TMI Blog2010 (3) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... port of goods and payment thereof by the export buyer. The assessee further stated that commission was deducted from gross value of export invoices and only the net value after deducting the commission was received from foreign buyers as the evidence from Bank realization certificate. The assessee submits that copy of agreement signed for each of the foreign buyer s agent was obtained. The assessee submitted that there was no payment of export commission but same was reflected by way of deduction in this value and such export commission was paid only in respect of 29 invoices out of 163 invoices. The assessee stated that as per the Circular No.786, the C.B.D.T. clarifies that no part of foreign buyers agents commission income accrues or arises in India since it was usually remitted directly to him and therefore, not received by him or on his behalf in India and therefore was not liable to Income tax in India on such commission. The commission was paid for genuine business purposes and rate of commission has been well within the limits of permissible as laid down by the RBI such commission would not appear in the books of accounts of the assessee since it was directly made and payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cements held that assessee has failed to establish the exact nature of services provided by the commission agent and the actual payment to the said agent and therefore, the A.O. disallowed the foreign agent commission expenses of ₹ 59,27,941/- on this account. 3.. The matter carried to the CIT (A) and the CIT(A) has allowed the claim by observing as under :- I have considered the submission and gone through the various documents furnished by the Ld. AR. It is seen that the appellant has claimed to have allowed commission to the foreign buyers by way of deduction from the Invoice Value and the export invoice has been raised for only the net amount after deducting foreign buyers agent commission. The AO has rejected the book results on the ground that gross amount of export sales has not been credited to the P L account and it is only the net amount which is reflected in the accounts. However, as per the Explanation-(b) to section 80HHC the term export turn over means the sale proceeds received in, or brought into India by the assessee in convertible foreign exchange in accordance with clause- (a) of sub-section-2 of any goods or merchandise to which the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Further, the AO s observation that prospect of selling goods to a buyer in Singapore through an agent based in Dubai is also misplaced, since in today s world, conducting business anywhere in the world is possible through any person since the orders are placed through Internet and other modern facilities. It is also important to note that the agent who facilitated the export sale to Singapore is the same Hatta Fort Trading Co., in Dubai, who has also furnished confirmation of having received such commission. The A.O. has also relied on the fact that the said foreign agent, as per his Website deals in Mens Boys Clothing and therefore, his being an agent for Art Silk is doubtful but this fact is also not based on correct appreciation of the functions of a foreign agent. Since he is dealing in such line of business as clothing, he would be having sufficient contacts in the foreign markets to facilitate sale of Art Silk also. It is also important to note that the appellant has claimed payment of commission in respect of only 29 invoices out of a total of 163 invoices and had the intention of the appellant been to defraud the revenue, he could have claimed commission in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned the rate of commission at 10% on invoice, then the foreign buyer has remitted only ₹ 90/- to the exporter and has as claimed the balance ₹ 10/- to the agent on behalf of the exporter. In other words, the foreign buyer has facilitated the Indian exporter by paying the agency commission on behalf of it. However, this practice has not been reflected in the books of assessee exporter. in Profit and loss account. When the Profit and loss account has been examined it was found that there was no expenditure debited to the accounts related to agency commission. At the same time it has been observed from the trading account that sales have been taken on the net basis. Thus, foreign buyer s agent commission is an expenditure incurred by the exporter assessee but paid by the foreign buyer on behalf of the exporter assessee. Consequently, the assessee was requested to establish the genuineness and business nexus of claim agency expenditure as mandated under section 37 of the Act and also to prove that any service has been rendered by the agent to the business of the assessee-firm. However, assessee grossly failed to establish the requirements of section 37 and grossly that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conclusion finding on each of the accretion raised by the department. The issue of disallowance of foreign buyer s agent commission duly supported or covered by the decision of jurisdictional Bench of ITAT. Therefore, the same needs to be followed in the interest of judicial pronouncement and hence the present appeal of the department needs to be dismissed. 7. The learned A.R,. submitted that during the year under consideration, the assessee has made total export of ₹ 31,65,05,218/- while out of 163 total invoices in only 29 invoices commission has been allowed by the assessee. The total commission allowed is around 10% which amounts to ₹ 59,27,941/- in respect of 29 invoices and the same is worked out to 1.87% of total export turnover and thus, this proves the bona fide of the assessee. During the course of assessment proceedings assessee has submitted the complete invoice-wise details giving the names and address of the agent, copy of the sales contract with the foreign buyers agent showing the passing of commission @ 10%, ciopy of Bank realization certificate from Authorized Dealer, confirmation of foreign buyer s agent. Thus, it can be seen that assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the commissions are to be paid by them directly to the agents in the countries of import. It is also a fact on record that the assessee has received the net amount only as export proceeds by way of convertible foreign exchange. All these matters have been certified by the bankers of the assessee. All the matters are well within the law regulated by the RBI for the purpose of export of goods outside India. In such circumstances, the simply fact that emerges out of the maze of arguments is that as far as the assessee is concerned, his export sales turnover is the net amount of the export invoice issued by him. It is not proper to treat the gross invoice amount as the export sales turnover of the assessee. In fact, in the situation of the case, as stated in the above paragraph, it is to be seen that the export sale proceeds received by the assessee was net amount alone and not the gross amount. It is also to be seen that the foreign buyer is not bound to pay to the assessee the amount covered by the commission or discount at any future date. Therefore, the right/claim of the assessee in respect of the export sales was to received only the net invoice amount and nothing more. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without much discussion and deliberation that the Revenue has no case to hold the assessee responsible for an additional income of ₹ 1,42,31,458/-. The said addition is accordingly deleted. 9. We similarly in ITA.No.4330-4331/Ahd/2007 ITA No.4552/Ahd/07 wherein the Tribunal has allowed the claim of the assessee by observing as under :- The lower authorities have noted that most of the so-called confirmations are on paper and does not bear the letter head of the said buyers. This is partly correct because plain paper confirmation was in reference to one party Mohmed Abdula of Dubai i.e. at assessee s paper book page No.609 which is on plain paper. However, in such situation the AO ought to have made inquiry if he has any doubt in this regard. But he simply concluded that it is on a plain paper and did not believe the aforesaid commission payment particularly when assessee is having supporting evidence in reference to the confirmation of the sales invoices, exchange control copy of shipping bills and bank realization evidence. 10. We find that similar issue had arisen before the Ahmedabad Truibunal and Tribunal after considering the various decisions has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versy is squarely and purely covered in favour of the assessee by the decision in the case of Supreme Court and in the case of ITAT (Spl. Bench) (Mumbai) in the case of Topman Exports vs. ITO (2009) 125 TTJ-289 (Mum) (Spl.Bench), the learned A.R. submitted that Special Bench has categorically held that entire amount received in sale of DEPB entitlement is not profit chargeable u/s.28(iiid) of the Act but the difference between face value of the DEPB and sale proceeds is profit on sale of DEPB which alone has to be deducted from the profit of the business for computing the deduction u/s. 80HHC. The Ld. AR submitted that assessee has reduced the entire sale proceeds from DEPB from profit of the business by treating it as a direct cost of goods exported and thereby has completely denied the deduction u/s.80HHC to the assessee since the profit worked out to a negative figure. In the case of assessee there is a loss of sale of shares DEPB license excluding from profit of business by treating it as a direct cost for the purpose of computing the deduction u/s. 80HHC of the Act. Therefore, the assessee s claim may be allowed. 13. On the other hand, the learned DR relied upon the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for interpretation with the aid of some external aids of construction of a section arises only when there is some ambiguity in the language of section and the intention of the legislature is not properly conveyed with the words so used. It has been held by the Hon'ble Supreme Court in numerous judgments including the case of Federation of Andhra Pradesh Chambers of Commerce Industry Ors Etc. Vs State of Andhra Pradesh Ors. Etc. Etc. (2001) 165 CTR (SC) 672 (2001) 247 ITR 36 (SC) that the taxing statute has to be strictly construed and nothing can be read in it. Identical view has been taken in the case of Padmasundara Rao (Decd.) Ors. Vs. State of Tamil Nadu Ors (2002) 176 CTR (SC) 104 : (2002) 255 ITR 147 (SC) holding that while interpreting a statute legislative intention must be found in the words used by the legislature . In the like manner it has been reiterated in the case of Commr. Of Agrl, IT vs. Plantation Corporation of Kerala Ltd. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC) that : So long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible . 46. Coming b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First, there should be transfer of the DEPB and second, such transfer should result into any profit. Unless both the conditions are cumulatively satisfied, the transaction cannot form part of section 28 (iiid). 47. This leaves us with the determination of the meaning of the word 'profit'. In common dialect the word profit' refers to excess of sale proceeds over the cost of goods. The word profit' has another shade also, which involves a comparison between the state of business at two specific dates and the excess of the value of asset on one date over the other, constitutes profit. Their Lordships of the Hon'ble Supreme Court in E.D. Sassoon Company (supra) has laid down to this effect. The word 'profits' has in my opinion a well defined legal meaning, and this meaning considers with the fundamental conception of profits in general parlance although in mercantile phraseology the word may at lime bear meanings indicated by the special context which deviate in some respects from this fundamental signification. 'Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval year. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 100 and subsequently when DEPB is sold for ₹ 110, the entire sale consideration of ₹ 110 shall stand included u/s 28(iiid) resulting into total income of ₹ 210 on account of the transaction of DEPB, as against, the real income only to the tune of ₹ 110. .. .. 53. From the above it can be noted that DEPB credit sale is different from the premium on the DEPB and such profit or the premium, is not export profit Since it does not arise out of export activity or import activity and arises because of trading in a License which has a premium in the marker such premium or profit cannot to be counted as exempted export profit and should be added back as taxable profit. The speech of the Finance Minister, as extracted above, divulges the intention of the scope of section 28(iiid) as covering only the premium on sale of DEPB and not the face value. . . 72. Reverting to the main question posted before this special bench for consideration as to whether the entire amount received on sale of DEPB entitlements represents profit chargeable u/s 28 (iiid) or some artificial cost is to be interpolated, we find that the relevance of this questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c contention of reduction of the DEPB value from the purchases and also the arguments by the ld. AR towards the reduction of the face value of DEPB from the purchase cost on the strength of certain decisions rendered in the framework of section 80IB, lose their relevance in the present context of section 80HHC and hence need not be examined. 73. If the intention of the legislature had been to allow the reduction of the face value of DEPB from the cost of purchases, as has been, contended before us, then there was no need to have clauses (iiia) to (iiie) of section 28 and also the first to fifth provisos to section 80HHC(3) along with the necessary ingredients of Explanation below section 80HHC(4C). We have held that the face value of DEPB under the scheme of the Income-tax Act, 1961 falls under section 28(iiib) and the profit element t on the sale of DEPB, that is the excess of sale proceeds over the face value of DEPB falls u/s 28(iiid). 'Profits of business' as per Explanation (baa) provides for the Exclusion of ninety per cent of any sum referred to in section 28(iiia to iiie). Then first proviso to sub-section (3) states that the profits computed under clauses (a) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual business profit, the former amount, in no case can be higher than the later. We find that the logic behind introducing clauses (iiia) to (iiie) to section 28 is to de link the export incentives from the business profits while continuing them to be governed by Chapter IV-D at the same time. The natural outcome following the prescription of clauses (iiia) to (iiic) of section 28 along with section 80HHC(3) is that all the export incentives including the DEPB and DFRC etc. be considered as separate business income and not to reduce them from the cost of purchases. 75. We will now endeavor to evaluate the stand point of the AO from another angle that the entire amount of sale proceeds is covered under clause (iiid) and; not only the profit element. Continuing with the above example, where we supposed that the exporter made export turnover of ₹ 1000/- and he earned ₹ 200/- from the export transaction in addition to ₹ 100/- towards the face value of DEPB. The amount of profits derived from exports shall come at ₹ 300 as per clause (baa) of Explanation below 80HHC(4C) read with sub-section (3) including the first proviso. Further suppose that the said D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird and fourth provisos are applicable to the case of the assessee having export turnover exceeding rupees ten crores in which case the profit computed under clause (a) or clause (b) or clause (c) of sub section (3) or after giving effect to the first proviso, shall be further increased by the amount which bears 90% of any sum referred to in section 28(iiid) or (iiie) in proportion to the export turnover to the total turnover only if the further two conditions stipulated therein are fulfilled and also the assessee has suffered evidence to prove the fulfillment of such conditions. It is this category of exporters which has been statutorily discriminated vis a vis the small exporters having turnover not exceeding ₹ 10 crores. They shall not be entitled to increase in the quantum of deduction by profit at transfer of DEPB/DFRS which is otherwise available to small exporters, unless the two conditions as set out in these provisos are fulfilled. In the cases under consideration it is an admitted position that the two conditions as so specified in third and, fourth provisos are not capable of compliance and hence the further increase as suggested in these two provisos cannot be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts for the determination of the quantum of deduction u/s 80HHC, as discussed above, are not available on record, we, therefore, set aside the impugned orders and direct the AO to compute the amount of relief in accordance with the view expressed by us here in above. 12. Respectfully following the above judgment of the Tribunal, we hold that profit element on DEPB licence will be covered by section 28(iiid) and, accordingly, by third proviso to section 80HHC(3) of the I.T. Act, 1961 as the turnover of the assessee exceeds ₹ 10 crores This amount shall be excluded for the purpose of computing deduction u/s.80HHC of the I.T. Act, 1961, if condition laid down in that proviso are not satisfied . The face value of the DEPB licence will be covered u/s.28(iiib) of the I.T. Act, 1961 and, therefore, 90% thereof would be added to the export profits as per first proviso to section 80HHC(3) of the I.T. Act, 1961. 15. We respectfully following the same, we restore this issue to the file of A.O. to decide as per the above decision of Special Bench and A.O. is directed accordingly to recalculate the DEPB entitlement. In the result, the appeal is allowed for statistical purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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