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TMI Blog1996 (7) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by UNICEF. The Assessing Officer has recorded findings of fact to the effect that all designated consignees were stationed inIndiaand the assessee had not placed any evidence on record to show that the goods were actually sent out ofIndiaby its efforts or through the designated consignees of UNICEF. The Assessing Officer, however, noted and this not being disputed before us that the payment for the sales made to UNICEF was received in " convertible foreign exchange ". On the basis of the aforesaid facts the assessee claimed a deduction of Rs. 31,29,786 under section 80HHC. 4. The Assessing Officer issued a show-cause letter to the assessee dated3-9-1990asking it to explain as to why the claim be not denied since the deduction was admissible in respect of goods or merchandise exported out ofIndiasubject to certain other conditions being fulfilled. In reply to the show cause the assessee filed a letter dated15-10-1990wherein it raised numerous arguments with reference to the provisions of the section, i.e., 80HHC, the purpose in introducing the said section, the Import and Export (Control) Act, 1947, the Imports (Control) Order, 1955 and the Import and Export Policy itself. As m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile the second half deals with the computation of deduction admissible. The other sub-section of section 80HHC either elaborate the provisions of section 80HHC (1) or explain the terms used therein. The various conditions of eligibility of deduction under section 80HHC can be enumerated as under : 1. The assessee should be a company or a person (other than a company) resident inIndia. 2. The assessee should be engaged in the business of export out ofIndia. 3. The business of export should be of goods and merchandise other than mineral oil and minerals and ores. 4. The sale proceeds of such goods or merchandise exported out ofIndiaare receivable by the assessee in convertible foreign exchange. 5. An amount equal to the amount of deduction claimed under this sub-section is debited to the profit and loss account of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilised for the purpose of the business of the assessee. The maximum deduction admissible would be equal to the aggregate of (a) 4% of net foreign exchange realisation ; and (b) 50% of so much of the profit derived by the assessee from the export of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the transport of the goods or merchandise beyond Customs Act, 1962 (52 of 1962). 6.8 It is further clarified in section 80HHC itself that the goods or merchandise should be exported out ofIndia. The words exported out ofIndiaare not just due to over-sight but appear a conscious act on the part of Legislature. The incentive under section 80HHC has been allowed in order to achieve twin objectives. 1. The country get convertible foreign exchange so the position of balance of payment improves the market for Indian goods is also developed outside India by exporting goods out of India so that even when there is no incentive as under section 80HHC the Indian overseas market is fully developed and the country's export trade is not adversely affected. This purpose is quite explicit when we read the provision of section 80HHC which exclude certain items of export sales outside the purview of deduction under section 80HHC. If the purpose of section 80HHC was just to earn convertible foreign exchange as argued by the assessee, there was no need to exclude certain category of exports. In that case any sale the payment for which was received in convertible foreign exchange would have qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present controversy there is no fiction of " deemed export " provided in the Income-tax Act, hence no such fiction can be applied while allowing relief under section 80HHC. The fiction of deemed export under Import and Export Control Act and the orders and policies issued thereunder would apply for implementing the said Act only and for the purpose for which the fiction was created and not to any other Act (to Income-tax Act in the present case) or for any other purpose other than that specified. If the facts or the purpose for which fiction is created, does not exist, there is no question of applying the same fiction to other facts and in other set of circumstances. 6.11 The fact that the assessee is a registered exporter is not material as it is simply a formality which a person has to comply with under the Foreign Exchange Regulation Act. 6.12 It is pertinent to note that even under the Cash Compensatory Support Scheme, separate forms are provided for applying for CCS or exports under Normal Scheme (Form 'N') and CCS under the deemed export scheme (Form D) meaning thereby that the normal meaning of export does not include deemed export unless specifically provided. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so in section 80HHC. The fact that words out of India have been used at so many places in section 80HHC, make the intention of Legislature very clear that for the purpose of deduction under section 80HHC goods must go out of India. 6.16 The Government has clarified that receipts of sale proceeds in non-convertible rupee from bilateral account countries will be treated at par with sale proceeds received in any other convertible foreign exchange for the purpose of section 80HHC. The assessee's argument that the purpose of giving relief under section 80HHC is to earn convertible foreign exchange only, is therefore defeated as even the payment in rupee from bilateral a/c countries is eligible for deduction under section 80HHC. In fact the purpose of introduction of section 80HHC is not only to earn foreign exchange but also to promote export which can be achieved only when goods are exported out ofIndiaand make a market for themselves. 6.17 The assessee's argument that since UNICEF is a sovereign body, the supplies made to it inIndiaare exports as recognised in Para 190 of Import and Export Policy (1985-88) is not correct. The supplies to UN Agencies inIndiaare deemed export (if p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be adopted for the purpose of Income-tax also. This contention is not correct and acceptable. The definition of export in the import and export policy is for the limited purpose of import replenishment. Further for the purpose of section 80HHC, it is clearly stated that the goods shared be exported out ofIndia, hence the definition of export under the Import Export Policy cannot be applied for deduction under section 80HHC. 6.19 In view of the facts discussed above, assessee's claim of deduction under section 80HHC cannot be entertained as the assessee has not exported goods out ofIndia." 6. Being aggrieved the assessee came up in appeal before the Commissioner of Income-tax (Appeals) before whom the arguments advanced were identical to those tendered before the Assessing Officer. The Commissioner of Income-tax (Appeals) approved of the action of the Assessing Officer in rejecting the assessee's claim on absolutely identical fines. She echoed the view that the deduction could be allowed only if the goods sold crossed the territorial boundaries ofIndiaand in the present case it was an undisputed fact that these had not crossed the territorial boundries ofIndia. The Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change rather than undertaking an export ; (ix) Explanation (aa) to section 80HHC which was introduced by Finance (No. 2) Act, 1991 with effect from 1-4-1986 used three terms, viz, shop, emporium or any other establishment and the last mentioned term, viz, " any other establishment " should be considered with reference to the earlier two terms and not be widely construed to include any other institution such as the present assessee. In other words, any other establishment should also be of the same type as a shop or emporium. That this amend ment should be read strictly and since the assessee did not come under its purview, is automatically meant that sales made by it to UNICEF constituted exports out ofIndia; and (x) Under the Trade Policy the sales to UNICEF were treated as " deemed exports " and at par with other exports. 8. To sum up his arguments the learned counsel urged that the section be interpreted in a manner which advanced the object which lay behind its introduction and which, according to him, was the earning of foreign exchange. The other argument to which he adverted was that since one wing of the Government dealing with imports and exports had treated such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r enactment, order or policy for deeming said sale transaction as an " export " ; (vi) That the deeming fiction contained in the trade policy was only for the limited purpose of providing certain benefits and this could not be extended to cover all transactions under every enactment ; and (vii) Explanation (aa) to section 80HHC clearly excluded from the term " export out ofIndia" sale or other transactions in a shop emporium or any other establishment. That the assessee came clearly under the term " any other establishment ". 11. In concluding his arguments, the learned Departmental Representative urged that the orders passed by the tax authorities be confirmed. According to him, the judgment of the Bombay Tribunal relied upon by the assessee's counsel was distinguishable on facts and law and not at all applicable. 12. In his short reply the learned counsel prayed that the present case be decided on its own peculiar facts more so when the purchaser, viz., UNICEF was not subject to any restriction since it was exempt from all types of import and export regulations. According to the learned counsel the movement of goods under these circumstances was not a determining factor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature has not provided for any deeming fiction in section 80HHC and whereever it wanted it has done so, such as, sections 69A, 69B, 69C, 69D and various sections of the Income-tax Act, 1961. In the absence of a deeming fiction in section 80HHC support cannot be derived from the Policy which treats supplies to UNICEF as " deemed exports ". 17. The argument of the learned counsel to the effect that earning in convertible foreign exchange was the primary condition to be fulfilled stands belied by the observation of the Assessing Officer in para 6.16 of her order to the effect that " sale proceeds in non-convertible rupee from bilateral account countries would be treated at par with sale proceeds received in any other convertible foreign exchange for the purpose of section 80HHC ". According to the Assessing Officer, a clarification has been issued by the Government to this effect. This observation of the Assessing Officer is not challenged before us by the assessee. 18. Much stress has been laid on the terms " Profit derived from export " and " export turnover " for the contention that the assessee is a registered exporter and has derived profit from exports during the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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