TMI Blog2003 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case and the 'profits of the business' under section 80HHC(4A) being the profits of the business as computed under the head 'Profits and gains of business or profession as reduced' and considering the limited scope of 'derived from', the assessee is entitled to any exemption on the export house premia?" Similarly, while admitting I.T.A. No. 251 of 2002 notice was ordered on the following questions of law for decision of this court: "(1) Whether, on the facts and in the circumstances of the case the assessee is entitled to any benefit on the export house premia? (2) Whether, on the facts and in the circumstances of the case and in the light of the Explanation (baa) to section 80HHC(4A) is not the exclusion of 90 per cent. of export premia in accordance with law? (3) Whether, on the facts and in the circumstances of the case and the profits of the business under section 80HHC(4A) being the profits of the business as computed under the head 'Profits and gains of business or profession as reduced' and considering the limited scope of 'derived from', the assessee is entitled to any exemption on the export house premia? (4) Whether, on the facts and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from the export houses cannot be excluded from the profits of the business. However, in the case of the respondent-assessee in I.T.A. No. 251 of 2002 the Commissioner of Income-tax (Appeals) herself had allowed the claim made by the assessee following an earlier decision of the Tribunal in I.T.A. No. 498/Coch of 1995 in the case of A.M. Moosa v. Asst. CIT. In the appeal filed by the Department the Tribunal confirmed the order of the first appellate authority by following its own decision in United Marine Exports' case [2000] KLJ (Tax Cases) 622 mentioned supra. We have heard Sri P.K.R. Menon, learned senior counsel (Government of India, Taxes), appearing for the appellants and Sri P. Balakrishnan and Sri M. Pathrose Mathai, learned counsel appearing for the respondents. The senior counsel for the appellant wanted to argue the matter very elaborately. Counsel for the respondents then submitted that the very question was considered by this court in the judgment dated April 4, 2002, in I.T.A. No. 4 of 1999 and connected cases in the case of Baby Marine (Eastern) Exports v. Asst. CIT [2003] 262 ITR 88 where it was held that the amount described as premium is part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri P. Balakrishnan, learned counsel appearing for the respondent-assessee in I.T.A. No. 166 of 2002 on the other hand submitted that the claim of the assessee for deduction under section 80HHC is not on the basis that the assessee is the exporter but only by virtue of the provision of section 80HHC(1A) and that so far as the assessee is concerned, the export premium forms part of the export deal between the assessee and the export houses and therefore so far as the assessee is concerned, it forms part of the export transaction and consequently the income by way of export premium is profit derived by the assessee from the export of such goods or merchandise. Counsel submitted that the Tribunal in the case of the assessee had found that the facts of the case are similar to the facts of United Marine Exports' case [2000] KLJ (Tax Cases) 622 and by following its earlier decision in that case held that the assessee had only received services from the export houses and the assessee had not rendered any service to the export house. Counsel further submitted that the Tribunal in its decision in United Marine Exports' case [2000] KLJ (Tax Cases) 622 had elaborately considered the argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of the business by applying clause (baa) of the Explanation to section 80HHC in the computation of deduction under section 80HHC of the Act. The assessees in both these cases had exported marine products through various export houses as per the agreements entered into between the assessees and the export houses. As per the agreement the assessees are entitled to get the f.o.b. value of the goods or merchandise exported in foreign exchange directly and in addition the assessee gets in Indian rupees the incentive referred to in the relevant agreement from the export house. Thus the consideration received by the assessee for routing the export of marine products through the export house are (i) the f.o.b. value of the export, and (ii) the export premium. According to the assessee it has not done any service to any export house except the services referred to in the relevant agreement with the concerned export houses and that too is the routing of the export through the concerned export house and attending to the modalities of the export as per the terms of the agreement. It is also their case that the export premium received will not fall under any of the items mentioned in cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed as premium is in fact part of the price settled by the assessee for sale of its merchandise and it is neither brokerage, commission, interest, rent, charges of any amount of similar nature. We find that the senior counsel for the Revenue had urged before the Division Bench in that case that the amount received by way of export premium is nothing but a consideration paid in excess of the price and it is not the price nor it would be part of the price as contended by the assessee. Further contention was that once the deal is struck and the purchaser agrees to pay the amount received as the f.o.b. price to the vendee any payment being made in excess of the price can be only a brokerage or commission or interest or charges which is referred in section 80HHC(4B), Explanation (baa) of the Act. The Division Bench considered the above contentions with reference to the meaning of the word "premium" in standard dictionaries and thereafter posed the question in paragraph 21 as follows: "Our enquiry is whether the premium or service charges as earned would come within the ambit of any of the clause as mentioned above." The Division Bench considered the question in paragraphs 22 to 27 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Can we treat the as the commission earned? 25. Buyer trades in the wares 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 transactions. Exporter referred to above is the exporter). 26. 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? 27. The answer should be in the positive. On the date of settling of the deal between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of the goods or merchandise. In such a situation there is no scope for applying the decision of the Supreme Court mentioned earlier, which drew a distinction between the expressions "derived by" and "attributable to". In the present case, as we already noted, on similar facts the Tribunal and this court had taken the view that export premium received by the assessee from the export houses are intimately connected with the sale consideration and that the premium really forms part of the price. The Division Bench in Baby Marine Exports' case [2003] 262 ITR 88 has clearly held that clause (baa) of the Explanation to section 80HHC is not attracted to the facts of that case. In these circumstances we agree with the Tribunal that clause (baa) of the Explanation to section 80HHC is not attracted to the facts of that case. In these circumstances we agree with the Tribunal that clause (baa) of the Explanation to section 80HHC of the Act has no application to export premium received by the assessee from the export houses. Respectfully following the Division Bench decisions in Baby Marine Exports' case [2003] 262 ITR 88 (Ker) we also hold that the income by way of export premium recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually be erroneous in law. Such a situation cannot certainly be countenanced. It would not be in the interest of law or justice. The Supreme Court also relied on its earlier decision in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589. In that case it was held that the High Court had jurisdiction to entertain the new contention raised by the assessee for the first time inasmuch as it was within the scope of the question framed by the Tribunal and was implicit therein. The senior counsel then relied on the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 IIR 84, which considered the scope of the expression "attributable to" and, "derived from" in the context of the provision of section 80E of the Act. The question involved in that case was as to whether the profits under section 41(2) of the Income-tax Act, 1961, arising from the sale of machinery and building should be taken into account while computing the deduction of 8 per cent. under section 80E(1) of the Act. The Supreme Court observed that, it cannot be disputed that the expression, "attributable to" is certainly wider in import than the expression "derived from" and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words 'derived from' in item 11AA(2) suggests that the original source of the product has to be found. Thus, a matter of plain English, when it is said that one word is derived from another, often in another language, what is meant is that the source of that word is another word, often in another language. As an illustration, the word 'democracy' is derived from the Greek word 'demos', the people, and most dictionaries will so state. That is the ordinary meaning of the words 'derived from' and there is no reason to depart from that ordinary meaning here." A Division Bench of this court in A.M. Moosa, Bharath Sea Foods v. CIT [1997] 224 ITR 735 was also concerned with relief under section 80HH and 80J of the Act and held that in order to claim special deductions under the said sections the profits should be relatable to the industrial undertaking and that profit or gain can be said to have been derived from an activity carried on by a person only if the said activity is an immediate and effective source of the said profit or gain. In the present case the assessees are getting the deduction not by virtue of the provision of section 80HHC(1) but only by virtue of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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