2017 (8) TMI 735 - HC - Income Tax

High Court affirms Assessee's right to Section 80 HHC (1A) deduction, emphasizing legislative intent.

Commissioner of Income Tax Delhi-IX, New Delhi Versus M/s. Arya Exports & Industries

The High Court held that the Assessee was entitled to the deduction under Section 80 HHC (1A) for the relevant Assessment Year. The Court dismissed the ... Entitlement to deduction u/s 80 HHC - Export Trading House (‘ETH’) in question was not holding a valid THC - case of the Revenue that REIL did not have a valid THC on the date it issued the certificate to the Assessee in Form 10 CCAB, the Assessee cannot get the benefit under Section 80 HHC (1) read with (1A) - Held that:- There is a discernible distinction in the legislative scheme of Section 80 HHC between, the deduction that can be claimed by an exporter and the deduction that can be claimed by a supporting manufacturer. It appears to this Court that while the supporting manufacturer certainly has to fulfil the condition of a certificate having been issued by the exporter/export trading house to avail the benefit of a deduction from the turnover that has been made available to the supporting manufacturer, expressly in terms of Section 80 HHC (1A) of the Act, the said deduction does not hinge upon the eligibility of the exporter for the deduction under sub-section (1) of Section 80 HHC of the Act. A perusal of Form 10 CCAB clearly shows that there is a separate certificate to be issued in favour of the supporting manufacturer where the exporter makes a declaration that it has not claimed a deduction under Section 80 HHC (1). There is a counter verification by the Chartered Accountant of such a certificate. It is, therefore, clear that there is no double deduction claimed in respect of the export and this is consistent with the legislative intent of extending the benefit under Section 80HHC either to the exporter or to the supporting manufacturer and not to both. Even after the period for which the renewal of the THC was sought, REIL continued to be treated as an export house and that is plain from the facts that have emerged before the CIT(A) as well as the ITAT. For the aforementioned reasons, the Court is unable to accept the contention of the Revenue in the present case that if the exporter, i.e., REIL, is not entitled to a deduction under Section 80 HHC for the AY in question then, automatically, even the supporting manufacturer, i.e., the Assessee herein, would not be entitled to a deduction under Section 80 HHC as well.- Decided in favour of assessee. - Entitlement of Supporting Manufacturer to deduction - Held that:- On the question of REIL not having a valid THC and, therefore, not being in a position, at the relevant time, to issue any certificate to the Assessee in terms of the proviso to Section 80 HHC(1) of the Act, the Court concurs with the ITAT that REIL did file an application for renewal of its THC, which was pending before the relevant authorities for four long years and was pending even on the date of the assessment order. Therefore, the extant Exim Policy for the relevant period, which expressly states that during the interim period the trading house would be eligible to claim all the facilities and benefits, would come to rescue of the Exporter/REIL and, therefore, to the further benefit of the supporting manufacturer/Assessee as well. The benefit under Section 80 HHC was, therefore, available to REIL for the exports made during this period. However, REIL having issued the disclaimer, did not, in fact, claim the deduction. The mere non-grant of the renewal of the THC by the DGFT cannot deprive the Assessee as a supporting manufacturer for the deduction it is entitled to in terms of Section 80 HHC (1A) of the Act. - Decided in favour of assessee. Issues Involved:1. Entitlement of the Assessee to deduction under Section 80 HHC of the Income Tax Act, 1961.2. Validity of the Export Trading House Certificate (THC) of REIL and its impact on the Assessee's claim.3. Interpretation of Section 80 HHC (1) and (1A) regarding deductions for exporters and supporting manufacturers.4. Applicability of the Supreme Court decision in IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax.Issue-wise Detailed Analysis:1. Entitlement of the Assessee to Deduction under Section 80 HHC:The core issue was whether the Assessee was entitled to a deduction under Section 80 HHC of the Income Tax Act for the Assessment Year 1996-97. The Assessee had claimed a 100% deduction on the net profit shown in its Profit & Loss Account, based on the export turnover certified by REIL, an Export Trading House (ETH). The Assessing Officer (AO) rejected this claim, citing the absence of a valid THC for REIL during the relevant period. However, both the Commissioner of Income Tax (Appeals) [CIT (A)] and the Income Tax Appellate Tribunal (ITAT) upheld the Assessee's claim, emphasizing that the legislative intent and the spirit of the section should not deny the Assessee the benefit on mere technicalities.2. Validity of the Export Trading House Certificate (THC):The AO argued that REIL did not have a valid THC at the time it issued the certificate to the Assessee, as the application for renewal was filed late and the renewal certificate had not been received. The CIT (A) and ITAT, however, noted that REIL had applied for renewal and that the application was pending for four years without rejection. The extant Exim Policy allowed ETHs to claim benefits during the interim period of renewal application processing. Therefore, the non-receipt of the renewal certificate did not invalidate the Assessee's claim.3. Interpretation of Section 80 HHC (1) and (1A):Section 80 HHC (1) pertains to exporters, while Section 80 HHC (1A) applies to supporting manufacturers. The legislative scheme treats these two types of Assessees in mutually exclusive compartments. The supporting manufacturer can claim a deduction based on a certificate from the exporter, irrespective of the exporter's eligibility for deduction. The ITAT and the High Court emphasized that the Assessee, as a supporting manufacturer, fulfilled the conditions for deduction under Section 80 HHC (1A), and the deduction does not hinge on the exporter's eligibility.4. Applicability of the Supreme Court Decision in IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax:The Revenue relied on the Supreme Court's decision in IPCA Laboratory Ltd. to argue that if the exporter could not claim a deduction, the supporting manufacturer could not either. However, the High Court distinguished the present case, noting that IPCA Laboratory Ltd. dealt with an exporter, not a supporting manufacturer. The legislative scheme for supporting manufacturers under Section 80 HHC (1A) was not considered in that decision. Therefore, the observations in IPCA Laboratory Ltd. were not applicable to the Assessee's case.Conclusion:The High Court concluded that the Assessee was entitled to the deduction under Section 80 HHC (1A) for the Assessment Year in question. The appeal by the Revenue was dismissed, affirming the decisions of the CIT (A) and ITAT. The Court held that the legislative intent and the specific provisions for supporting manufacturers justified the Assessee's claim, despite the technical issues related to the validity of REIL's THC.