1991 (10) TMI 77 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for Deduction under Section 80HHC for Sales to Foreign Tourists.
2. Interpretation of "Exports out of India" under Section 80HHC.
3. Retrospective Amendment of Section 80HHC by Finance Bill, 1991.

Detailed Analysis:

1. Eligibility for Deduction under Section 80HHC for Sales to Foreign Tourists:
The assessee, a registered firm engaged in the business of manufacturing and dealing in readymade garments and fabrics, claimed a deduction under Section 80HHC of the Act on export turnover, including sales made to foreign tourists in its shop situated in Taj Mahal Hotel. The Income Tax Officer (ITO) allowed the deduction only on direct exports, arguing that Section 80HHC applies solely to exports made out of India. The CIT (Appeals) upheld the ITO's decision, stating that the deduction under Section 80HHC is applicable only when there is an export of goods from India by the seller.

2. Interpretation of "Exports out of India" under Section 80HHC:
Mrs. Aarti Vissanji, representing the appellant, argued that sales to foreign tourists paid for in foreign currency should be considered as export sales for Section 80HHC purposes. She cited the Import & Export policy of the Government of India, which treated such sales as 'deemed exports' qualifying for import replenishment. The appellant had obtained import licenses based on these sales, indicating official recognition of such sales as exports. The Tribunal considered the Supreme Court's decision in Coffee Board Bangalore v. Joint CTO, which emphasized that exports involve the movement of goods from the exporter to the importer. The Tribunal also referred to the Cochin Bench decision in Sea Pearl Industries v. ITO and the Delhi High Court's decision in Ferro Alloys Corpn. Ltd. v. R.C. Mishra, both supporting the view that real exporters are entitled to incentives, not merely ostensible exporters.

3. Retrospective Amendment of Section 80HHC by Finance Bill, 1991:
Mrs. Vissanji highlighted the retrospective amendment proposed in the Finance Bill, 1991, which clarified that 'export out of India' does not include sales made in shops or establishments in India without customs clearance. This amendment was to take effect from April 1, 1986. However, for the assessment year 1984-85, the Tribunal concluded that the prevailing Section 80HHC allowed for deductions on sales to foreign tourists as these were considered 'deemed exports' under the Import & Export policy.

Conclusion:
The Tribunal ruled in favor of the appellant, stating that the primary purpose of Section 80HHC is to encourage exports and earn foreign exchange. The Tribunal found no material difference between the old and amended Section 80HHC regarding the term "exports out of India." The Tribunal recognized that sales to foreign tourists in foreign currency, treated as 'deemed exports' under the Import & Export policy, qualify for deduction under Section 80HHC. The Tribunal directed that the assessee is entitled to the deduction for such sales, consistent with previous CIT (Appeals) decisions for other assessment years.

Final Decision:
The appeal of the assessee was allowed, directing the Assessing Officer to treat sales in foreign currency in India as exports for the purpose of deduction under Section 80HHC.