TMI Blog2007 (3) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961? Since a common question of law arises for consideration in these appeals, therefore, they are being disposed of by this common judgment. However, for the sake of reference, the essential facts of Civil Appeal No. 6146 of 2005 are reproduced as under. The respondent-assessee, M/s. Baby Marine Exports, Kollam is engaged in the business of selling marine products both in the domestic market and also exporting it. The assessee is exporting directly to the buyers and also through export houses. The assessee in the instant case has entered into contracts with the export houses, whereby, as and when the assessee sells the goods or merchandise to an export house, as consideration for the sale, it receives the entire F.O.B. value of the exports plus the export house premium of 2.25 per cent. of the F.O.B. value. The relevant clause dealing with F.O.B. value and incentive commission of the contract entered into between the assessee and the export house in this case is reproduced as under: "Clause (12) : The Export House agrees to pay the manufacturer/shipper an incentive of 2.25 per cent. on the F.O.B. value (net of overseas commission) of the said frozen marine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther held that "the Assessing Officer was not justified in excluding the indirect export from the export turnover. He is directed to include the indirect export also in the export turnover for the purpose of section SOHHC". The respondent aggrieved by the order of the Commissioner (Appeals) approached the Income-tax Appellate Tribunal. The Tribunal extracted the findings of the Commissioner (Appeals) in its order in extenso and relied on the decision of the Tribunal. The Tribunal allowed the appeal of the assessee and upheld the stand of the assessee that the export house premium received by the assessee is includible in the "profits of the business" of the assessee while computing the deduction under section 80HHC of the Income-tax Act, 1961. Being aggrieved by the decision of the Tribunal, the Revenue went in appeal before the High Court. The High Court vide order dated August 22, 2003, dismissed the appeal of the Revenue by observing that the questions involved in the appeal were squarely covered by its decision in 1. T. A. Nos. 251 of 2002 and 166 of 2002 dated July 1, 2003, which were decided in favour of the assessee and against the Revenue. In those cases, the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the export house, which has exported the goods on behalf of the assessee, being the supporting manufacturer, was profit on which the assessee was entitled to a benefit of deduction under section 80HHC of the Act inasmuch as it did not form part of the sale proceeds of the goods exported by the assessee through the export house but it was merely a receipt from the export house in consideration of the permits/service rendered to them for facilitating the export of goods. According to the Revenue, the High Court has erred in interpreting the term "profits of the business" contained in clause (baa) of the Explanation to section 80HHC by holding that the premium received by the assessee from the export house was profits of business and not any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or any receipt by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits. It has been further stated that on a proper construction of the provisions of sub-sections (1A) and (4A) of section 80HHC, the assessee being a supporting manufacturer is entitled to deduction under this section only on the sale price of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 250 crores. In the next year i.e. in 1994, the policy provided both options, i.e., of average net foreign exchange export/average FOB value as the basis for declaration of export house, trading houses etc. and in the year 1994 a new category was added which was super star trading houses. Consequent to the recognition as an export house/trading house/star trading house/super star trading house, the export house was eligible to become a member of the elite Indian Organisation namely Federation of Indian Export Organisation (FIEO) which further entitled the export houses to attend the various buyers/seller meet all over the world, to participate in the international exhibitions and as members of delegation with the Government and also to attend international conferences etc. The benefits were many, only some illustrations have been given above." Thus, in effect the money which was paid by the export houses to the supporting manufacturers in the form of premium/incentive is nothing but the money which was received by the export houses in the form of one incentive or the other, some of which is cash in the sense that the same can be freely sold in the market at a premium and the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng manufacturer is not permitted to claim such deduction as profit from export earning under section 80HHC. In terms of Explanation (baa) to section 80HHC, sub-section (4A), even the export house can only claim 10 per cent. of such or similar earnings towards deduction and hence it is inconceivable that the supporting manufacturer could be permitted to claim 100 per cent. deduction of the same money when it comes into his hands. Finally, the learned Additional Solicitor-General argued that the premium earned by the assessee is the domestic earning of the assessee totally unrelated to the export of goods and hence the assessee cannot claim any deduction whatsoever in respect of such earning under section 80HHC(1A). Shri S. Ganesh, learned senior advocate appearing for the respondent-assessee contended that the claim of the assessee for deduction under section 80HHC is by virtue of the provision of section 80HHC(1A). He also submitted that as far as the assessee is concerned, the export premium forms part of the export transaction between the assessee and the export houses and, therefore, it forms part of the export transaction and consequently, the income by way of export premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore critically examining the rival contentions of learned counsel for the appellants and the respondents, we deem it appropriate to refer to the provisions of section 80HHC of the Act: "80HHC. Deduction in respect of profits retained for export business.-(l) 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 this 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 to the extent of profits, referred to in sub-section (1B), 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 Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whereas, according to section 80HHC(1A), the supporting manufacturer shall be entitled to a deduction of profit derived by the assessee from the sale of goods or merchandise. The term "supporting manufacturer" has been defined in this section and it reads as under: "'supporting manufacturer' means a person being an Indian company or a person (other than a company) resident in India, manufacturing (including processing), goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export" : According to the said definition, the respondent clearly comes within the purview of supporting manufacturer. On plain construction of section 80HHC(1A) the assessee being supporting as manufacturer shall be entitled to a deduction of the profit derived by the assessee from the sale of goods or merchandise. The respondent-a supporting manufacturer sold the goods or merchandise to the export house and received the entire FOB value of the goods plus the export house premium of 2.25 per cent. of the FOB value. The relevant clause 12 of the agreement has already been extracted in the earlier part of the judgment and according to the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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