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TMI Blog2000 (3) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... ral requirements for claiming deduction under section 80HHC of the Act in respect of the export transactions. The only dispute is with reference to the computation of relief which the assessee is entitled to under section 80HHC(1A) of the Act. The provisions of section 80HHC gives a deduction in the case of an Indian company or any other resident persons engaged in the business of export out of India of any goods or merchandise to which such section applies, a deduction of the entire profits derived by the assessee from the export of such goods or merchandise. Similar deduction is also admissible to the export house under the proviso to section 80HHC(1) of the Act in respect of such export transactions. It is also provided in the proviso to section 80HHC(1) that such export house may disclaim its eligibility for deduction under section 80HHC in favour of supporting manufacturer. If such a disclaimer is made the provisions of section 80HHC(1A) provides that such deduction shall be allowed in the hands of the supporting manufacturer to the extent of 100% of profits derived from the sale of goods or merchandise to the Export House in respect of which the certificate has been issued. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g house has issued a certificate under the provision to sub-section (1) there shall in accordance with and subject to the provisions of the section, be allowed in computing the total income of the assessee a deduction of the profits derived by the assessee from the sale of goods or merchandise from the export house or trading house in respect which the certificate has been issued in Form No. 10CCAB by the export house or trading house". In this case, the certificate in Form No. 10CCAB issued by the various export houses, as per sub-section (1A) of section 8OHHC,it is indicated the FOB value of the goods exported excluding the sale margin or commission of Rs. 37,20,184 since it is not a part of export turnover. Secondly, it can't be considered even as the local sales inasmuch as the only the sale that took place between the assessee's company and the export house is none other than the goods meant for export and the consideration received for the same is nothing but the FOB value as mentioned in Form No. 10CCAB, export invoices, bill of lading and other export documents. Merely by entering into an agreement, that assessee company should raise a bill on the export house at an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Export House is prepared to purchase the goods at a price higher than the price which they realised from the export. In each and every purchase order on the foreign buyer the assessee's name will be mentioned to signify that they arc manufacturers of the goods. The brand name under which the goods arc shipped in each and every invoice is that of the assessee. In all the shipping documents the assessee's name will figure as "Shipper/Manufacturer" to authenticate that the goods covered by the invoice have been manufactured/processed by the assessee company. The assessee during the year processed and exported marine and frozen products both directly and also through recognised Export Houses. In respect of indirect export routed through Export Houses, the company had entered into agreement with the Export Houses and in pursuance of the terms and conditions agreed therein the assessee had charged the sale value at a mutually agreed price. The total sale price of the goods is quantified at an agreed percentage of f.o.b. value of each export. That is to say that the Export House purchases goods at a price which is higher than the f.o.b. value at which the Export House exports the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Appellate Tribunal in the case of A.M. Mossa v. Asstt. CIT [1996] 54 TTJ (Coch.) 193 where it is held that f.o.b. value of export received by the supporting manufacturer from the Export House cannot partake the nature of receipts towards "charges" within the meaning of Explanation (baa) of the said section 80HHC(4A) of the Act. The view canvassed by the assessee, according to the learned counsel, is directly covered in its favour by the decision of the Kerala High Court in the case of G. Gangadharan Nair v. CIT [1999] 238 ITR 685 where the Hon'ble High Court held that unless there is a clear finding that the extra consideration is for any specific services, apportionment of sale price is not permissible. In the case of the assessee the Assessing Officer had not substantiated the nature of any services rendered by the assessee to the Export House and has not established that part of sale price is for services rendered to justify for exclusion of the same from business profits. The learned counsel for the assessee further pointed out that the entire sale price realised by the assessee to the Export House should be included as business profits for the purpose of section 80HHC an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Export House, he heavily relied upon the order of the Tribunal in the assessee's own case for the assessment year 1992-93. The learned departmental representative further argued that the additional sale consideration is nothing but a commission which is specifically dealt with under clause (1) of Explanation (baa) to section 80HHC(4A) of the Act. 5. We have carefully considered the rival contentions and perused the material on record and have gone through the various authorities to which reliance was placed by both the parties. The provisions of section 80HHC which are relevant for understanding the issue are extracted below:-- '80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which the section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the (profits) derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling such goods or merchandise to an Export House or a Trading House for the purposes of export.]" A reading of the provisions of section 80HHC(1A) shows that the assessee shall be allowed in computing the total income, a deduction of the profits derived by the assessee from the sale of goods or merchandise to the Export House. The scheme provides that when once the certificate is issued by the Export House to the supporting manufacturer the latter is entitled to claim deduction, in computing the Income, the entire profits derived by the assessee from the sale of goods or merchandise to the Export House. There is no scope for dividing the sale price as one pertaining to some services rendered and the other pertaining to the sale of goods. The agreements which are almost identically worded to the one which we are referring, provides in the preamble that the processors/shippers (assessee) are one of the largest processors/shippers of frozen marine products and registered with Small Scale Departments and have their processing unit in Bhimavaram and are SSI Unit, but not a recognised Export House and whereas the Export House has approached the processors/shippers to ship the frozen m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed Export House, will be entitled to claim advance lincences, and all the benefits accruing to a recognised export House under the terms of present Import Trade Control Policy. 7 Export House shall undertake, to furnish the Processors/Shippers the disclaimer certificate in regard to the exports effected during the financial year in prescribed manner and shall ensure that the certificates are provided within such time stipulated by the Processors/Shippers so that the Processors/Shippers are entitled to claim such relief as provided under the Income-tax Act, 1961. All other benefits arising out of exports shall accrue to the account of Export House. The Processors/Shippers hereby agree to ship to Japan, UK., Europe, U.S.A. and other countries, in the name of the Export House, frozen fish/shrimp/lobster tails/cattle fish/squids, etc. to the extent of FOB value of Rs. One crore (plus or minus 596) against the export orders received by the Export House. 8. For the purpose of calculating the FOB value of the export, it is agreed that the rate of exchange adopted by the negotiating bank in negotiating the relative export invoices will be the rate of exchange for the purpose of such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 60,70,384. The assessee has accounted for the entire sum of Rs. 60,70,384 in respect of this transaction as sale consideration received in respect of the export transactions. The said sum is assessed by the Sales-Tax Department as turnover under the relevant Act. In spite of these it cannot be said that the sale consideration was only 10096 of the f.o.b. value and not 103.7596 of the f.o.b. value as stated by the parties. 6. The Kerala High Court in the case of G. Gangadharan Nair was concerned with a similar situation. There the assessee dealt in marine products through the Export Houses. On verification of the accounts the assessing authorities noticed that the assessee had received a total sum of Rs. 5,93,072 from various Export Houses. These receipts were credited to the 'Export earnings premium". The assessee entered into agreements with various Export Houses who agreed to pay a percentage of f.o.b. value of exports to the assessee. Such amount was described in different agreements as incentive/premium. The Assessing Officer concluded that the amounts constituted service charges and that it was deductible from the profits and gains of business for arriving at the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt of convertible foreign exchange. The Legislature itself extends the benefit to a supporting manufacturer who does not receive any convertible foreign exchange directly. But in respect of the transactions the Export House definitely receives the convertible foreign exchange. In the normal circumstances the Export House would have claimed relief under section 80HHC in respect of such exports. But the Legislature in its Wisdom thought it fit to extend such relief to the supporting manufacturer who has made enormous investments in the plant and machinery which enabled the Export House to export the goods and earn valuable foreign exchange for the country. The department is, therefore, not justified in not treating the additional sale price consideration as part of the business profit derived by the assessee from the sale of goods to the Export House. It is equally wrong in treating it as part of the brokerage, commission etc. specified in the Explanation (baa) to section 80HHC(4A) of the Act. In the light of the decision of the Kerala High Court as also the decision of the Tribunal, Cochin Bench in the case of A.M Moosa and the fact that there arc different types of agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been considered as export turnover. 13. We have heard the learned counsel for the assessee, who strongly argued that when once the Export House issues a disclaimer certificate in favour of the assessee, supporting manufacturer, the entire exports done through the Export House should be treated as own exports and should be so included in the export turnover for the purpose of arriving at the numerator required in the factor under the proviso to section 80HHC(3) of the Act. For this heavy reliance was placed on the decision of the Tribunal in the case of Eastern Leather Products (P.) Ltd. v. Dy. CIT[1999] 68 ITD 358 (Delhi). The learned departmental representative, on the other hand, strongly supported the computation made by the Assessing Officer. 14. We have carefully gone through the contentions and perused the material on record. Identical issue was before the ITAT, Delhi Bench in respect of the relief under the proviso to section 80HHC(3) of the Act. The Tribunal has gone through the Budget Speech of the Finance Minister, reported in 170 ITR St. 1, which made it clear in para 99 thereof that to increase exports he proposed to enhance the existing tax concession under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from L.C. Margin or deposits with Sales-tax Department, Electricity Board etc. as part of the profits of the industrial undertaking for the purpose of relief under section 80-I of the Act. The CIT (Appeals) has treated all interest except the interest levied under section 244A of the Act as part of the profits of the industrial undertaking and the revenue is aggrieved. 16. We have heard both the parties and perused the material on record. The Supreme Court in the case of CIT v. Sterling Foods [1999] 23 7 ITR 579 was concerned with import entitlements. The assessee therein was engaged in processing prawns and other sea foods which it exported. It also earned some import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. It sold the import entitlements that it had earned to others and claimed relief under section 80HH of the Act as profits and gains derived by the industrial undertaking. The Hon'ble Supreme Court after elaborately discussing the terminology "derived from" held that the source of the import entitlements cannot be said to be the industrial under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all within the above type of receipts contemplated under Explanation (baa) to section 80HHC(4A) of the Act. The learned CIT (Appeals) further relied upon the rule of ejusdem generis which mandated that the general word following the specific words will have its meaning restricted by those specified words. In that context, brokerages commission, rent or interest arc items of receipt for which the effort and expenditure put in arc minimal. According to him, the processing charges derived by the assessee was not contemplated to be included in the said Explanation and the Revenue is aggrieved. 18. The learned departmental representative relied upon the decision of the Pune Bench of the Tribunal in the case of Salgaocar Mining Industries Ltd. v. Dy. CIT [1997] 61 ITD 105 and the decision of the Delhi Bench of the Tribunal in the case of International Research Park Laboratories Ltd v. Asstt. CIT [1994] 50 ITD 37 (SB) and supported the view of the Assessing Officer. 19. The learned counsel for the assessee, on the other hand, pointed out that the decision of the Delhi Bench was for the year prior to assessment year 1992-93 and the decision of the Pune Bench is not applicable to the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-I of the Act also. As regards the vehicle hire charges in both the years the assessee was using insulation vehicles for transporting frozen cargo. When they were not used for own assignments, they were let out to others and hire charges collected. These hire charges, according to the assessee, were part of the profits of the industrial undertaking for the purpose of relief under section 80-I of the Act. 22. We have heard both the parties and find that the vehicles were the commercial assets utilised in the business. The maintenance expenses of these vehicles were totally debited to the assessee's accounts and had depressed the profits of the undertaking. It was therefore, absolutely necessary to treat the hire charges as part of the income of the industrial undertaking for the purpose of working out the relief under section 80-I of the Act. We do not find any infirmity in the order of the CIT (Appeals) on this issue. 23. Similar claims were made with regard to the storage charges of Rs. 38,435 in the assessment year 1995-96 and that they should be treated as profits derived by the industrial undertaking. After hearing the parties we are of the view that the storage c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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