High Court affirms deduction for dealer selling to foreign tourists under Income Tax Act

The High Court ruled in favor of the respondent-assessee, a dealer of jewellery and handicrafts, in a case concerning the interpretation of section 80HHC of the Income Tax Act. The court held that counter sales to foreign tourists against convertible foreign exchange in India are eligible for deduction under section 80HHC, even without proof of clearance at any Customs Station. The court emphasized that the Sale To Foreign Tourists Voucher provided by the assessee was sufficient proof of export out of India, aligning with Supreme Court precedent and decisions of other High Courts. The Income Tax Appeal was dismissed, affirming the assessee's eligibility for the deduction.

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Issues:
1. Interpretation of section 80HHC of the Income Tax Act regarding deduction for counter sales to foreign tourists.
2. Requirement of proof of clearance at Customs Station for claiming exemption under section 80HHC.

Analysis:

1. The main issue in this case revolved around the interpretation of section 80HHC of the Income Tax Act concerning the deduction for counter sales to foreign tourists. The Assessing Officer had disallowed the deduction under section 80HHC for the respondent-assessee, a dealer of jewellery and handicrafts, on the basis that proof of clearance of goods at the Customs Station was not provided, despite the goods being sold to foreign tourists against convertible foreign exchange in India.

2. The High Court referred to the decision of the Supreme Court in CIT vs. Silver & Arts Palace, where it was held that counter sales to foreign tourists against convertible foreign exchange in India are eligible for deduction under section 80HHC. The court also cited various decisions of the Rajasthan High Court and the Allahabad High Court that supported this view, emphasizing that the proof of clearance at any Customs Station was not a prerequisite for claiming the exemption under section 80HHC.

3. The court highlighted that the language of Explanation (aa) of sub-section (4C) of section 80HHC excludes transactions not involving clearance at any Customs Station. The court reasoned that the Sale To Foreign Tourists Voucher provided by the assessee, containing details of the customer, passport number, and declaration of not gifting or selling in India, was sufficient proof of export out of India. The court clarified that the Explanation (aa) does not require proof of clearance at a Customs Station and should be interpreted as a rule of exclusion rather than a rule of evidence.

4. Ultimately, the court held that the facts of the case aligned with the precedent set by the Supreme Court and the consistent decisions of the Rajasthan High Court, leading to a decision in favor of the assessee and against the Income Tax Department. The court dismissed the Income Tax Appeal, affirming the eligibility of the assessee for the deduction under section 80HHC for counter sales to foreign tourists without the requirement of proof of clearance at a Customs Station.

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