TMI Blog2005 (7) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... rage, commission charges or any other receipts of similar nature" contemplated under sub-clause (i) of clause (baa) of the Explanation to section 80HHC(4A) of the Income-tax Act, 1961 is the question that has come up for consideration in these cases. I.T.A. No. 140 of 2001 arises out of the order passed in I.T.A. No. 152/Coch/1999 dated March 30, 2001 by the Income-tax Appellate Tribunal, Cochin Bench. Income-tax Appeal No. 62 of 2001 arises out of the order passed in I.T.A. No. 183/Coch/2000 dated December 7, 2000, and Income-tax Appeal No. 320 of 2002 arises out of the order passed in I.T.A. No. 233/Coch/1996. Common issues arise for consideration in all these cases and hence we are disposing of the same by a common judgment. The assessee in I.T.A. No. 140 of 2001 claimed deduction under section 80HHC(3A) of the Income-tax Act at the assessment stage and the Assessing Officer excluded 90 per cent. of the export house premium from the business profits on the ground that export house premium has nothing to do with the exports effected by the assessee. Aggrieved by the said order the assessee preferred appeal before the Commissioner of Income-tax (Appeals). The Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said argument. Agreements executed by the assessee with the Export Houses were perused by the assessing authority and the assessing authority held as follows: "It has been described in all these agreements that the assessee shall be paid over and above the FOB value of the goods exported a specified percentage of the FOB value by way of incentive, service charges, commission, etc. It has been specifically mentioned that these amounts will be paid by the Export House and will be in Indian currency. In short, these amounts are not obtained from the importers of the marine products. That clearly suggests that these amounts, generally known as export house premium, have nothing to do with the exports effected by the assessee. In fact, the Export Houses pay this amount to attract exporters like the assessee to export through their Export House. Since the Export Houses stand to gain materially from increasing the export turnover through them, they are offering these amounts to exporters as additional attractions. Definitely, therefore, these amounts have the characteristics of 'miscellaneous income' only. Therefore, while calculating profits of the business, 90 per cent. of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that if the export premium does not come under profits of the business as defined in clause (baa), then there is no question of claiming any deduction under section 80HHC on export house premium. Counsel in support of the contention placed reliance on the decision in IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 (SC). Counsel also placed reliance on the decisions in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC) and Salem Co-operative Central Bank Ltd. v. CIT [1993] 201 ITR 697 (SC) and submitted that the Revenue may be permitted to contend that there is no question of exclusion of 10 per cent. export premium as ordered by the Tribunal. Counsel submitted that the assessing authority should have excluded 100 per cent. of the export premium in computing the profits of the business under section 80HHC and the allowance for expenditure to the extent of 10 per cent. was not justified. Being a question of law, counsel submitted that if a mistake has been committed by the Revenue, the same could be set at rest holding that exclusion of 10 per cent. is on an erroneous understanding of the law. Senior counsel appearing for the assessee, Sri P.K. Kurian, fully supported the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with clause (b) of sub-section (3) of section 80HHC. Under sub-clause (c) where the export out of India is of goods or merchandise, manufactured or processed by the assessee and of trading goods, the profits derived from such export shall in respect of goods or merchandise manufactured 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. The assessee in this case is a supporting manufacturer. Sub-section (1A) of section 80HHC says that where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), 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 of the profits derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess' means the profits of the business as computed under the head 'Profits and gains of business or profession' as reduced by- (i) ninety per cent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India." On going through the above-mentioned definition, export house premium does not come within the ambit of the definition. The assessee has executed various agreements with the exporter for exporting goods to foreign countries. The agreements prescribed that the assessee-manufacturer would export the goods after incurring all the expenses and the bills would be drawn in the name of the Export House. The agreements stipulated that the assessee should be paid over and above the FOB value of goods exported a specified percentage of the FOB value by way of incentive, commission charges, etc. This amount would be paid by the Export House to the assessee in Indian currency. The Export House on receipt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue has made a mistake in allowing deduction of 10 per cent. and the assessing authority ought to have disallowed the entire export house premium. Even if no appeal is filed by the Revenue before the Tribunal on the question of law it can raise it before the High Court or else the court would be carried away by the erroneous question of law which would not be in the interest of justice. Being a pure question of law, we permitted counsel to raise the same though not raised before the Tribunal. Counsel submitted that the sale effected by the supporting manufacturer to the Export House is undoubtedly the business of the supporting manufacturer. Counsel also submitted that the export house premium does not figure in the disclaimer certificate obtained by the assessee from the Export House in terms of section 80HHC(1A). The certificate is to be obtained in Form No. 10CCAB of the Income-tax Rules. The certificate has to mention the export turnover in rupees in respect of which the certificate is issued and also the figure of purchase from the supporting manufacturer in rupees. It is trite that the entitlement of premium is to the Export House and to the extent of disclaimer alon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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