2018 (4) TMI 95 - HC - Income Tax

Eligibility to benefit of Section 80HHC - commission deducted by the foreign agent from the sale consideration - nexus between the commission payment and the exports made by the assessee - Held that - Section 80HHC, as per Sub Section (2)(a) applies only if the sale proceeds of goods or merchandise exported out of India are received in or brought into India, by the assessee in convertible foreign exchange, within a period of six months from the end of a previous year or within such further period as the competent authority may allow in this behalf. The condition having been not complied with, the commission deducted by the foreign agent from the sale consideration cannot enjoy the benefit of Section 80HHC. We have no hesitation in setting aside the order of the Tribunal and we answer the questions of law in favour of the Revenue and against the assessee.

Summary

Issues:
- Interpretation of Section 80HHC of the Income Tax Act, 1961 regarding the inclusion of commission in export turnover for claiming benefits.
- Determination of whether commission paid to a foreign agency should be included in export turnover for computing export profit.

Analysis:

1. The primary issue in this case is the interpretation of Section 80HHC of the Income Tax Act, 1961, specifically regarding the inclusion of commission in the export turnover for claiming benefits under the provision. The Assessing Officer initially deleted the commission amount from the export turnover, as it was paid to an agency outside India and not brought back in convertible foreign exchange. The first appellate authority upheld this decision based on the Explanation to Section 80HHC(2)(a), which defines export turnover as the sale proceeds brought into India in convertible foreign exchange.

2. The Tribunal, however, took a different stance and reversed the decisions of the lower authorities. The Tribunal argued that since there were two options available for payment of agency commission, and the assessee chose the easier mode, they should not be disqualified from making the claim under Section 80HHC. The Tribunal found a clear connection between the commission payment and the exports made by the assessee, leading to the conclusion that the commission should be included in the export turnover for computing export profit.

3. The High Court disagreed with the Tribunal's reasoning and emphasized that Section 80HHC only applies if the sale proceeds of goods exported out of India are received or brought back into India in convertible foreign exchange within a specified period. Since the commission deducted by the foreign agent was not brought back in foreign exchange within the stipulated time frame, the High Court held that the assessee cannot benefit from Section 80HHC. Therefore, the High Court set aside the Tribunal's order and ruled in favor of the Revenue, disallowing the inclusion of the commission in the export turnover.

4. In conclusion, the High Court allowed the appeal, stating that the commission paid to the foreign agency cannot be considered in the export turnover for claiming benefits under Section 80HHC. The judgment highlights the importance of complying with the specific requirements of the law to avail tax benefits and emphasizes the significance of bringing sale proceeds into India in convertible foreign exchange within the prescribed time frame for eligibility under Section 80HHC.