2015 (12) TMI 1030 - HC - Income Tax

Deduction claimed under section 80HHC - whether the supporting manufacturer is entitled to seek the benefit of cash assistance (export incentive) granted by the Government exclusively to the export house or trading house in terms of sub-section (3) of section 80HHC of the Income-tax Act and if such incentive is passed on by the export house or trading house to the supporting manufacturer, whether such amount would be hit by the provisions of sub-section (3) of section 80HHC of the Income-tax Act? - Held that - If the trading house is agreed to and in terms of the said agreement, they have passed on the additional price-export incentive, supported by the certificate in terms of sub-section (4A) of section 80HHC, then the requirement under sub-section (1A) of section 80HHC is satisfied by the supporting manufacturer. The incentives stated in section 28(iiia), (iiib) and (iiic) of the Income-tax Act, no doubt, would accrue only to the export trading house. But once the said amount stands transferred to the supporting manufacturer by the export house or trading house, it takes the colour of additional price and that is in relation to the agreement between the parties subject to issuance of certificate in terms of sub-section (4A) of section 80HHC of the Income-tax Act. In the instant case, the assessee had directly exported the goods to the foreign constituents and received the export incentives directly from the Government based on the agreement between the export house and the assessee, as a supporting manufacturer. So long as the export trading house transfers the export incentive accrued to its export turnover in the form of additional price to the supporting manufacturer pursuant to an agreement entered into between them, supported by sub-section (4A) of section 80HHC of the Income-tax Act, the Department cannot deny the benefit of deduction claimed under section 80HHC(1A) of the Income-tax Act. In the light of the above, we answer the question of law in favour of the assessee and against the Revenue.

Issues Involved:
1. Entitlement of supporting manufacturers to benefits under Section 80HHC(3) of the Income-tax Act.
2. Interpretation of Section 80HHC with respect to supporting manufacturers and export incentives.
3. Validity of the reopening of assessment by the Assessing Officer.
4. Applicability of the doctrine of casus omissus in the context of Section 80HHC.

Issue-wise Detailed Analysis:

1. Entitlement of Supporting Manufacturers to Benefits under Section 80HHC(3):
The core issue was whether a supporting manufacturer is entitled to the benefits of cash assistance (export incentive) granted by the Government exclusively to the export house or trading house under Section 80HHC(3). The court observed that Section 80HHC(1A) provides that supporting manufacturers are entitled to a deduction of profit derived from the sale of goods or merchandise. Sub-section (3) details the computation of such deductions, including export incentives under clauses (iiia), (iiib), and (iiic) of Section 28. However, there is no similar provision in sub-section (3A) for supporting manufacturers.

2. Interpretation of Section 80HHC with Respect to Supporting Manufacturers and Export Incentives:
The court examined the relevant provisions of Section 80HHC, noting that while the section does not explicitly provide benefits to supporting manufacturers on export incentives, the assessee had received such incentives directly from the Government and had submitted a disclaimer certificate from the export house. The court held that if the agreement between the export house and the supporting manufacturer includes an increase in sale price equivalent to the export incentive, supported by a certificate as per sub-section (4A), the supporting manufacturer is entitled to the deduction under Section 80HHC(1A).

3. Validity of the Reopening of Assessment by the Assessing Officer:
The Assessing Officer initially allowed the deduction but later reopened the assessment, restricting the claim based on Explanation (b) to sub-section (4B) of Section 80HHC read with sub-section (2)(a). The Commissioner of Income-tax (Appeals) and the Tribunal both supported the view that the supporting manufacturer is entitled to the deduction, emphasizing that denying the benefit would defeat the purpose of the incentives provided under Section 80HHC.

4. Applicability of the Doctrine of Casus Omissus:
The Tribunal acknowledged the doctrine of casus omissus, which states that courts cannot fill in gaps left by the legislature. However, it concluded that if export incentives are transferred to the supporting manufacturer either through an increase in sale price or endorsement, they become part of the trading receipts. Thus, the supporting manufacturer is entitled to the deduction under Section 80HHC, despite the absence of a specific proviso in sub-section (3A).

Conclusion:
The court concluded that as long as the export trading house transfers the export incentive to the supporting manufacturer as additional price, supported by a certificate under sub-section (4A) of Section 80HHC, the deduction claimed under Section 80HHC(1A) cannot be denied. The court thus answered the question of law in favor of the assessee and dismissed the Revenue's appeal.

← Previous Next →