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TMI Blog2002 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee is engaged in processing and export of marine products. During the previous year relevant to the assessment year 1993-94, the appellant had an export turnover of Rs. 10,24,12,075. With respect to the assessment year 1994-95, the subject-matter of appeal in I.T.A. No. 5 of 1999, the export turnover was Rs. 25,65,69,887. The exports made by the assessee to the foreign buyers are routed through export houses. The nature of transaction was processing and shipment of the cargo by the assessee and endorsement of the bill of lading in favour of the export houses after the goods crossed the customs frontiers of India. In addition to the direct receipt from the importer outside India of the price as per contract described as f.o.b. value, the assessee received an additional amount called premium or incentive, etc., varying from 3 to 5.5 per cent. in the course of export itself from the export houses through which the exports were routed. The amount thus received is described as incentive received from the export houses. The other agreements subject matter of I.T.A. No. 5 of 1999 employs the same phraseology. The assessee submits that the assessee has not rendered any service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (baa) of the Explanation was the Tribunal justified in invoking the provisions of section 80AB which are general principles as distinct from the special provisions contained in section 80HHC? (d) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in relying upon the decision in CIT v. V.T. Joseph [1997] 225 ITR 731 (Ker), which dealt with different provisions for a different assessment year and even if it was right, should not the Tribunal have followed the later decision of this court in CIT v. A.V. Thomas and Co. Ltd. [1997] 225 ITR 29 and allowed the claim? (e) Whether, on the facts and circumstances of the case, was the Tribunal justified in holding that the premium received from the export houses is brokerage or commission or charges or any other receipt of a similar nature qualified for disallowance under Explanation (baa) of sub-section (4A) of section 80HHC? (f) Whether, on the facts and in the circumstances of the case, whether the Tribunal was justified in law in holding that 90 per cent. of the receipts from the export houses are deductible from the business profits determined under clause (baa) of the Explanation to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Tribunal is right in law in holding that 90 per cent. of the export house premium cannot be deducted while computing the deduction under section 80HHC in accordance with the Explanation (baa) to section 80HHC as they are directly related to exports though a local receipt? 2. Whether, on the facts and in the circumstances of the case and in the light of the relevant provisions, the Tribunal is right in law and facts in arriving at the conclusion reached?" Now, the question raised for consideration is largely on the interpretation to be placed to the expression "premium" or "service charge" found in the agreement. At the outset the following facts may be taken as admitted: (a) The premium in question did not form part of the turnover, and (b) The premium in question was a part of the profits of the business under clause (baa) to section 80HHC(4A). There were no appeals nor cross-objections by the Department. Both these findings of the Commissioner of Income-tax (Appeals) were in favour of the assessee as the inclusion in the profits and the exclusion from the turnover would result in a higher relief under section 80HHC than otherwise. The argument of the assessee as adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and above the f.o.b. value of the merchandise. The claim of the assessee is that he being a supporting manufacturer for the purpose of computing profits of the business of the assessee the amount received by him in excess of the f.o.b. price referred to above cannot be treated as either brokerage, commission, interest, rent charges or any other receipt of a similar nature as described in section 80HHC(4B), Explanation (baa) of the Act. That provision reads: "'Profits of the business' means the profits of the business as computed under the head 'Profits and gains of business or profession' as reduced by- (1) ninety per cent. of any sum referred to in clause (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;..." Now the argument of Mr. Joseph Vellapally learned senior counsel for the assessee, is that the expression "premium" or "service charges", as the case may be, used in the document cannot described as a receipt of an amount similar to brokerage, commission, interest, rent, charges referred to in section 80HHC, Explanation (baa), extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in, as the consideration paid to the assignor by the assignee of a lease, or to the transferer by the transferee of shares of stock, etc. So stock is said to be 'at a premium' when its market price exceeds its nominal or face value. The excess of issue (or market) price over par value. See Par." But it is not useful to multiply the dictionary meanings and assess the intent of the given transaction. Our endeavour should be to understand the real intent of the parties entering into the transaction. What section 80HHC(4B) provides is that for the purposes of computing the total income under sub-section (1) or (1A) of that section every income not charged to tax under the Act shall be excluded. Explanation (baa) to the section defines what is meant by profits of the business. It means profits and gains of business or profession as reduced by ninety per cent. of brokerage, commission, interest, rent, charges, or "any other receipt of a similar nature included in such profits". Our enquiry is whether the premium or service charges as earned would come within the ambit of any of the clauses as mentioned above. The premium or the service charge earned is not a brokerage or interest or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es purchased by him as business deal. But where does his profit arise? This is provided in the following clause in the agreement, namely: "The benefits of income-tax under section 80HHC will be to the account of the processor/shipper. The export house agrees to give the necessary disclaimers. All other benefits available under the ITC policy for export houses will be to the account of the exporter." (Similar clause exists in all other transaction. Exporter referred to above is the exporter). Namely, the seller parts to the intermediary the import licence earned by him by virtue of the export of the goods which he sold to the intermediary. To put it differently, the charges in the nature of overheads incurred by the intermediary as also the premium paid by him to his seller is the price of the merchandise traded by him under the above clause. His merchandise is not merely the raw materials but his goodwill in the form of import permit. Is it not the income earned by the seller by his trade of marine products? The answer should be in the positive. On the date of settling of the deal between the seller and buyer, the credit of import permit is the concluded right acquired by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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