TMI Blog2011 (10) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 - N. KUMAR AND RAVI MALIMATH, JJ. A. Shankar and M. Lava for the Appellant. M. Thirumalesh for the Respondent. JUDGMENT N. Kumar, J These appeals are preferred by the assessee challenging the order passed by the Tribunal which has held, to be eligible for the benefit under section 80HHC of the Income-tax Act, 1961, the foreign exchange is to be earned by exporting goods from India, otherwise, the assessee is not entitled to the benefit. As common questions of law is involved in all these appeals, they are taken up together and disposed of by this common order. 2. The assessee is the proprietor of M/s Maharaja Metal Industries Limited, Bangalore engaged in purchase and sale of non-ferrous metals, scraps, skimming ashes and drosses, chemicals and other commodities. The purchases are made from one country and exported to another country at a margin of profit by arranging direct shipment from the purchasing country to the selling country. The bills are settled through Bank of Baroda in India. The proceeds are received through convertible foreign currency and payments are also made in convertible foreign currency. The assessee is also maintaining the Excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter referring to the various judgments relied on behalf of the assessee, his contention was rejected on the ground that the transaction in this case is not in conformity with section 80HHC of the Income-tax Act. 6. According to the assessing authority, the word 'export' as per the Law Lexicon, Page 684, refers to taking out of goods which had become part and parcel of the mass of the property of the local area, and will not apply to goods in transit that is brought into the area for purposes of being transported out of it. Relying on the judgment of the Apex Court, in Central India Spg. Wvg. Manufacturing Co. Ltd., Express Mills v. Municipal Committee, Wardha AIR 1958 SC 341 it was held, when the goods of the assessees have not reached the Indian territory, it cannot be classified as export out of India. Therefore, according to the Assessing Officer, the word 'export' means to take out of the territories administered by any local Government to sea or to any foreign territories administrated by another local Government. The decisions on which reliance is placed by the assessee have totally ignored the expression in the section "export out of India of any goods or merchandise a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from South Korea and sold it to South Africa. The goods were not brought to India for the purpose of export out of India. Therefore, the basic requirement that the export must be out of India was not satisfied and therefore, they declined to interfere with the orders passed by the lower authorities and dismissed the appeal. Aggrieved by the said order, the assessees have preferred these appeals. 7. The substantial questions of law that arises for consideration are as follows: (1) Whether in the facts and circumstances of the case, the Tribunal was justified in law in holding that the appellant is not entitled to benefit of deduction under section 80HHC of the Act? (2) Whether the Tribunal was justified in law in holding that levy of interest under section 234B is valid in law under the facts and circumstances of the appellant case? 8. Shri Shankar, learned counsel appearing for the assessee contended that the whole object of enacting the said section 80HHC is to earn precious foreign exchange for the country. As on the date, this provision was enacted, the country was actually in need of foreign exchange. Whether the goods are exported from India or from any country outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 profit referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise: Provided... (1A) .. (1B) .. (2) .. (3) .. (3A) .. (4) .. (4A) .. (4B) .. Explanation.- For the purpose of this section, .... (a) .. (aa) "export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium of any other establishment situate in India, not involving clearance at any custom station as defined in Customs Act, 1962 (52 of 1962) (b) .. (ba) .. (c) .. (d) .." Explanation (2) to sub-section (2) of section 80HHC reads as under: "For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment of the assessee situated outside India, and such goods or the merchandise are sold from such branch office, warehouse or establishment, then such transfer shall be deemed to be export out of India of such goods and merchandise, and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act shall be deemed to be the sale proceeds thereof. This explanation is an explanation to sub-section (2). In sub-section (2)(a), it is made clear that all goods or merchandise other than those specified in clause (b), which are exported out of India, the sale proceeds in convertible foreign exchange is to be received or brought into India 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. Therefore, the law has prescribed a limit within which the sale proceeds in convertible foreign exchange is to be brought into this country. In the case of stock transfer from India to a place outside India where the assessee has a branch office, ware-house, or other establishment, if that date is taken into consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfied, it is an expert out of India. Hence, if the transaction involves clearance at customs, it will be an export out of India within the meaning of Explanation (aa)." 16. This judgment was considered by the Apex Court in the case of CIT v. Silver Arts Palace [2003] 259 ITR 684/129 Taxman 56 the Apex Court has held as under: "...The Allahabad High Court specifically considered the effect of introduction of Explanation (aa) to section 80HHC(4A) of the Act and had taken the view in Ram Babu Sons v. Union of India [1996] 222 ITR 606 that this Explanation means that for the purpose of this section, there will be no export out of India if two conditions are cumulatively fulfilled, viz., (a) it is a transaction by way of sale or otherwise in a shop, emporium or establishment situate in India, and (b) that it does not involve clearance in any customs station as defined in the Customs Act. This view of the Allahabad High Court had been consistently followed by several other High Courts, including the Rajasthan High Court itself in ITO v. Vaibhav Textiles [2002] 238 ITR 346. Reliance was placed on a number of orders of the Income-Tax Tribunal following the view taken in Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment year 1991-92 and subsequent years." 18. The Apex Court in the case of J.B. Boda Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271/[1996] 89 Taxman 311, while interpreting the section 80-O of the Act considered. The question whether the commission retained out of the gross premium payable in foreign exchange would be eligible for deduction under section 80-C. In that context, the Apex Court has held as under: .. "The appellant instead of remitting the entire amount to the foreign reinsurers and then receiving remittance from the said reinsurers the commission due to it, entered into an agreement with the foreign reinsurers, that while remitting the reinsurance premia, the appellant would retain the fee due to it for the technical services rendered and this arrangement is effected only with the concurrence or the permission of the Reserve Bank of India. The question in the instant case is, whether instead of remitting the amount to the foreign reinsurers first and receiving the commission due to the appellant later, the arrangement by which the appellant remitted the reinsurance premia, after retaining the fee due to it for technical services rendered will satisfy the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be ex-India. 20. The Apex Court in the case of CIT v. B. Suresh [2009] 313 ITR 149/178 Taxman 457, dealing with section 80HHC, has held as under:- "The basic requirement of section 80HHC is earning in foreign exchange and retention of profits for export business: Profits are embedded in the "income" earned. Earning of income depends on sale of goods and services. Today the difference between the two is getting blurred with globalisation and cross-examination border transaction. Today with technological advancement one has to change our thinking regarding concepts like goods, merchandise and articles." 21. In fact, the Mumbai Bench of the Income-tax Tribunal in SM Energy Tekniks Electronics Ltd. v. Dy. CIT [2006] 10 SOT 679, dealt with the very question which arises for consideration in this case. After carefully scrutinising the provision of law, various judgments and after noticing the judgments of the Apex Court, it is held that, ".. The direct shipment of goods to another country without touching base in India should not be an impediment to the assessee from claiming the benefits of s. 80-HHC, if it was otherwise entitled to do so. When third country trade is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported out of India. The provision does not require that the export should be from India. There need not be a two-way traffic of bringing the goods from a foreign country into the Indian shores and thereafter exporting that goods from Indian shores to the off-shore, because it is a mere empty formality and meaningless ritual in which the country gains nothing, because, if the goods have to be brought into the country, precious foreign exchange is wasted and when it is sold, though the assessees gets foreign exchange, it is only to compensate what he has already parted in purchasing and what really is the gain is the profit which he has earned. If that profit is brought to this country, the object of earning foreign exchange is achieved and then under section 80HHC he is entitled to the said benefit. 24. In that view of the matter, we are of the view that the authorities have not properly understood the object and intent of the Parliament in making these provisions and they have misread the section. Therefore, the impugned order passed by the three authorities is vitiated and cannot be sustained in law. The substantial questions of law are answered in favour of the assessee and ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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