TMI Blog2002 (3) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... centives as would be available to an exporter." The additional ground of appeal is admitted after hearing both the parties. 3. The brief facts of the case as gathered from the record are as follows. The assessee is a Government of India undertaking and it derives its income from mining and sale of iron ore, etc. The iron ore is exported by the assessee through another Government of India undertaking, i.e., Mineral and Metal Trading Corporation (hereinafter called MMTC for short), which is a canalising agency and a star trading house. In the previous year ending 31st March, 1992, relevant to the asst. yr. 1992-93, the appellant filed its return of income declaring an income of Rs. 46,01,62,610.10 after making claim for deduction under s. 80HHC at Rs. 91,25,13,634. The AO restricted the claim for deduction under s. 80HHC and completed the assessment at an income of Rs. 55,05,06,242. Similarly, for the asst. yr. 1993-94, the assessee filed a return of income declaring an income of Rs. 61,80,84,370 after making a claim for deduction under s. 80HHC at Rs. 53,46,47,779. The AO reduced the deduction admissible under s. 80HHC to Rs. 45,82,50,645 and completed the assessment by determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther elaborated by stating that the export house or trading house may disclaim the export benefit in favour of the supporting manufacturer by issuing a disclaimer certificate in Form 10CCAB. The supporting manufacturer can in place of the export house claim the deduction under s. 80HHC of the Act and the export house is barred from making such claim. He further submitted that the calculation of export benefit in the hands of the supporting manufacturer is to be made in terms of sub-s. (3A) of s. 80HHC by apportioning the profits as assessed under the head "profits and gains of business or profession" in the ratio of sales to export house to total turnover. He submitted that under the scheme of the section, there is no requirement for the supporting manufacturer to receive the sale proceeds in foreign currency as a condition precedent to the allowance of deduction under s. 80HHC of the Act. The conditions of that section, he submitted, are fulfilled when the supporting manufacturer makes the sale to the export house, which in turn in respect of the goods so sold realises the convertible foreign exchange. 6. He referred to the EXIM policy and specifically to para 173 of the EXIM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o account the export incentives. 8. He argued that in the case of a supporting manufacturer, any amount received by realisation of export benefits disclaimed by the trading house cannot be regarded as anything but part of consideration for the sale of goods. He submitted that the same are not in the nature of export benefits as described in ss. 28(iiia), (iiib) and (iiic) of the Act since the supporting manufacturer is not entitled to the same. 9. He submitted to this Bench, a decision of the Cochin Bench of the Tribunal in the case of United Marine Exports vs. Dy. CIT (ITA No. 183/Coch/2000, order dt. 7th Dec., 2000) reported in (2001) 115 Taxman 225 (Coch)(Mag), and claimed that the issue is squarely covered in favour of the assessee by this decision. He took the Bench through para 12 of that order and submitted that in that case it was held that the service charges/export premium received by the supporting manufacturer formed part of the profits sale to export house and total turnover of the supporting manufacturer. He argued that the Bench had observed, irrespective of the nomenclature given to the payment, the same had to be treated as forming part of the sale consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). He argued that REP licences are nothing but those referred to in s. 28(iiia) and that it cannot be otherwise. He referred to s. 28(iiia) and argued that the profit earned by the assessee is nothing but profit on sale of a licence granted under the EXIM policy. 11. He further argued that a plain reading of the provisions of s. 80HHC shows various other reasons as to why the premium on REP licences is distinct from consideration of goods exported. He submitted that s. 80HHC allows deduction on profits arising out of export of goods and merchandise, manufactured or processed by the assessee only. He vehemently contended that the premium on sale of REP licences is neither an export activity nor can REP licences be classified as goods or merchandise. He relied on the meaning of the word goods and meaning of the word merchandise as given in the Chambers Dictionary and submitted that REP licences do not fall within the meaning of both these terms. 12. He further argued that as per s. 80HHC(2)(a), the deduction is allowable only if convertible foreign exchange is received by the assessee from the export of such goods or merchandise. He submitted that the proceeds of transfer of REP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that since the export turnover does not include the export benefits under s. 28(iiia), (iiib) and (iiic) of the Act, the total turnover also excludes such benefits in order to making comparison as of like with like. He further submits that the realisation on account of export benefits in the hands of supporting manufacturer is part of the sale consideration of goods to the export house and that it does not answer the description of export benefits under s. 28(iiia), (iiib) and (iiic) of the IT Act. He, therefore, argued that the same cannot be excluded from the total turnover in the hands of the supporting manufacturer on the basis of the aforesaid definition. On the reference of the meaning of goods and merchandise from the Chambers Dictionary by the learned Departmental Representative, learned counsel for the assessee submitted that the deduction under s. 80HHC is available in respect of profits derived from export of goods or merchandise manufactured or processed by the assessee and the realisation of export benefits is a consideration for sale of goods and that it is not the case of the assessee that REP licences are goods or merchandise per se. He argued that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. On a careful consideration of the arguments of both the parties, we are of the considered opinion that the issue is clearly covered in favour of the assessee by a decision of the Cochin Bench of the Tribunal in ITA No. 183/Coch/2000, in the case of United Marine Exports vs. Dy. CIT. All the arguments of the learned Departmental Representative stand answered by the above decision, which is in consonance with another decision of the same Bench in ITA Nos. 47 48/Coch/1998, dt. 31st March, 2000, in the case of Baby Marine Exports vs. Asstt. CIT. The Tribunal in its order, in the case of United Marine Exports, at p. 19, paras 11 and 12, held as follows: "11. As the claim for deduction under s. 80HHC is made in the present case under the provisions of s. 80HHC in the capacity of the assessee as a supporting manufacturer, it is worth mentioning that the assessee is entitled for such deduction under s. 80HHC(1A) only in respect of the profits derived from the sale of goods or merchandise to the export house. As the AO has taken exception only to the amount of Rs. 47,29,541 and has otherwise allowed the claim of the assessee for deduction under s. 80HHC, it has to be assumed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s name and finding purchase orders. Clause (baa) refers to charges received and not charges paid. The Law Lexicon by P. Ramanathan Aiyar defines charge as follows: "Charge is the price required or demanded for services rendered, or less frequently for good supplied." A charge can be received for services rendered. The assessee, according to us, has only received the services from the export house and not rendered services to the export house. The only service rendered by the assessee is to have effected the sale of the goods/merchandise to the export house. For this service or sale the assessee has received consideration, which has been split up. A part of the consideration is called FOB value of the goods exported and the other part has been termed as incentive/service charges, etc. This has been done for certain reasons, which have been disclosed to us, like the facility of obtaining working capital from the export house and possibly for other reasons, which have not been mentioned to us, like possibly the avoidance of sales-tax. But, we are faced with a situation where the Department has no material at all to indicate that the assessee has rendered any service except the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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