2013 (4) TMI 287 - HC - Income Tax

Entitlement to claim a deduction made u/s 80 HHC - sales made to foreign tourists against foreign currency, including counter sale - Held that - The controversy involved in the present appeal stands concluded by the judgment of in the case of Ram Babu and Sons (1996 (5) TMI 61 - ALLAHABAD HIGH COURT). The said judgment has been approved by the in the case of Commissioner of Income Tax v. Silver & Arts Palace 2002 (12) TMI 12 - SUPREME Court wherein held that Section 80HHC Explanation (aa) explains what is export out of India . Any transaction by way of sale or otherwise in a shop or emporium which does not involve clearance at a customs station as defined in Customs Act, 1962, is thereby excluded from the expression export out of India . There is no dispute between the parties that the transactions of counter sales effected by the respondent involved customs clearance within the meaning of Explanation (aa) to Section 80HHC(4A) and further that the sales were in convertible foreign exchange. In view of the above, the Tribunal was not correct in treating the counter sale to foreigners against foreign exchange as not export sale. It is held that such sales are export sales i.e. within the meaning of Explanation (aa) to Section 80HHC (4A) of the Act. The Tribunal was not right in not extending the benefit of Section 80HHC to counter sales made to foreign tourist against foreign currency. In this respect, the order of the Tribunal is set aside - in favour of the assessee.

Summary

Issues:
Interpretation of Section 80 HHC of the Income Tax Act regarding deduction claim for sales made to foreign tourists against foreign currency, including counter sale.

Analysis:
The dispute in this case revolves around the interpretation of Section 80 HHC of the Income Tax Act concerning the entitlement of the assessee to claim a deduction for sales made to foreign tourists against foreign currency, including counter sales. The assessee, a partnership firm engaged in the business of purchase and sale of handicrafts, marble goods, etc., filed returns for the assessment year 1989-90, claiming a deduction under Section 80 HHC for sales made during the relevant periods. The Assessing Officer accepted a portion of the claim but rejected the rest, citing counter sales to foreign tourists made in India against Indian currency. The matter was brought before the Tribunal, which categorized the sales into three types: sales in Indian money, counter sale against foreign currency, and export sale through shipment. The Tribunal upheld the assessment order regarding the first two categories, leading to the present appeal.

The assessee contended that based on precedents such as the case of Ram Babu and Sons v. Union of India and the decision in Commissioner of Income Tax v. Silver & Arts Palace, it was entitled to the deduction under Section 80 HHC for counter sales against foreign currency. The department, on the other hand, argued that there was no evidence to show that the sold articles crossed the customs barrier, and thus, counter sales to foreign tourists against foreign currency could not be considered export sales under Section 80 HHC.

Upon considering the arguments and perusing the record, the Court found that the Tribunal erred in not recognizing counter sales to foreigners against foreign currency as export sales under Section 80 HHC. Citing the Explanation (aa) to Section 80 HHC, which excludes transactions not involving clearance at a customs station, the Court held that the transactions in question involved customs clearance and were in convertible foreign exchange. Therefore, the Court concluded that such sales qualified as export sales within the meaning of the Act, overturning the Tribunal's decision and ruling in favor of the assessee.

In light of the above analysis, the Court decided the question of law against the Revenue and in favor of the assessee, setting aside the Tribunal's order and granting the deduction claimed under Section 80 HHC for counter sales made to foreign tourists against foreign currency for the relevant assessment year.