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TMI Blog2008 (10) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing facility at SDF-VII, Special Economic Zone, Mumbai and was subsidiary company of Tara Jewellery and Exports Limited (hereinafter called "TJEL"). It was stated that it has satisfied all the requisite conditions as laid down in the section for availing of the amount of deduction as per law towards the export of the goods. The assessee furnished party-wise details of exports made in the year in question, which has been reproduced in the assessment order as under :- Sr. No. Name of the party Amount of Sales (Rs.) 1. Combine International, CT Troy, USA 7,52,55,346.56 2. Sam Adams 7,85,827.57 3. I Kurgan & Co. California 9066-7317, USA 8,33,88,762.94 4. Cosmopolitan Gems Corpn., New York, USA 14,14,30,249.88 5. Kurgan International, Hunghum, KLN 58,24,118.46 6. Audin International Ltd., New York, USA 3,49,66,631.00 7. Goldman, New York, USA 3,20,440.00 8. NXP Jewels Inc., 37, Main Street, St. Thmas 26,18,551.00 9. Original Designs Fermor Inc., New York, USA 4,56,430.00 10. Tara Jewel Exports Pvt. Ltd., G-44, G & J Complex-1, SEEPZ, Andheri (E), Mumbai - 400 096. 15,93,26,701.00 11. A.M. Gold, New York, MY-10020 USA 1,11,647.00 12. M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .00 2. Diamonds 101,979,559.00 101,979,559.00 3. Gold 10,390,025.00 10,390,025.00 4. Findings 686,215.00 686,215.00 5. Consumables & Stores 178,509.00 178,509.00 6. Alloys 62,734.00 62,734.00 7. Exchange Difference (export) 9,671,681.00 9,671,681.00 405,800,612.45 113,297,042.00 519,097,654.45 He held that the belief of the Assessing Officer about the local sales at not more than 25 per cent of the total sales as primary condition for claiming deduction under section 10A, was not correct. In his view the assessee could claim deduction on export turnover notwithstanding the local sales at more than twenty five per cent, but the deduction would not be available on the local sales, if it exceeded the prescribed percentage. As in this case the domestic sales were found to be more than the prescribed limit, he denied the deduction on such local sales. He however, held that the assessee can claim deduction only on the goods manufactured and exported by it and not on the export of its trading activity. He further came to hold that local sales made to the holding company, both of the raw material a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the issues raised before us one by one. I. Interpretation of proviso to sub-section (1) 9. The learned Departmental Representative contended that the assessee was not at all entitled to deduction under section 10A in view of the proviso as per which if the domestic sales exceed twenty five per cent of the total sales, then the benefit of deduction will not be available. On the other hand the ld. CIT(A) has not accepted the way in which this proviso has been interpreted by the Assessing Officer. In his opinion the deduction can still be allowed de hors the domestic sales exceeding twenty five per cent of the total turnover but the amount of deduction is to be restricted to the export of the manufactured goods only for the reason that if the domestic sales exceed the prescribed percentage of the total turnover, then no deduction can be allowed to the extent of such domestic sales. The only ground of the revenue's appeal is against overturning the finding of the Assessing Officer that no deduction can be allowed if the domestic sales exceed the prescribed percentage. In the opposition the assessee is contending that if the domestic sales exceed the prescribed percentage, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be denied in total. We, therefore, do not find any merit in this contention of the ld. DR. 9.4 On the contrary the scope of deduction has been widened by also entitling the eligible units to avail the further deduction even on the profits derived from the domestic sales to the extent of twenty five per cent of the total sales. The ld. CIT(A) has interpreted this proviso as the benchmark for availing the deduction on the profits of the domestic sales, that is if the domestic sales are less than twenty five per cent of the total turnover, only then the benefit of deduction on the profits derived from the domestic sales can be availed and in the converse case if the amount of domestic sales is more than the prescribed percentage, then no deduction is permissible on the profits derived from the domestic sales. In our opinion, the ld. CIT(A) also failed to assign the proper meaning to the simple and plain language of the proviso as per which profits and gains derived from the domestic sales upto twenty five per cent of the total sales are available for the deduction. From the use of the expression 'such domestic sales as do not exceed twenty five per cent', it is clearly noticea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gins to manufacture or produce such articles or things or computer software". The reference to manufacture or production of eligible articles is only for the purposes of settling the first year of the ten consecutive assessment years in which the assessee will be entitled to deduction under this section. The qualifying amount for deduction is the "profits and gains as are derived by an undertaking from the export of articles or things or computer software". Such eligible articles are not restricted to only those which are produced or manufactured by the assessee. The material consideration is the export of the eligible goods and not whether these are manufactured or purchased by the assessee. Section 10A is akin to section 80HHC in some respects, as will be seen infra and the later section also provides for deduction in respect of profits from the export of the goods or merchandise manufactured by the assessee as well as from the export of trading goods. Thus profits from both the self manufactured as well as trading in goods have been made eligible for deduction. If the intention of the Legislature had been to restrict the deduction only from the manufacturing activity, then it wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in convertible foreign exchange. Receiving of the convertible foreign exchange by the assessee in India towards sale proceeds of the export of eligible articles is sine qua non for the claim of deduction under this section. When the assessee is making local sales to other parties, what is brought into his account is only Indian rupees and not any foreign exchange. So unless the assessee brings into India the convertible foreign exchange from the sale proceeds of the eligible articles, it cannot legally lodge its claim for deduction under this section. The point turns out to be more apparent when we go through sub-section (4) of section 10A which stipulates that the profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. From this sub-section, it is manifested that both the export turnover and total turnover are distinctly recognized. The total turnover includes both export turnover as well as domest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in the export turnover. The learned AR vehemently argued before us that such amount of sales was liable to be excluded from the total turnover because no element of profit was involved in it. He explained that it was not, in fact, sales at all as the assessee made purchases in unison for itself and also on behalf of its holding company. Explaining further he stated that whenever the assessee intended to import diamonds or gold etc. for its business purposes, it used to consult its holding company if they were also interested in making import of such raw material. And if the holding company consented then a common purchase order was made in the name of the assessee so as to avail turnover discount. And on the receipt of the goods in India, the assessee was raising invoice on its holding company immediately at no profit no loss basis of the raw material requisitioned by them and supplying the goods in no time. He took us through page Nos. 59 to 63 of the paper book to show on illustrative basis that foreign party sold gold bars to the assessee vide their invoice dated 16-10-2000 at the rate of 18972 US dollars which was received into India on 19-10-2000 and the material relatable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gold, findings, etc. These purchases were recorded as its own. The payment for the entire lot was made by the assessee. Subsequently, the some part of these goods was sold by the assessee to its holding company viz., TJEL. The contention raised by the assessee for excluding the, amount of Rs. 11.32 crores from the local as well as total sales is that the deal was made with the foreign parties to have economy of large scale buying. However, no material worth the name has been placed on record to demonstrate the economy flowing from such purchases at large volume. No comparison of the buying rate has been made available to exhibit that if the assessee had not purchased the goods meant for its holding company, then the rate of purchase would have been higher. We further observe that if the contention of the assessee had been correct that there was an initial understanding to purchase on behalf of the holding company also then the quantity so purchased ought to have been immediately delivered to the holding company on its receipt. From the two instances brought to our notice, by the learned A.R., we find that the picture is quite different. Whereas page No. 61 of the paper book is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the term "sale" as assigned in various enactments, it is apparent that it refers to the transferring of property of goods from one person to another for a valuable consideration. The necessary ingredients of sale can be culled as under :- (i)There should be a property. (ii)Such property should be transferred from one person to another. (iii)Such transfer should be for a valuable consideration. 12.8 It, therefore, follows that when the above referred elements are satisfied, the transaction assumes the character of "sale". We are unable to concur with the view point raised by the learned A.R. that the sales made by the assessee to its holding company without profit be not viewed as sale and hence excluded from the total sales as well as domestic sales for the purpose of computing the amount of deduction under section 10A. It is admitted position that the assessee purchased the goods in its dominion by making the payment at his own. It has not been shown that the amount equal to the purchase price was obtained by the assessee in advance from the holding company. On making the purchase, the ownership in the goods vested in it. Transferring some part of the goods pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the foregoing discussion, we direct the Assessing Officer to recompute the deduction under section 10A by considering the export turnover at Rs. 31.64 crores (Rs. 31.77 crores as shown in the table at page 7 of the impugned order as reduced by the local sale made to M/s. Neogem India Limited at Rs. 12.27 lakhs and to M/s. Shankar Jewels at Rs. 0.90 lakhs). The export in trading goods worth Rs. 3.23 crores is also to be considered as part of export turnover. The sale of finished goods made to holding company at Rs. 4.60 crores is to be excluded from the purview of export turnover but included in the total turnover. Similarly the amount of Rs. 11.32 crores representing local sales of raw material to the holding company is to be included in the total turnover but, excluded from the export turnover. Further as per the direction of the proviso to section 10A(1) (as discussed under the point I above), the profit derived from domestic sales up to twenty five per cent of total sale shall also be deemed to be profit derived from export and this profit shall also qualify for deduction under section 10A. The portion of profit derived from local sales both of raw material and of fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. In the opposition, the learned D.R. relied on the impugned order. 16. We have heard the rival submissions on this point and perused the relevant material on record. Sub-section (1) of section 10A provides for allowing deduction in respect of profits and gains as are derived by an undertaking from the export of eligible articles subject to the fulfilment of the conditions. Sub-section (4) lays down the mechanism for computing the profit from the export of eligible article for the purposes of sub-section (1). Sub-section (3) provides that the deduction is available if the sale proceeds of the eligible articles exported out of India are received in or brought into India in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. "Export turnover" has been defined in Explanation 2 below sub-section (9A) of section 10A to mean the consideration in respect of export of the eligible articles received in or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3) but does not include freight, telecommunication charges, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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