TMI Blog2015 (12) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Government based on the agreement between the export house and the assessee, as a supporting manufacturer. So long as the export trading house transfers the export incentive accrued to its export turnover in the form of additional price to the supporting manufacturer pursuant to an agreement entered into between them, supported by sub-section (4A) of section 80HHC of the Income-tax Act, the Department cannot deny the benefit of deduction claimed under section 80HHC(1A) of the Income-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section does not spe cifically provided for the benefit under section 80HHC on export incentives to the supporting manufacturers as such incentives are normally received by the trading/export houses but in the present case the assessee-company being a supporting manufacturer 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 the appellant that it would lead to a situation where the ben efit will not accrue to anyone and such a situation will certainly defeat the meaning of the incentives which has been provided in section 80HHC. Thus, in view of the facts as brought out above and also keeping in view the decision of the Income-tax Appellate Tribunal Delhi Bench in the case of Eastern Leather Products (P.) Ltd., the Assessing Officer is dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturer 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 because again the same can be treated as part of the trading receipts in view of the agreement between the parties to hand over the export incentive to the supporting manufacturer. In this back ground, we are of the considered opinion that when deduction under section 80HHC can be allowed on export incentives to the supporting manufacturers only when such supporting manufacturer had received the same either in the form of trading receipt by way of increase in the sale price or by way of endorsement 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 before this court. 5. Heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured or processed by the assessee, be the amount which bears to the adjusted profits of the business, 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 bears to ninety per cent. of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other per son), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided further that in the case of an assessee having export turn over not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent. of- (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion 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) of sub-section (3) ; (c) 'adjusted total turnover' means the total turnover of the busi ness as reduced by the export turnover in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manufacturer. Sub-section (4A) of section 80HHC provides that deduction under sub-section (1A) would be admissible if the supporting manufacturer furnishes the certificate in the prescribed form along with the return of income. 9. In the instant case, the export house received export orders and the same was passed on to the assessee-company for execution. The assessee- company exported the goods directly to the foreign constituents, for which they received both payment and export incentives directly 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of the profit derived by the assessee from the export of the goods or merchandise. Whereas, according to section 80HHC(1A), the supporting manufac turer shall be entitled to a deduction of profit derived by the assessee from the sale of goods or merchandise. The term 'supporting man ufacturer' has been defined in this section and it reads as under : ' supporting manufacturer 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 deduction of the profit derived by the assessee from the sale of goods or merchandise. The respondent-a supporting manufacturer sold the goods or merchandise to the export house and received the entire FOB value of the goods plus the export house premium of 2.25 per cent. of the FOB value. The relevant cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HHC(1A), the respondent is clearly entitled to claim deduction of the premium amount received from the export house in computing the total income. The export house premium can be included in the business profit because it is an integral part of business operation of the respondent which consists of sale of goods by the respondent to the export house. The order of the Tribunal, which has been upheld by the High Court in the impugned judgment, is based on proper construction of section 80HHC of the Income-tax Act, 1961. The appeal filed by the appellant being devoid of any merit is accordingly dismissed. 13. Therefore, so long as the export trading house transfers the export incentive accrued to its export turnover in the form of additional price to the supporting manufacturer pursuant to an agreement entered into between them, supported by sub-section (4A) of section 80HHC of the Income-tax Act, the Department cannot deny the benefit of deduction claimed under section 80HHC(1A) of the Income-tax Act. 14. In the light of the above, we answer the question of law in favour of the assessee and against the Revenue. Accordingly, this tax case (appeal) stands dismissed. No costs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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