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TMI Blog1993 (3) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... at the export orders secured by the assessee-company would be executed by the said processors, that is to say, the processors would ship the marine products covered by the export orders. After the products are shipped, the assessee-company would negotiate the relevant documents and would credit the proceeds to the account of the processors. The assessee-company also agreed to pass on to the processors REP licence, cash assistance and the like relating to the said exports. The assessee would further pay the processors incentive calculated at 3.75 per cent of the FOB value of the exports including service charge. On their part, the processors undertook not to claim any deduction under section 80HHC of the Act in relation to the exports attributable to the export orders procured by the assessee-company. It was on the basis of the aforesaid agreement/arrangement that the assessee made a claim for deduction under the said section. 3. The Assessing Officer negatived the assessee's claim observing : ". . . there is no supporting manufacturer or export house relationship between the assessee-company and the Processors. Further, when the export incentive of import replenishment licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an appealable order. This was on 29-9-1992. 8. It is in these circumstances that the assessee is now before us. 9. Shri K. R. Ramamani, the learned counsel for the assessee vehemently contended that the first appellate authority was not justified in dismissing the assessee's appeal as not being maintainable, and that, in any event, the Assessing Officer was not justified in dismissing the assessees claim for deduction under section 80HHC of the Act. As for the reference to section 80AB of the Act made by the Assessing Officer. Shri Ramamani argued that for purposes of quantiying the deduction admissible under section 80HHC, one has merely to look at the provisions of that section and ascertain the mode of computation of the deduction stipulated therein. The scheme of section 80HHC is to allow deduction of the prescribed percentage of export profits. Consequently there was no call for the Assessing Officer to invoke the provisions of section 80AB of the Act. In this regard, he referred to and relied upon the decision of the ITAT Delhi Bench-C in the case of Expo Machinery Ltd. v. IAC [1989] 31 ITD 41. 10. The second point made by the learned counsel for the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sales of a trader during a given period, which is usually one year. 13. It is, however, seen from the assessee's Profit and Loss Account for the year of account ending on 31-3-1989 that the aggregate sum of Rs. 26,04,477 (which the assessee has labelled as total turnover) comprised not only export turnover of Rs. 16,67,084 but also the following items which cannot properly be regarded as turnover : (1) Brokerage received for arranging finance for the assessee's clients : Rs. 8,50,321 (2) Dividend : Rs. 5,247 (3) Interest : Rs. 7,212 (4) Profit on sale of shares : Rs. 74,913 -------------------- Rs. 9,37,693 -------------------- Properly viewed, all the aforesaid four items are income simpliciter. They may be gross income in the sense that the expenditure incurred by the assessee for earning the said income have been shown separately and have not been deducted from the gross income. Nevertheless, they remain what they really are, namely income. Such being the fact - situation, can the aforesaid aggregate amount of Rs. 9,37,693 properly be viewed as turnover ? 14. On the first proposition the learned counsel for the assessee fairly stated that in view of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r more than one reason. First, while setting out proposition No. 2 we have already adumbrated how section 80HHC(3) itself makes a distinction between turnover and profits. Secondly, it is well settled that whenever the right to receive money in the course of trading transactions accrues or arises, or the money is realised, the profit or the income embedded in the receipt also arises or accrues or is received. Thus, in the case of Turner Morrison Co. Ltd. v. CIT [1953] 23 ITR 152 the Supreme Court at page 161 of the Report observed : " There can, therefore, be no question that when the gross sale proceeds were received by the Agents in India they necessarily received whatever income, profits and gains were lying dormant or hidden or otherwise embedded in them. Of course, if on the taking of accounts it be found that there was no profit during the year then the question of receipt of income, profits and gains would not arise but if there were income, profits and gains, then the proportionate part thereof attributable to the sale proceeds received by the Agents in India were income, profits and gains received by them at the moment the gross sale proceeds were received by them in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, loss is embedded in the gross turnover. The most significant conclusion that flows from the said provision is that when section 80HHC(3) talks of turnover, it talks of trading receipts and not of receipts which are of the nature of income to start with. It should, therefore, follow that the aggregate sum of Rs. 9,37,693 referred to supra cannot be regarded as turnover, and that by the same token it should be left out of reckoning for purposes of computing deduction admissible to the assessee under section 80HHC. If this exercise is done, we are back to Proposition No. 1. This would mean that the deduction admissible to the assessee under section 80HHC would be nil, especially in view of the fact that the export business of the assessee has resulted in a loss. 18. Shri Ramamani's arguments, based on section 44AB and the Board Circular issued thereunder remain to be considered. As we see it, neither the section nor the Circular can avail the assessee. The object of the section obviously is to cast an obligation on certain types of assessees to have their accounts compulsorily audited. The scheme of the section is that having identified the classes of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover " and " total turnover ". The object of section 80HHC is clear, namely, to give some tax relief with a view to giving fillip to exports. The focus of section 80HHC thus is on exports. If an assessee manufactures goods or merchandise [other than of course those listed under section 80HHC(2)(b)] and exports them in their entirety, and makes a profit at the end of the year of account, he became eligible to the deduction prescribed by and under section 80HHC in relation to such profits. But a manufacturer may not invariably be able to export, in their entirety, the goods or merchandise manufactured. He may export a part of them and sell the rest in India. Given the paramount need to give fillip to exports, Parliament clearly intended that the benefit of section 80HHC should not be denied in such cases. But the difficulty in such cases is that the profits attributable to exports cannot be ascertained with precision. This is because not only the manufacturing activities but also the selling activities (including the activities connected with exports) form a continuous, integrated whole. Even so, the intention of Parliament was to extend the benefit of section 80HHC to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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