2011 (8) TMI 411 - HC - Income Tax

Appeal granted, Assessing Officer to review Section 80HHC deductions for export transactions.

The court allowed the appeal, overturning the lower authorities' decisions and instructing the Assessing Officer to evaluate the deductions claimed under ... Deduction u/s 80HHC - Whether sale of food and beverages to the foreign airlines amounts to export within the meaning of the Section 80HHC - receipt of amount in rupees by a hotel company out of repatriable funds - Held that:- transaction in question satisfies the conditions indicated in both the Explanations (a) and (aa) of section 80 HHC of the Act - Assessee entitled to get benefit u/s 80HHC. Issues Involved:1. Whether the supply of food and beverages to international airlines constitutes export of goods out of India for the purposes of Section 80HHC of the Income-tax Act, 1961.2. Whether the sale proceeds received for such supply qualify as convertible foreign exchange under Section 80HHC.3. Whether the assessee is entitled to the deduction claimed under Section 80HHC.Detailed Analysis:Issue 1: Export of GoodsThe primary issue was whether the supply of food and beverages to international airlines in sealed containers constitutes an export of goods out of India under Section 80HHC of the Income-tax Act, 1961. The court noted that the assessee complied with the conditions of Explanation (aa) to Section 80HHC, which states that a transaction involving clearance at any customs station is considered an export. The customs certificate confirming that the goods were cleared and escorted to international flights at the airport was critical in establishing compliance with this explanation.Issue 2: Convertible Foreign ExchangeThe second issue was whether the payment received in Indian rupees from foreign airlines could be considered as convertible foreign exchange. The court referred to Explanation (a) of Section 80HHC, which defines convertible foreign exchange as foreign exchange treated as such by the Reserve Bank of India. The court accepted the letter from the Reserve Bank of India, which confirmed that payments made in Indian rupees by foreign airlines and diplomats are treated as convertible foreign exchange under FEMA regulations. This evidence was uncontroverted by the Revenue.Issue 3: Entitlement to DeductionThe final issue was whether the assessee is entitled to the deduction claimed under Section 80HHC. Given the compliance with both Explanations (a) and (aa), the court found that the assessee met the necessary conditions for claiming the deduction. The court emphasized that the formalities under the Customs Act need not be fully complied with if the conditions under Section 80HHC are met. The court also dismissed the Revenue's argument regarding sales tax realization, stating that a mistake in treating the nature of the transaction does not preclude the assessee from claiming lawful deductions.ConclusionThe court allowed the appeal, setting aside the orders of the lower authorities and directing the Assessing Officer to consider the claim of deductions on merit. The court answered all formulated questions in the affirmative and against the Revenue, establishing that the transactions in question amounted to export out of India and qualified for deductions under Section 80HHC. The Assessing Officer was instructed to dispose of the claim within three months.Orders:1. The appeal is allowed.2. The orders of the authorities below are set aside.3. The Assessing Officer is directed to consider the claim of deductions under Section 80HHC on merit.4. The claim should be disposed of within three months.5. No order as to costs.