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2015 (12) TMI 1030 - MADRAS HIGH COURT

2015 (12) TMI 1030 - MADRAS HIGH COURT - [2015] 378 ITR 666 (Mad) - Deduction claimed under section 80HHC - whether the supporting manufacturer is entitled to seek the benefit of cash assistance (export incentive) granted by the Government exclusively to the export house or trading house in terms of sub-section (3) of section 80HHC of the Income-tax Act and if such incentive is passed on by the export house or trading house to the supporting manufacturer, whether such amount would be hit by the .....

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e only to the export trading house. But once the said amount stands transferred to the supporting manufacturer by the export house or trading house, it takes the colour of additional price and that is in relation to the agreement between the parties subject to issuance of certificate in terms of sub-section (4A) of section 80HHC of the Income-tax Act. In the instant case, the assessee had directly exported the goods to the foreign constituents and received the export incentives directly from the .....

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tax Act.

In the light of the above, we answer the question of law in favour of the assessee and against the Revenue. - Tax Case (Appeal) No. 355 of 2006. - Dated:- 14-7-2015 - R. SUDHAKAR and MS. K. B. K. VASUKI, JJ. Arun Kurien Joseph for T. Ravikumar, Standing Counsel for Income-tax, for the appellant. S. Sridhar for the respondent. JUDGMENT The judgment of the court was delivered by 1. R. Sudhakar J.-This tax case (appeal) filed by the Revenue as against the order of the Income-tax .....

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engaged in the business of export of marine food products as supporting manufacturer. The assess ment in this case relates to the assessment year 1994-95. During the assessment year in question, they claimed deduction under section 80HHC of the Income-tax Act as well as the export turnover with regard to the goods exported as a supporting manufacturer. The Assessing Officer, origi nally, completed the assessment allowing the total claim. Subsequently, the assessment was reopened since the Assess .....

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med under section 80HHC of the Income-tax Act. Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who allowed the appeal holding as follows : "2.2 I have considered the issue keeping in view the assessment order as well as the submissions of the appellant. In this connection, I find sufficient force in the submissions of the appellant that the com pany would be entitled to deduction under section 80HHC with regard to the export done as a .....

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rer has received the export incentives directly from the Government on the goods exported as per the orders received through the export house and the same have been assessed as income as per the provisions of section 28 of the Income-tax Act. Further, I find that the appellant had also sub mitted a disclaimer certificate from the export house before the Assessing Officer wherein it was shown that the incentives had not be claimed. Under these circumstances, I find sufficient force in the plea of .....

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export done as a supporting manu facturer." (emphasis supplied) 3. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), the Revenue has filed an appeal before the Tribunal. The Tribunal supported the view of the Commissioner of Income-tax (Appeals) and dismissed the appeal holding as follows : "5. The plain reading of the above provisions clearly shows that there is no proviso in sub-section (3A) providing for increase of the amount of profit by sums referred to in .....

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r would not be entitled to receive sums referred to in clauses (iiia), (iiib) and (iiic) of section 28, which comprises of profit on sale of licence granted under the Import Control Order, cash assistance received or receivable from the Government under any of the scheme of the Government of India and any duty or customs or excise which may be claimed and commonly known as duty draw back. Such incentives which is the common parlance known as export incentives can natu rally be claimed only by ac .....

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rofit arising has to be included in business profits and thus such supporting manufacturer becomes entitled to deduction under section 80HHC on such incentives by calling them simply trading receipts. If we view the same matter from another angle, i.e., if such export incentives are endorsed in favour of the supporting manufacturer by the export house, then he becomes entitled to receive the same from the Gov ernment authorities and to our mind deduction under section 80HHC has to be allowed bec .....

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of such incentives in his favour. In such a situation it cannot be said that no deduction under section 80HHC(3A) would be available to the supporting manufac turer because no proviso for the same is there in comparison to sec tion 80HHC(3) because the same partakes of the form of trading receipts. In view of these circumstances we find no reason to interfere with the order of the learned Commissioner of Income-tax (Appeals)." 4. Aggrieved by the order of the Tribunal, the Revenue is befor .....

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export house or trading house to the supporting manufacturer, whether such amount would be hit by the provisions of sub-section (3) of section 80HHC of the Income-tax Act. 7. Before going into the merits of the case, the relevant provision, namely, section 80HHC of the Income-tax Act needs to be seen : "80HHC. Deduction in respect of profits retained for export busi ness.- . . . (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandis .....

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has been issued by the Export House or Trading House . . . (3) For the purposes of sub-section (1),- (a) where the export out of India is of goods or merchandise manu factured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee ; (b) where the export out of India is of trading goo .....

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iness, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which be .....

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his sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turn over exceeding rupees ten crores during the previous year, the profits c .....

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drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme ; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitle ment Pass Book Scheme, being the Duty Remission Scheme : Provided also that in the case of an assessee having export turn over exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-sec tion or after g .....

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; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme. Explanation.-For the purposes of this clause, 'rate of credit allow able' means the rate of credit allowable under the Duty Free Replen ishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government : Provided also that in case the com .....

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on as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation.-For the purposes of this sub-section,- (a) 'adjusted export turnover' means the export turnover as reduced by the export turnover in respect of trading goods ; (b) 'adjusted profits of the business' means the profits of the busi ness as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b .....

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ds' means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by a sup porting manufacturer from the sale of goods or merchandise shall be,- (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the busi ness ; (b) in a case where the business carried on by the supporting manufacturer doe .....

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income,- (a) the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House ; and (b) a certificate from the Export House or Trading House con taining such particulars as may be prescribed and verified in the man ner prescribed that in respect of the export turnover .....

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itled to a deduction of profit derived by the assessee from the sale of goods or merchandise. Sub-section (3) of section 80HHC provides the manner in which the deduction should be arrived at and it also provides for increase of the amount of profit by sums referred to in clauses (iiia) (iiib) and (iiic) of section 28 of the Income-tax Act. However, similar provision is not available for the purpose of computation of profits in sub-section (3A) of section 80HHC in relation to the supporting manuf .....

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from the Government. Section 80HHC of the Income-tax Act does not specifically provide benefit to the supporting manufacturer on export incentives, which was normally received by the export house. In this case, the assessee, being a supporting manufacturer, had received the export incentives directly from the Government on the goods exported as per the orders received through the export house and the same had been assessed as income as per the provisions of section 28 of the Income-tax Act. The .....

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at the trading house, which is entitled to seek benefit under section 80HHC(1), passed on the benefit to the supporting manufacturer. 11. If the trading house is agreed to and in terms of the said agreement, they have passed on the additional price-export incentive, supported by the certificate in terms of sub-section (4A) of section 80HHC, then the requirement under sub-section (1A) of section 80HHC is satisfied by the supporting manufacturer. The incentives stated in section 28(iiia), (iiib) a .....

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s and received the export incentives directly from the Government based on the agreement between the export house and the assessee, as a supporting manufacturer. 12. The abovesaid view of ours is fortified by the decision of the Supreme Court in the case of CIT v. Baby Marine Exports reported in [2007] 290 ITR 323 (SC), wherein the Supreme Court has considered the similar claim of the supporting manufacturer under section 80HHC of the Income-tax Act and held as follows (page 334) : "Accordi .....

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urer" means a person being an Indian company or a person (other than a company) resident in India, manufacturing (including processing) goods or merchandise and sell ing 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 manu facturer. On plain construction of section 80HHC(1A) the assessee being supporting manufacturer shall be entitled to a deducti .....

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ncentive of 2.25 per cent. on the FOB value accord ing to the terms of the agreement. The respondent, a supporting manufacturer, admittedly sold the goods to the export house in respect of which the export house has issued a certificate under pro viso to sub-section (1). According to the section, the respondent- assessee, in computing the total income be allowed a deduction to the extent of profits referred to in sub-section (1B) derived by the asses see from the sale of goods to the export hous .....

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d on proper con struction of section 80HHC(1A) of the Income-tax Act that the export house premium is an integral part of the sale price realised by the assessee from the export house. We find no merit in the submission of the appellant that Indian currency could not be subject-matter of deduction under section 80HHC. The requirement of realising the sale proceeds of the goods or merchandise in convertible merchandise (sic-foreign exchange) is applicable only to the export house and a claim for .....

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