2015 (3) TMI 763 - HC - Income Tax

Deduction u/s 80HHC on counter sales - whether ITAT as well as the CIT(A) was justified in allowing the deduction u/s 80 HHC when there is no finding to the effect that the goods were cleared at any of the custom station? - Held that - Apex Court in CIT vs. Silver & Arts Palace 2002 (12) TMI 12 - SUPREME Court has held that the counter sale to the foreign tourists against convertible foreign exchange in India, is eligible for deduction under section 80HHC of the Income Tax Act. The Apex Court has also approved the decision of the Allahabad High Court in the case of Ram Babu & sons vs. Union of India 1996 (5) TMI 61 - ALLAHABAD High Court . In the present case the assessee had produced the Sale To Foreign Tourists Voucher, which not only recorded the name and address of the customer (tourist), but also his/her passport number and the declaration given by him that the goods will not be gifted or sold in India. The goods sold at counter at the shop/emporium were sold to be taken out of the country, which necessarily involved clearance of baggage, by the customs authorites. There was no further proof, nor any document in proof of clearance of the goods at the Customs Station by the assessee is required. The declaration in the form of Sale To Foreign Tourist Voucher, for sale made against the convertible foreign exchange with the undertaking that the goods will not be gifted or sold in India, was sufficient proof for export out of India. Unless anything contrary was alleged and proved by the department, it was not necessary for the assessee to have produced the documents of clearance of goods sold by him to the foreign tourists at any Customs Station. The Explanation (aa) is not a rule of evidence, nor raises any presumption. It also does not require any proof of clearance at any Customs Station. The explanation is couched in double negative. It is a rule of exclusion and excludes only those transactions, which do not involve clearance at any Customs Station. It cannot be read in a manner, as suggested by learned counsel appearing for the department that a proof of customs clearance of baggage must be provided to establish the export of goods out of India for the purpose of deduction of profits on such sales under section 80HHC of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of section 80HHC of the Income Tax Act regarding deduction for counter sales to foreign tourists.
2. Requirement of proof of clearance at Customs Station for claiming exemption under section 80HHC.

Analysis:

1. The main issue in this case revolved around the interpretation of section 80HHC of the Income Tax Act concerning the deduction for counter sales to foreign tourists. The Assessing Officer had disallowed the deduction under section 80HHC for the respondent-assessee, a dealer of jewellery and handicrafts, on the basis that proof of clearance of goods at the Customs Station was not provided, despite the goods being sold to foreign tourists against convertible foreign exchange in India.

2. The High Court referred to the decision of the Supreme Court in CIT vs. Silver & Arts Palace, where it was held that counter sales to foreign tourists against convertible foreign exchange in India are eligible for deduction under section 80HHC. The court also cited various decisions of the Rajasthan High Court and the Allahabad High Court that supported this view, emphasizing that the proof of clearance at any Customs Station was not a prerequisite for claiming the exemption under section 80HHC.

3. The court highlighted that the language of Explanation (aa) of sub-section (4C) of section 80HHC excludes transactions not involving clearance at any Customs Station. The court reasoned that the Sale To Foreign Tourists Voucher provided by the assessee, containing details of the customer, passport number, and declaration of not gifting or selling in India, was sufficient proof of export out of India. The court clarified that the Explanation (aa) does not require proof of clearance at a Customs Station and should be interpreted as a rule of exclusion rather than a rule of evidence.

4. Ultimately, the court held that the facts of the case aligned with the precedent set by the Supreme Court and the consistent decisions of the Rajasthan High Court, leading to a decision in favor of the assessee and against the Income Tax Department. The court dismissed the Income Tax Appeal, affirming the eligibility of the assessee for the deduction under section 80HHC for counter sales to foreign tourists without the requirement of proof of clearance at a Customs Station.