2013 (10) TMI 1228 - HC - Income Tax

Whether demurrage and dead freight are to be allowed while calculating the relief under Sec.80 HHC for the assessment year 1996-97 Held that - Revenue does not dispute the fact that the assessee had exported molasses worth Rs.6,14,87,164/-. The Revenue also does not dispute the fact that there was an agreement between the assessee and the foreign buyer as regards the liability of either of the party on demurrage, as per which, the demurrage and dead freight was payable by the assessee on account of its delay in boarding of Molasses and consequently, the charges payable thereon were to be paid by the assessee. Accordingly, the foreign company deducted the amount towards demurrage and dead freight and remitted the balance amount to the assessee. This does not mean that the sale consideration was anything less than Rs.6,14,87,164/- for the purpose of claiming deduction under 80 HHC of the Act. There is nothing on material to show that the parties had agreed that the balance after adjusting demurrage and dead freight charges alone would be the safe consideration Decided against the Revenue.

Summary

Issues:
1. Whether demurrage and dead freight are to be allowed while calculating the relief under Sec.80 HHC for the assessment year 1996-97?
2. Whether export turnover includes freight or insurance attributable to the transport of goods beyond the customs station under Sec.80HHC?

Issue 1 Analysis:
The appeal before the Madras High Court concerned the dispute over the deduction under Section 80 HHC for the assessment year 1996-97. The assessee, a trading concern exporting various goods, faced a situation where demurrage and dead freight charges were incurred due to delays in loading molasses at Kochin Port. The foreign buyer deducted these charges from the sale consideration before remitting the balance to the assessee. The Assessing Officer restricted the deduction to the net amount received by the assessee, leading to an appeal before the Commissioner of Income Tax (Appeals) and subsequently before the Income Tax Appellate Tribunal. The Tribunal remitted the matter back to the Assessing Officer to determine if the charges were to be borne by the assessee. The Revenue appealed to the High Court, arguing that the net consideration alone should represent the export turnover, not the total sale proceeds. However, the Court held that the deduction should be based on the agreed sale amount, not the amount received after deducting demurrage charges, as per the agreement between the parties.

Issue 2 Analysis:
The second issue revolved around the interpretation of "Export Turnover" under Explanation (b) to Section 80HHC of the Income Tax Act, 1961. The Revenue contended that the deduction should be based on the net consideration after deducting demurrage charges, as it represented dead freight. On the other hand, the assessee argued that the deduction should be calculated based on the agreed sale amount, as per the terms of the agreement with the foreign buyer. The Court referred to a previous Supreme Court decision involving reinsurance brokerage to support the assessee's position that the deduction should be based on the agreed sale amount. The Court held that there was no need for a remand in this case and dismissed the Revenue's appeal, affirming the assessee's entitlement to the claim under Section 80 HHC without any deduction for demurrage and dead freight charges.

In conclusion, the Madras High Court dismissed the Revenue's appeal, upholding the assessee's claim for deduction under Section 80 HHC based on the agreed sale amount and not the net consideration after deducting demurrage and dead freight charges.