1991 (12) TMI 86 - AT - Income Tax

Summary

Issues Involved:
1. Claim of the assessee under section 80HHC for export turnover.
2. Eligibility of counter sales to foreign tourists for deduction under section 80HHC.

Detailed Analysis:

1. Claim of the Assessee under Section 80HHC for Export Turnover:
The assessee, engaged in the business of exporting garments, claimed a deduction under section 80HHC on its export turnover. Initially, the Assessing Officer allowed the deduction of Rs. 35,425, which was 1% of the f.o.b. value of goods exported (Rs. 35,42,557), upon submission of the required bank certificate proving receipt of money in convertible foreign exchange.

2. Eligibility of Counter Sales to Foreign Tourists for Deduction Under Section 80HHC:
The assessee also claimed a deduction under section 80HHC for sales amounting to Rs. 42,77,636 made across the counter to foreign tourists in foreign currency or through foreign credit cards/cheques. The Commissioner (Appeals) allowed this claim, referencing the Tribunal decision in the case of Natraj Jewellers, which held that sales to foreign tourists in foreign exchange should be treated as export sales.

The Departmental Representative argued that the Natraj Jewellers case pertained to section 35B, which deals with deductions for expenses incurred for promoting exports, not actual export sales. He contended that section 80HHC requires actual export out of India and receipt of foreign exchange, which was not the case here as the sales were made within India.

The assessee's representative countered by stating that section 80HHC requires two conditions: export and receipt of foreign exchange. He cited the Exchange Control Manual and Import & Export Policies treating sales to foreign tourists as deemed exports. He also noted that the Finance Act, 1991, explicitly excluded counter sales from section 80HHC deductions only from 1-4-1986, implying that such sales were eligible for deduction before this date.

The Tribunal considered the provisions of section 80HHC, emphasizing that the objective was to encourage the inflow of convertible foreign exchange. The Tribunal noted that the term "export turnover" includes sale proceeds of goods exported out of India, and the dictionary meaning of "export" involves sending goods out of the country. The Tribunal concluded that sales to foreign tourists, intended to be taken out of India, should be considered export sales.

The Tribunal further elaborated that, commercially, an export sale involves a common intention to export, an obligation to export, and actual export. In this case, the sales to foreign tourists fulfilled these conditions as the goods were intended to be taken out of India, and the tourists were obligated to do so under the Foreign Exchange Regulations Act.

The Tribunal also referred to explanatory notes on the Finance (No. 2) Act, 1991, which clarified that counter sales would not be considered exports from 1-4-1986. Since the assessment year in question was 1983-84, the Tribunal held that the assessee was entitled to the deduction under section 80HHC for counter sales made to foreign tourists in foreign exchange.

In conclusion, the Tribunal upheld the Commissioner (Appeals)'s decision to allow the 80HHC deduction for the counter sales, affirming that the assessee had met all necessary conditions for such sales to be considered export sales under section 80HHC.