1998 (6) TMI 574 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under section 80HHC of the Income-tax Act, 1961 for exports done through export houses.
2. Determination of the real exporter between the assessee and the export house.
3. Application of section 80HHC benefits during the assessment year 1983-84.
4. Impact of agreements and privity of contract on the entitlement to export benefits.

Detailed Analysis:

1. Entitlement to Deduction under Section 80HHC for Exports Done Through Export Houses:
The primary issue was whether the assessee is entitled to deduction under section 80HHC of the Income-tax Act, 1961, for exports not done directly by the assessee but through an export house. The Tribunal held that the assessees, being the processors of frozen sea foods, were the real exporters and thus entitled to the benefits under section 80HHC, even though the export houses also claimed these benefits.

2. Determination of the Real Exporter:
The Tribunal's opinion was that the real exporters were the assessees, despite the export houses having contracts with foreign buyers and receiving the benefits under section 80HHC. The Tribunal relied on the agreement terms, which indicated that the assessees completed all export formalities and shipped goods "on account of the export houses." However, the High Court referred to the Supreme Court's decision in Mineral & Metal Trading Corpn. v. R.C. Mishra [1993] 201 ITR 851, which established that the entity with the privity of contract with the foreign buyer is the real exporter.

3. Application of Section 80HHC Benefits During the Assessment Year 1983-84:
During the relevant assessment year 1983-84, section 80HHC did not specifically provide for supporting manufacturers to claim benefits. The scheme of the Act was clear that benefits could only be availed by one party, either the export house or the processor, but not both simultaneously. The High Court noted that the benefits under section 80HHC were intended for the real exporters to encourage exports, and during the relevant period, only the export houses were entitled to claim these benefits.

4. Impact of Agreements and Privity of Contract on Entitlement to Export Benefits:
The High Court scrutinized the agreements between the assessees and the export houses, noting that the foreign buyers had no privity of contract with the assessees. The export houses had independent agreements with the foreign buyers and were the entities entitled to receive foreign exchange. The Court emphasized that merely preparing shipping documents "on account of the export houses" did not make the assessees the real exporters. The High Court also referenced Mod. Serajuddin v. State of Orissa [1975] 36 STC 136, where it was held that the canalizing agency (export house) was the real exporter.

Conclusion:
The High Court concluded that the assessees were not entitled to the benefits under section 80HHC as the real exporters were the export houses. The Court answered the questions referred to it in the negative, against the assessees and in favor of the revenue, applying the ratio of the Supreme Court decision in Mineral & Metal Trading Corpn. v. R.C. Mishra. The Court emphasized that the benefits of section 80HHC could only be claimed by the entity with privity of contract with the foreign buyers, which in this case were the export houses.