2005 (7) TMI 65 - HC - Income Tax

Relief under section 80HHC - incentives received by the assessee - export turnover - foreign exchange realizations - 1. Whether the Tribunal was justified in law in holding that incentives received by the assessee are part of the export turnover and therefore entitled to relief under section 80HHC despite the foreign exchange realizations being nil? such amount has been paid by the Government to the applicant under the export promotion policy of the Government of India and therefore it will not form part of the export turnover and deduction under section 80HHC is not available on such portion of the income therefore it is held that the incentive received by the respondent-assessee shall not form part of the export turnover and therefore not entitled to relief under section 80HHC

Summary

Issues:
1. Interpretation of Section 80HHC of the Income-tax Act, 1961 regarding incentives received by the assessee.

Analysis:
The High Court of Allahabad was presented with the question of law whether the incentives received by the assessee should be considered part of the export turnover and thus qualify for relief under section 80HHC of the Income-tax Act, despite the absence of foreign exchange realizations. The case revolved around the assessment year 1988-89, where the Income-tax Officer initially rejected the deduction claim under section 80HHC due to the lack of exports during the relevant year and absence of foreign exchange earnings. The Commissioner of Income-tax (Appeals) reversed this decision, emphasizing that the incentives received were linked to exports from previous years and should be allowed as a deduction under section 80HHC.

The Revenue appealed this decision, arguing that cash incentives cannot be considered as profit derived from the export of goods, hence not qualifying for special deduction under section 80HHC. The court analyzed the provisions of section 80HHC, which allow deductions only in respect of profits derived from the export of goods or merchandise. The court referred to the Supreme Court judgment in CIT v. Sterling Foods [1999] 237 ITR 579, which emphasized the direct nexus required between profits and the industrial undertaking for the deduction. The court also cited the Delhi High Court case of CIT v. Ritesh Industries Ltd. [2005] 274 ITR 324, which held that duty drawback is not income derived from the industrial undertaking, aligning with the principles laid down in the Sterling Foods case.

The court further referenced its own decision in Khan International Exports P. Ltd. [2006] 280 ITR 165, where it was held that cash incentives, duty drawback, and premium entitlements received under the export promotion policy of the Government of India should not be included in the export turnover for the purpose of section 80HHC deduction. Consequently, the High Court of Allahabad concluded that the incentives received by the assessee did not form part of the export turnover and, therefore, were not entitled to relief under section 80HHC of the Income-tax Act.

In conclusion, the court answered the question referred to them in the negative, favoring the Revenue and ruling against the assessee. No costs were awarded in this judgment.