2001 (1) TMI 78 - SC - Income Tax

Export House Prevails Over Manufacturer for Tax Deductions Under Section 80HHC

Sea Pearl Industries & Ors. Etc. Versus Commissioner Of Income-Tax

The High Court held that the appellant was not entitled to deductions under Section 80HHC of the Income Tax Act for exports done through an export house. ... Whether the appellant was an exporter for the purposes of s. 80HHC of the IT Act, 1961? Held that:- The logical consequence of the Tribunal's view would be that both the export house and the original manufacturer could claim to have exported the goods and be entitled to receive the foreign exchange, and both could consequently claim at different stages deductions under s. 80HHC in respect of the same amount---an outcome contrary to the language of the section itself. Thus we affirm the decision of the High Court answering the reference against the assessee and in favour of the Revenue. Against assessee. Issues Involved1. Whether the appellant was an exporter for the purposes of Section 80HHC of the Income Tax Act, 1961.2. Whether the appellant was entitled to deductions under Section 80HHC for exports done through an export house.Detailed Analysis1. Whether the appellant was an exporter for the purposes of Section 80HHC of the Income Tax Act, 1961.The appellant processed sea foods and exported some products directly to foreign buyers. However, it was not an eligible export house under the Import and Export Policy 1982-83 and could not avail of special facilities granted to eligible export houses. An agreement was made between the appellant and an export house where the appellant would export processed sea food in the name of the export house, enabling the export house to claim benefits under the Policy. The appellant would be paid 2.25% of the FOB value of the goods exported. The appellant completed all export formalities, but the shipment was on account of the export house. The letter of credit opened in favor of the export house was endorsed to the appellant, allowing it to claim all statutory privileges available to an exporter.The Tribunal initially allowed the appellant's claim for deduction under Section 80HHC, relying on the definition of 'export' in Section 2(18) of the Customs Act. However, the High Court reversed this decision, and the appellant's claim was rejected by the respondent.2. Whether the appellant was entitled to deductions under Section 80HHC for exports done through an export house.The appellant contended that it was entitled to the benefits of Section 80HHC because it had exported its products by selling them to the export house after the goods had crossed the customs barrier. The appellant provided various documents showing its name as the exporter, including export applications, certificates from the export inspection agency, shipping bills, and GR I forms issued by the Reserve Bank of India. The appellant argued that it was the real exporter, although the export house was shown as the exporter for the purposes of the Import Export Policy.The respondents argued that the appellant acted as an agent of the export house, with no privity of contract between the foreign buyer and the appellant. The letter of credit was in the name of the export house, and the appellant received a commission of 2.25% for the transaction. The respondents pointed out that the CBDT Circular No. 466 clarified that payments received from export houses by manufacturers whose goods were exported through export houses would not be included in the total income of the manufacturer without a certificate from the export house. In this case, no such certificate was provided, and the export house had claimed and been allowed deductions under Section 80HHC.Section 80HHC requires the assessee to export goods and the sale proceeds to be 'receivable' by the assessee in convertible foreign exchange. The appellant's argument centered on the agreement with the export house, which stated that the property in the goods would pass to the export house only after crossing the customs barrier. However, the court noted that the question of title or property in the goods was irrelevant to Section 80HHC. The section does not require the exporter to be the owner of the goods, and the definition of 'export' in the Customs Act does not include ownership.The court emphasized that the object of Section 80HHC is to grant an incentive to earners of foreign exchange. The transaction began with an agreement between the Californian buyer and the export house, not the appellant. The export house entered into an independent contract with the appellant, and the appellant was not a party to the initial contract. The shipment was made by the appellant on account of the export house, and the appellant was part of a declaration under the Policy that the export house was the exporter. The export house claimed and was allowed deductions under Section 80HHC, and the appellant could not now disclaim this position.The court referred to a similar case, Mineral & Metal Trading Corp. vs. R.C. Mishra, where it was held that MMTC was the exporter for the purposes of Section 280ZQ, despite Ferro-Alloys Corporation Ltd. exporting goods through MMTC. The court concluded that the phrase 'sale proceeds receivable by the assessee' in Section 80HHC could not be construed to mean 'sale proceeds ultimately received'. The foreign exchange was receivable by the export house, and any internal arrangement between the export house and the appellant did not make the appellant the exporter.The court also noted that different statutes confer benefits and obligations on an exporter, but none allow more than one person to claim the benefit or be subjected to the obligation. The Import and Export Policy and the CBDT Circular No. 466 indicate that only one party can claim the benefits of export, and in this case, it was the export house.The Tribunal's view, if accepted, would allow both the export house and the original manufacturer to claim deductions under Section 80HHC for the same amount, contrary to the section's language. Therefore, the court affirmed the High Court's decision and dismissed the appeals with costs.