2015 (3) TMI 1027 - 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. Allowance of deduction under section 80HHC to the assessee on counter sales without proof of clearance at Customs Station.
2. Justification of allowing deduction under section 80HHC without proof of goods being cleared at any Customs Station.
3. Validity of the finding of the ITAT and CIT(A) regarding the deduction under section 80HHC.

Issue 1: Allowance of deduction under section 80HHC without proof of clearance at Customs Station:

The Income Tax Appeal was filed by the Commissioner of Income Tax against the order of the Income Tax Appellate Tribunal (ITAT) regarding the deduction under section 80HHC. The Assessing Officer had disallowed the deduction on the grounds that there was no proof of clearance of goods at the Customs Station. However, the Rajasthan High Court referred to the decision of the Supreme Court in CIT vs. Silver & Arts Palace, which held that counter sales to foreign tourists against convertible foreign exchange in India are eligible for deduction under section 80HHC. The High Court also cited several of its own decisions and those of other High Courts supporting this view. The High Court emphasized that the exemption does not require proof of clearance at any Customs Station and that the declaration provided by the tourist in the Sale To Foreign Tourists Voucher was sufficient evidence for export out of India. The court concluded that unless the department proved otherwise, it was not necessary for the assessee to produce documents of clearance at Customs Station. The explanation in the Act excludes only those transactions not involving clearance at any Customs Station and does not require proof of such clearance.

Issue 2: Justification of allowing deduction under section 80HHC without proof of goods being cleared at any Customs Station:

The High Court analyzed the language of Explanation (aa) of sub-section (4C) of section 80HHC, which states that "export out of India" does not include transactions not involving clearance at any Customs Station. The court noted that the goods sold to foreign tourists were meant to be taken out of the country, which inherently involved clearance by customs authorities. The court emphasized that the Sale To Foreign Tourists Voucher containing the tourist's details and declaration was sufficient proof of export out of India. The court clarified that the explanation is a rule of exclusion and does not require proof of clearance at any Customs Station. The court rejected the appellant's argument that proof of customs clearance was necessary for the deduction under section 80HHC, citing the Supreme Court's judgment in Commissioner of Income Tax vs. Silver & Arts Palace and consistent decisions of the Rajasthan High Court.

Issue 3: Validity of the finding of the ITAT and CIT(A) regarding the deduction under section 80HHC:

The High Court addressed the substantial questions of law framed by the ITAT, questioning the justification of allowing the deduction under section 80HHC without proof of clearance at Customs Station. The court referred to previous judgments, including those of the Supreme Court and other High Courts, which supported the allowance of deduction for counter sales to foreign tourists. The court found that the facts and circumstances of the case did not warrant a different view from the established legal position. Consequently, the High Court decided in favor of the assessee and dismissed the Income Tax Appeal.

In conclusion, the High Court upheld the allowance of deduction under section 80HHC for counter sales to foreign tourists without requiring proof of clearance at any Customs Station, relying on established legal precedents and interpretations of the relevant provisions of the Income Tax Act.