2019 (9) TMI 738 - SC - Income Tax

Deduction u/s 80HHC - supporting manufacturers - whether the assessee being supporting manufacturers, are to be treated on par with the direct exporter for the purpose of deduction of export incentives under Section 80HHC? - HELD THAT - So far as supporting manufacturers are concerned, under Section 80HHC(1A), where any Export House or Trading House has issued a certificate that the supporting manufacturer has, in fact, supplied such goods or merchandise for export, they shall also be allowed a deduction to the extent of profits referred to derived by the assessee from the sale of goods or merchandise to the Export House or Trading House. The manner of deduction, insofar as the exporter is concerned, is laid down in subsection (3) which when read together with its provisos make it clear that profits that are derived from such export shall be further increased in the manner provided by the first proviso; and where export turnover does not exceed rupees ten crores, in the manner provided by the second proviso; and where the export turnover exceeds rupees ten crores, in the manner provided by the third proviso. What is conspicuous by their absence is any of the provisos in sub-section (3) insofar as sub-section (3A) is concerned, which makes it clear that the profits derived by a supporting manufacturer shall be strictly in accordance with the provisions contained in Section 80HHC (3A) read with the explanation to the section, which then defines Profits of the business Exporter stands on a completely different footing from the supporting manufacturer as the parameters and scheme for claiming deduction relatable to exporters under 80HHC(1) read with (3) is completely different from that of supporting manufacturers under Section 80HHC (1A) read with (3A) thereof. We, therefore, answer the question referred to us by stating that Baby Marine Exports 2007 (3) TMI 206 - SUPREME COURT deals with an entirely different question and cannot be relied upon to arrive at the conclusion that the supporting manufacturers are to be treated on par with the direct exporter for the purpose of deduction under Section 80HHC of the Act, as has been pointed out by us herein above. Consequently, the decision in SUSHIL KUMAR GUPTA 2012 (9) TMI 621 - SC ORDER is over ruled. We allow these appeals in favour of the Revenue

Summary

Issues Involved:
1. Whether supporting manufacturers are entitled to the same deductions under Section 80HHC of the Income Tax Act, 1961, as direct exporters.
2. Interpretation of Section 80HHC(1) and Section 80HHC(1A) of the Income Tax Act.
3. Applicability of the Supreme Court's decision in Commissioner of Income Tax, Thiruvananthapuram vs. Baby Marine Exports, Kollam (2007) 4 SCC 555.

Detailed Analysis:

1. Entitlement of Supporting Manufacturers to Deductions under Section 80HHC:
The central issue in this batch of appeals was whether supporting manufacturers are entitled to the same deductions under Section 80HHC of the Income Tax Act, 1961, as direct exporters. The High Court of Punjab and Haryana had dismissed the Revenue's appeals, relying on the Supreme Court's decision in Commissioner of Income Tax, Thiruvananthapuram vs. Baby Marine Exports, Kollam (2007) 4 SCC 555, concluding that supporting manufacturers should be treated on par with direct exporters for the purposes of deductions under Section 80HHC.

2. Interpretation of Section 80HHC(1) and Section 80HHC(1A):
The Supreme Court analyzed the statutory scheme of Section 80HHC. Section 80HHC(1) allows a deduction in computing the total income of an assessee engaged in the business of exporting goods out of India. The deduction is to the extent of profits derived from such exports. For supporting manufacturers, Section 80HHC(1A) allows a deduction if an Export House or Trading House issues a certificate that the supporting manufacturer has supplied goods for export. The manner of deduction for exporters is detailed in Section 80HHC(3), which includes various provisos for different scenarios of export turnover. However, these provisos do not apply to supporting manufacturers under Section 80HHC(3A), which has its own distinct provisions for calculating deductions.

The Court emphasized that the statutory scheme differentiates between direct exporters and supporting manufacturers, with distinct parameters and schemes for claiming deductions. The profits derived by a supporting manufacturer are strictly in accordance with Section 80HHC(3A) read with the explanations provided in the section.

3. Applicability of the Baby Marine Exports Decision:
The Court noted that the decision in Baby Marine Exports dealt with the inclusion of export house premium in business profits for the purpose of deductions under Section 80HHC. This case was different as it concerned whether supporting manufacturers should be treated on par with direct exporters for deductions of export incentives under Section 80HHC. The Court held that Baby Marine Exports dealt with an entirely different issue and could not be relied upon to conclude that supporting manufacturers should be treated the same as direct exporters for the purpose of deductions under Section 80HHC.

The Court agreed with the reasoning in Commissioner of Income Tax, Karnal (Haryana) vs. Carpet India, Panipat (Haryana) (2018) 6 SCC 620, which questioned the applicability of the Baby Marine Exports decision to the case of supporting manufacturers. The Court concluded that supporting manufacturers are not entitled to the same deductions as direct exporters under Section 80HHC.

Conclusion:
The appeals were allowed in favor of the Revenue, and the impugned judgments were set aside. The Court overruled the decision in Commissioner of Income Tax vs. Satish Kumar Gupta (C.A. No. 6437/2012). The Court remanded the cases to the Appellate Tribunal, allowing the respondents to show, with necessary facts, that they are direct exporters and can avail of the deductions under Section 80HHC(1) read with (3).