2003 (7) TMI 71 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to benefit on export house premia.
2. Exclusion of 90% of export premia under Explanation (baa) to section 80HHC(4A).
3. Entitlement to exemption on export house premia under section 80HHC(4A).
4. Tribunal's direction to recompute deduction under section 80HHC by ignoring the loss derived from the export of trading goods.
5. Exclusion of loss derived from the export of trading goods while computing deduction under section 80HHC.

Issue-Wise Detailed Analysis:

1. Entitlement to Benefit on Export House Premia:
The primary issue was whether the export house premium received by the assessee is includible in the profits of the business while computing the deduction under section 80HHC of the Income-tax Act, 1961. The Tribunal had previously held that the export incentives received by the assessee from export houses cannot be excluded from the profits of the business, as the assessee had not rendered any service to the export house. This position was upheld by the Tribunal in the present appeals, following its earlier decision in United Marine Exports' case.

2. Exclusion of 90% of Export Premia Under Explanation (baa) to Section 80HHC(4A):
The Revenue argued that the export house premium should be excluded from the profits of the business, as per clause (baa) of the Explanation to section 80HHC. This clause defines profits of the business as profits computed under the head "Profits and gains of business or profession" reduced by ninety percent of any sum referred to in clauses (iiia), (iiib), and (iiic) of section 28 or any receipts by way of brokerage, commission, interest, rent, charges, or any other receipts of similar nature. The Tribunal, however, held that the export premium received by the assessee does not partake of the character of such receipts and thus cannot be excluded under clause (baa).

3. Entitlement to Exemption on Export House Premia Under Section 80HHC(4A):
The Revenue contended that the export house premium does not form part of the sale proceeds of the export and therefore cannot be treated as profits derived from the export of goods or merchandise. The Tribunal, however, found that the export premium forms part of the price settled by the assessee for the sale of its merchandise and is not brokerage, commission, interest, rent, charges, or any amount of similar nature. This view was supported by the Division Bench in Baby Marine Exports' case, which held that the export premium is part of the price settled for the sale of merchandise.

4. Tribunal's Direction to Recompute Deduction Under Section 80HHC by Ignoring the Loss Derived from the Export of Trading Goods:
The Tribunal directed the recomputation of the deduction under section 80HHC by ignoring the loss derived from the export of trading goods. This issue was covered by a previous judgment (CIT v. Smt. T.C. Usha), where it was held that the loss suffered in the export of trading goods cannot be adjusted against the profits from the export of manufactured/processed goods. Consequently, the Tribunal's direction to recompute the deduction was upheld.

5. Exclusion of Loss Derived from the Export of Trading Goods While Computing Deduction Under Section 80HHC:
The Tribunal and the court held that the loss derived from the export of trading goods should not be excluded while computing the deduction under section 80HHC. This position was consistent with the earlier judgment in CIT v. Smt. T.C. Usha, which established that such losses cannot be adjusted against profits from the export of manufactured/processed goods.

Conclusion:
The court dismissed the appeals, holding that the export premium received by the assessee forms part of the price settled for the sale of merchandise and is not subject to exclusion under clause (baa) of the Explanation to section 80HHC. The court also upheld the Tribunal's direction to recompute the deduction under section 80HHC by ignoring the loss derived from the export of trading goods, consistent with the earlier judgment in CIT v. Smt. T.C. Usha.