order of the Commissioner of Income-tax (Appeals).

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