2011 (4) TMI 683 - HC - Income Tax

High Court: No deduction under sec 10B for delivery to foreign buyer's agent in India. Export criteria not met.

The High Court held that the appellant did not meet the criteria for claiming a deduction under section 10B of the Income-tax Act. The delivery of goods ... Meaning of Export for the purpose of ection 10B - The machinery was delivered to M/s. Chandra Proteco Ltd.on the express instructions of the foreign buyer, M/s. Proteco De Marino Ozino and C Sass, Italy (Proteco for short) and, therefore, it is deemed to be an export for the purpose of section 10B or not. Held that:- There will be no export out of India if two conditions are cumulatively fulfilled, (a) it is a transaction by way of sale or otherwise in a shop, emporium or establishment situate in India, and (b) that it does not involve clearance in any customs station as defined in the Customs Act. Decided against the Assessee. Issues Involved:1. Entitlement to claim deduction under section 10B of the Income-tax Act, 1961.2. Definition and interpretation of 'export' under the Income-tax Act and Customs Act.3. Applicability of deemed exports under the Income-tax Act.4. Relevance of Foreign Inward Remittance Certificate (FIRC) as proof of export.Issue-Wise Detailed Analysis:1. Entitlement to claim deduction under section 10B of the Income-tax Act, 1961:The appellant, engaged in manufacturing and assembling wire and cable drawing/manufacturing machines, claimed a deduction under section 10B of the Income-tax Act, asserting they are a 100% export-oriented unit (EOU). The Assessing Officer disallowed this deduction, noting the goods were delivered within India and not exported out of India. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld this decision, concluding that the appellant did not meet the conditions for deduction under section 10B, as the goods did not move out of India.2. Definition and interpretation of 'export' under the Income-tax Act and Customs Act:The term 'export' is defined under section 2(18) of the Customs Act, 1962, as 'taking out of India to a place outside India.' The procedure for exporting goods involves presenting a shipping bill and obtaining clearance from the customs officer. The Income-tax Act does not recognize 'deemed exports,' which are transactions treated as exports under other statutes but not involving actual movement of goods outside India.3. Applicability of deemed exports under the Income-tax Act:The Tribunal emphasized that 'deemed export' is not recognized by the Income-tax Act. The delivery of goods to an agent in India, even if intended for a foreign buyer, does not qualify as an export under section 10B. The Tribunal noted that for a transaction to be considered an export, it must involve clearance at a customs station, ensuring the goods are taken out of India.4. Relevance of Foreign Inward Remittance Certificate (FIRC) as proof of export:The appellant argued that the payment in convertible foreign exchange, evidenced by the FIRC, should be considered conclusive proof of export. However, the Tribunal and the High Court held that receipt of payment in foreign currency alone does not satisfy the conditions for claiming deduction under section 10B. Both the actual export of goods and receipt of payment in foreign exchange are required.Conclusion:The High Court concluded that the appellant did not fulfill the conditions for claiming deduction under section 10B. The delivery of goods within India, even to an agent of a foreign buyer, does not constitute an export. The appeal was dismissed, affirming the decisions of the lower authorities that the transaction did not qualify for the deduction under section 10B of the Income-tax Act. The Court emphasized that both the export of goods and receipt of payment in foreign exchange are necessary to claim the deduction.