TMI Blog2008 (9) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2, the brief facts are that the assessee sold goods which were shipped on its order directly to Bangladesh procured from U.S.A. on which its claim for deduction under section 80HHC was disallowed as in the opinion of the Assessing Officer, for claiming deduction under section 80HHC, the exports necessarily had to be ex-India. Since the goods were not exported from India but were ordered to a USA party to supply the same directly to Bangladesh, it do not satisfy the criteria Export out of India contained in section 80HHC and hence deduction under section 80HHC was denied. 4. Before the learned CIT(A), it was submitted that the object of introducing deduction under section 80HHC was to give incentive to augment foreign exchange. The foremost consideration being augmentation of foreign exchange by exporting the goods, i.e. earning of the foreign exchange is the dominant factor. The export of goods on merchanting trade is approved by Ministry of Commerce under Foreign Trade (Development and Regulation) Act, 1962 (FTDRA - 92) and is also regulated by Reserve Bank of India. Since the assessee has complied with all the regulations applicable for such transaction such as FEMA and Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods or merchandise and to only those export to which this section applies, the deduction is to be granted. Bringing in foreign exchange is only one of the conditions but not the sole criteria. Since there is no export out of India of any goods or merchandise, deduction under section 80HHC is not allowable. Reliance was placed on the following decisions:- (1) Sanjeev Malhotra vs. CIT. 286 ITR 364 (Del); (2) Laxmi Industries vs. CIT, 250 ITR 616 (Raj.); and (3) Dhall Enterprised and Engineers P. Ltd. vs. CIT, 295 ITR 481 (Guj.). 6. The learned counsel for the assessee Shri Satish Aggarwal reiterated the submissions made before the Commissioner (Appeals), ft was submitted that clause (aa) of Explanation to section 80HHC only excludes sale in a shop, emporium situated in India not involving clearance at any custom stations defined in Customs Act, 1962 to be not part of Export out of India . Since there is no exclusion of direct exports from one country to another in the said Explanation, direct export shall be deemed to have included in the definition Export out of India . Thus even if there is no clearance at any custom station of such sale, the prohibition contained in defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the only or main criteria for allowing deduction under section 80HHC. The phrase Export out of India have been explained in clause (aa) of Explanation to section 80HHC of the Act as extracted hereunder:- (aa) export of India shall not include any transaction by way of sale or otherwise in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962). The above explanation only provides that sale in a shop, emporium etc. not involving clearance at any custom station as defined in Customs Act, 1962, is not to be included while computing Export out of India . However, this do not mean that all other transaction of safe wherever effected is to be considered as export out of India , For giving appropriate meaning to the phrase export out of India , we have to assign the meaning to the words Export and India . The word export is not defined under the Income-tax Act. The word India is defined in section 2(25A) extracted hereunder:- (25A) India means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment in exercise of power conferred under FTDR Act but argues that the definition given of the word export under the very FTDR Act should not be applied to ascertain the meaning of the work export . It is settled law that the rules or notification issued under the Act cannot override the provisions of the Act. The word export as defined in FTDR Act specifically mentions taking out of India any goods by land, sea or air. Thus unless and until the goods are taken out of India, it cannot be classified as an export. Even under the common parlance meaning, the meaning of the word export as given in Black's Law Dictionary is A product or service created in one country and transported to another . The Chamber's 20th Century Dictionary explains the meaning of word export as to carry or send out of a country, as goods in commerce , a commodity which is or may be sent from one country to another in a traffic Giving a dictionary meaning to the word export the pre-requisite is that the goods should be sent from one country to another. In the light of the above, unless the goods are sent from India, the same cannot be considered as export out of India as required u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. CIT, 207 CTR 729, the Tribunal has not mentioned as to how the said decision of Hon'ble Gujarat High Court which is directly on the issue should not be followed. The Tribunal in the operative portion of its order is silent on the ration laid down by the Hon'ble Gujarat High Court in the case of Dhall Enterprised and Engineers P.Ltd. (supra). The issue before the Hon'ble Gujarat High Court in the case of Dhall Enterprised and Engineers P.Ltd., (295 ITR 48) as that, Whether the assessee is entitled for deduction under section 8OHHC in respect of the goods which were purchased from some country and exported from that country to some other country ? Can it be said that it amounts to export and the assessee is entitled to deduction under section SOHHC of the Act? The Hon'ble Gujarat High Court after considering the provisions of section 8OHHC held as under:- Sub-section (1) and sub-section (3) of section 8OHHC make it clear that deduction under sub-section (1) will be available only in case of export of the goods or merchandise out of India, meaning thereby that the export should be from India and not from any other country. We, therefore, see no inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer under section 40(a)(i) of the Act. The assessee paid a sum of ₹ 41,55,712 under the head Technical service charges . An amount of ₹ 40,63,237 was paid to foreign companies and ₹ 92,475 was paid to Indian companies. However, the Assessing Officer disallowed the entire sum by invoking the provisions of section 40(a)(i) of the Act. To understand the controversy it is imperative to consider the business module of the company. The assessee is engaged in the manufacture and dealing of Testing and Measuring instruments and Precision Components. The assessee also purchases/imports Testing and Measuring instruments and allied products from various organizations situated outside India notably from Germany and sells them independently in India. The assessee had paid training fees debited under the head Technical Services on training of its personnel/customers outside India for educating them to explain to proposed buyers the salient features of the products imported by it in India/to impart training to the customers to use the equipment. During the course of assessment proceedings before the Assessing Officer it was submitted that in view of appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted shall not be allowed as deduction. Under Explanation (B) to section 40(a)(i), fees for technical services shall have the same meaning as in Explanation 2 to section 9(1)(vii) of the Act. Thus the pre-requisite for disallowance is that the amount paid should be in the nature of Fees for technical services and on which tax should be deductible. In the case of Parasrampuna Synthetics Ltd. (supra) ITAT Delhi Bench to which one of us (Accountant Member) was a party, held as under:- The term fees for technical services as per Explanation 2 to Section 194J means as defined in Explanation 2 below clause (vii) of subsection (1) of Section 9, extracted herein: For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient chargeable under the head salaries . Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophistical technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as technical service for the purpose of section 194J of the Act. In the present case, it is seen that there may be use of services of technically qualified persons to render the services but that itself do not bring the amount paid as fees for technical services within the meaning of Explanation 2 to Section 9(1)(vii). The amounts paid are towards annual maintenance contract of certain machinery or for converting POY into textured/twisted yarn. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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