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Issues Involved:
1. Entitlement to deduction under section 80HHC for goods exported through Export Houses. 2. Applicability of the amended section 80HHC effective from 1-4-1986. Detailed Analysis: 1. Entitlement to Deduction Under Section 80HHC for Goods Exported Through Export Houses Background: The assessee, a registered firm engaged in the manufacture, production, processing, and export of marine products, claimed a deduction under section 80HHC amounting to Rs. 3,55,51,041 for the assessment year 1985-86. The Assessing Officer allowed only Rs. 17,02,904 for direct exports, denying the deduction for exports through Export Houses, arguing that the Export Houses were the actual exporters entitled to the deduction. Revenue's Arguments: - The agreement between the assessee and the Export House indicated that the export orders were procured by the Export House, and the convertible foreign exchange was receivable by the Export House, not the assessee. - The decision of the Delhi High Court in Ferro Alloys Corpn. Ltd. was overruled by the Supreme Court in Mineral & Metal Trading Corpn. - Circular No. 466 of the Board of Direct Taxes supported the view that the benefit should accrue to the Export House rather than the manufacturer/exporter. Assessee's Arguments: - Section 80HHC does not define 'exporter' or 'export turnover,' and the definition from other allied Acts should be used. - The assessee performed all export-related activities and was treated as the exporter by various authorities. - The decision in Mineral & Metal Trading Corpn.'s case was based on different facts, specifically the barter system, which was not applicable to the assessee. Tribunal's Analysis: - The modus operandi for the transactions in question was similar to the assessment year 1983-84, where the Tribunal had allowed the deduction. - The Supreme Court's decision in Mineral & Metal Trading Corpn.'s case was based on the barter system, which was not applicable to the assessee. - The contract between the assessee and the Export House indicated a tripartite nature involving the assessee, the Export House, and the foreign buyer. - The Tribunal concluded that the facts of the case before them were not similar to those in the Supreme Court case and thus, the ratio of the Supreme Court decision could not be applied. Decision: The Tribunal set aside the CIT (Appeals) order and restored the issue to the Assessing Officer with specific directions: - If the contract reserves the tax benefit for the assessee, the assessee is entitled to the deduction under section 80HHC. - If the contract is silent, the benefit should go to the assessee if the Export House files a disclaimer certificate. 2. Applicability of the Amended Section 80HHC Effective from 1-4-1986 Background: For the assessment year 1986-87, the provisions of section 80HHC were amended, and the issue was whether the assessee, engaged in both export and domestic sales, was entitled to the deduction. Revenue's Arguments: - The Tribunal had previously held that only assessees exclusively engaged in export business were entitled to the benefit under section 80HHC after the amendment. Tribunal's Analysis: - The Tribunal noted that the opinion expressed in the earlier decision regarding the amendment was a passing remark and not a binding precedent. - The amended section 80HHC provided benefits to both types of assessees-those exclusively engaged in export business and those with both export and domestic sales. - The Tribunal referred to sub-section (3) of section 80HHC, which defined 'profits derived from export' for both exclusive and non-exclusive export businesses. Decision: The Tribunal directed that if the assessee is found eligible for the section 80HHC benefit, the deduction must be computed based on the profits as defined in sub-section (3) of section 80HHC. The revenue's appeals for the assessment years 1985-86 and 1986-87 were treated as allowed for statistical purposes.
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