2002 (4) TMI 19 - HC - Income Tax

Export special deduction - partial disallowance of exemption - Assessing Officer while computing export profit for granting deduction under section 80HHC excluded 90 per cent. of the premium received from export houses by applying Explanation (baa) to sub-section (4A) of section 80HHC of the Income-tax Act. 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that 90 per cent. of the export house premium cannot be deducted while computing the deduction under section 80HHC in accordance with the Explanation (baa) to section 80HHC as they are directly related to exports though a local receipt?- Held that what is sold by the seller in this case is not merely the marine products. In addition, the import permit earned by him as well is also sold. And that is why a higher price is fixed for his wares. Hence, the amount described as a premium is in fact part of the price settled by him for sale of his merchandise and it is neither a brokerage, commission, interest, charges or collection of any amount of similar nature. question answered against the Revenue and in favour of the assessee.

Issues Involved:
1. Jurisdiction of the Tribunal to address issues beyond the deductibility of 90% of receipts from export houses.
2. Applicability of Section 80AB versus Section 80HHC.
3. Relevance of past judicial decisions to the current case.
4. Classification of premium received from export houses under Explanation (baa) of Section 80HHC.
5. Inclusion of receipts from export houses in the total turnover calculation.

Detailed Analysis:

1. Jurisdiction of the Tribunal:
The assessee contended that the Tribunal exceeded its jurisdiction by addressing issues beyond the deductibility of 90% of receipts from export houses. The Tribunal's focus should have been limited to this specific issue, and it was argued that delving into other matters, such as the applicability of Section 80AB, was beyond its purview.

2. Applicability of Section 80AB versus Section 80HHC:
The assessee argued that Section 80HHC, which specifically defines "profits of the business," should be applied instead of the general principles of Section 80AB. The Tribunal's invocation of Section 80AB was contested as erroneous, given that Section 80HHC explicitly outlines the computation of export profits.

3. Relevance of Past Judicial Decisions:
The Tribunal relied on past decisions, including CIT v. V.T. Joseph and G. Gangadharan Nair v. ITO, to justify the disallowance. The assessee pointed out that the decision in G. Gangadharan Nair was set aside and remanded for reconsideration, and that CIT v. V.T. Joseph dealt with different provisions and assessment years. Therefore, these precedents were argued to be inapplicable to the current case.

4. Classification of Premium Received from Export Houses:
A critical issue was whether the premium received from export houses should be classified as "brokerage, commission, interest, rent, charges, or any other receipt of a similar nature" under Explanation (baa) of Section 80HHC. The assessee contended that the premium was part of the export earnings and not a separate commission or brokerage. The Tribunal, however, treated the premium as a disallowable receipt under Explanation (baa).

The court examined the nature of the premium and service charges in the agreements. It concluded that these payments were part of the price settled for the exported goods, including the value of the import permits. The premium was thus considered part of the export price and not a separate brokerage or commission. The court emphasized the need to understand the real intent of the transaction and ruled that the premium was not a receipt of a similar nature to those listed in Explanation (baa).

5. Inclusion of Receipts from Export Houses in Total Turnover Calculation:
The court noted that the premium did not form part of the turnover but was included in the profits of the business. The inclusion of the premium in profits while excluding it from turnover resulted in a higher relief under Section 80HHC, favoring the assessee.

Conclusion:
The court ruled in favor of the assessee, determining that the premium received from export houses was part of the export price and not a separate commission or brokerage. The Tribunal's reliance on past decisions was found to be misplaced, and the application of Section 80AB was deemed unnecessary given the specific provisions of Section 80HHC. The questions raised were answered against the Revenue, affirming the assessee's position.

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