1998 (6) TMI 55 - HC - Income Tax

Summary

Issues Involved:

1. Entitlement of the assessee to deduction under section 80HHC of the Income-tax Act, 1961, for exports done through export houses.
2. Determination of whether the assessee was an agent of the export house.
3. Examination of whether the export house purchased the goods in substance.
4. Analysis of whether the export process was actually done by the assessee and not the export house.
5. Consideration of whether both the assessee and the export house are entitled to the benefit under section 80HHC.

Detailed Analysis:

1. Entitlement of the Assessee to Deduction under Section 80HHC for Exports Done Through Export Houses:

The primary issue was whether the assessee, who processed frozen sea foods, was entitled to the deduction under section 80HHC for exports conducted through export houses. The court examined the agreements between the assessees and the export houses, noting that the foreign buyers had contracts only with the recognised export houses. The export houses, in turn, had independent agreements with the assessees, who completed all export formalities and shipped the goods "on account of the export houses." The Tribunal initially found that the assessees were the real exporters and thus entitled to the deduction. However, the court referenced the legislative history and amendments to section 80HHC, concluding that during the relevant assessment year (1983-84), the benefit was intended only for the real exporters, which in this case were the export houses.

2. Determination of Whether the Assessee was an Agent of the Export House:

The Tribunal had previously held that the assessee was not an agent of the export house. However, the court found that the agreements and the conduct of the transactions indicated that the export houses were the actual exporters. The assessees prepared documents and shipped goods on behalf of the export houses, which had the primary contracts with the foreign buyers. The court concluded that the assessees acted in a capacity that aligned more with being agents rather than independent exporters.

3. Examination of Whether the Export House Purchased the Goods in Substance:

The court scrutinized the substance of the transactions, noting that the export houses were termed as exporters in the agreements, and the assessees were termed as processors. The export houses negotiated the contracts with the foreign buyers and received the letters of credit, which were later endorsed to the assessees. The court determined that the export houses effectively purchased the goods from the assessees for the purpose of export, reinforcing the view that the export houses were the real exporters.

4. Analysis of Whether the Export Process was Actually Done by the Assessee and Not the Export House:

The court acknowledged that the assessees completed the export formalities and shipped the goods. However, it emphasized that these actions were performed "on account of the export houses." The export houses had the primary contractual obligations with the foreign buyers and were responsible for the overall export process. The court concluded that despite the assessees' involvement in the physical export process, the export houses were the entities entitled to the benefits under section 80HHC.

5. Consideration of Whether Both the Assessee and the Export House are Entitled to the Benefit under Section 80HHC:

The Tribunal had previously opined that both the assessees and the export houses could claim the benefit. However, the court clarified that the scheme of section 80HHC, as it stood during the relevant period, allowed the benefit to be claimed by only one party. Since the export houses had already claimed and received the benefit, the assessees were not entitled to claim it simultaneously. The court referenced the Supreme Court's decision in M. M. T. C.'s case, which supported the view that the real exporters (export houses) were the rightful claimants of the benefit.

Conclusion:

The court concluded that the real exporters were the export houses, not the assessees. Therefore, the assessees were not entitled to the benefit of section 80HHC for the exports done through the export houses. The questions referred to the court were answered in the negative, against the assessees and in favour of the Revenue.