1996 (5) TMI 61 - HC - Income Tax

High Court clarifies Income-tax Act export provisions, emphasizing customs clearance importance.

The High Court of Allahabad upheld the constitutional validity of section 80HHC, Explanation (aa), of the Income-tax Act, 1961, noting its purpose to ... Deduction In Respect, Export Business, Special Deduction Issues involved: Challenge to the constitutional validity of section 80HHC, Explanation (aa), of the Income-tax Act, 1961.Judgment Summary:The High Court of Allahabad heard a petition challenging the constitutional validity of section 80HHC, Explanation (aa), of the Income-tax Act, 1961. The court noted that Explanation (aa) was inserted to address a loophole in the Act where goods purchased may not be exported but the benefit could still be claimed. The court found Explanation (aa) constitutionally valid as it aimed to plug this loophole, allowing the Legislature flexibility in fiscal statutes. The court emphasized that the Legislature has the authority to select items for taxation.Regarding the interpretation of Explanation (aa), the court clarified that for a transaction not to be considered an export out of India, two conditions must be met: the sale should not occur in India, and it should not involve customs clearance as defined in the Customs Act. If either condition is not satisfied, the transaction is deemed an export out of India. The court disagreed with the authorities' view that only clearance by the seller determines export status, emphasizing that the transaction itself must involve customs clearance.The court concluded that if goods need to be cleared through customs, whether by the purchaser or seller, it constitutes an export out of India. The petition was disposed of with these observations, providing clarity on the interpretation of section 80HHC, Explanation (aa) of the Income-tax Act, 1961.