TaxTMI 
TaxTMI 
2008 (8) TMI 455
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....he STC to the effect that STC had not claimed any export benefit on the said exports and that the said exports are under protocol exports i.e., Government to Government aid programme and that the export consideration was received in Indian rupees from the Ministry of External Affairs. A certificate of disclaimer from STC in the prescribed Form 10CCAB and the bill of lading were also filed before the AO. The copies of these were also filed before us. 3. However, the AO disallowed the assessee's claim of deduction under s. 80HHC on two grounds: (a) The assessee had claimed deduction as a supporting manufacturer. The AO found that the STC had declared loss of Rs. 50,13,25,154 for the asst. yr. 2003-04. In view of the Supreme Court decision in IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC), the learned AO came to the conclusion that since the STC could not have itself claimed the deduction, it could not pass on the benefit to the assessee and accordingly held that the assessee is not entitled to the claim of deduction under s. 80HHC. (b) The learned AO also observed that export deduction under s. 80HHC is permissible only when the realizatio....
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....ed with the statutory provisions contained in s. 80HHC(1A), s. 80HHC(3)(A) and s. 80HHC(4)(A), and is thereby entitled to deduction under s. 80HHC as supporting manufacturer. He submitted that the assessee has fulfilled the conditions laid down in cl. (d) of the Explanation to s. 80HHC to be a 'supporting manufacturer'. He has further submitted that the STC, Jalandhar, had issued disclaimer certificate in Form 10CCAB in favour of the assessee. (ii) That the manner of computation of profits derived by a supporting manufacturer is prescribed in s. 80HHC(3)(A), according to which the profits of the supporting manufacturer for the purpose of deduction under s. 80HHC(1A) has to be determined mainly with reference to the sale of goods or merchandise to the export house. There is no requirement that the amount has to be realized in foreign exchange. In support of his contention, the learned Authorised Representative relied on the decision of the Hon'ble Supreme Court in CIT vs. Baby Marine Exports (2007) 209 CTR (SC) 183 : (2007) 290 ITR 323 (SC). (iii) That the AO wrongly applied the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. to the assessee's case. T....
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....o be with reference to s. 80HHC(1A). (vii) The learned Authorised Representative also submitted that the assessee's transaction would fall under the category of 'protocol exports' and would be entitled to avail of the benefits provided in Circular No. 562, dt. 23rd May, 1990. The Authorised Representative contended that the eligibility of the assessee to claim deduction should be examined independently taking into account the manner in which and the conditions under which protocol export may have been effected by the Government of India. There may be many consideration for Government of India to make the protocol exports either without considerations or less than normal consideration, which would not obliterate the fact of sale made by the assessee to the Government of India for export to Cambodia. Hence, the benefit should not be denied to the assessee. 6. On the other hand, the learned Departmental Representative strongly relied on the order of the CIT(A) and that of the AO. 7. We have carefully considered the contentions and submissions of the learned Authorised Representative and the arguments pressed by the learned Departmental Representative. We have also perused the....
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....eof for an assessment year beginning on the 1st day of April, 2002; (iii) forty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) twenty per cent thereof for an assessment year beginning on the 1st day of April, 2004; and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year. (2)(a) This section applies to all goods or merchandise, other than those specified in cl. (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation: For the purposes of this clause, the expression 'competent authority' means the RBI or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. (b) This section does not apply to the following goods or merchandise, namely: (i) mineral oil; a....
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.... cl. (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiia) (not being profits on sale of a license acquired from any other person), and cls. (iiib) and (iiic) of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation: For the purposes of this sub-section,- (a) 'adjusted export turnover' means the export turnover as reduced by the export turnover in respect of trading goods; (b) 'adjusted profits of the business' means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in cl. (b) of sub-so (3); (c) 'adjusted total turnover' means the total turnover of the business as reduced by the export turnover in respect of trading goods; (d) 'direct costs' means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) 'indirect costs' means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total tu....
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....e foreign exchange' means foreign exchange which is for the time being treated by the RBI as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (aa) 'export out of India' shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962); (b) 'export turnover' means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with cl. (a) of sub-s. (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962). (ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962): Provided that in relation to any assessment year commencing on or af....
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....the amount of export turnover specified in the certificate bears to the total export turnover of the assessee in respect of such trading goods. 8. Sub-s. (1A) of s. 80HHC provides for deduction to be allowed to a supporting manufacturer, who has sold goods or merchandise to a Trading House or Export House which has issued a certificate of disclaimer under the proviso to sub-s. (1). The profits derived by the assessee from the sale of goods or merchandise to the export house have to be determined in the manner provided in sub-s. (3A), and the extent of profits to be allowed as deduction is provided in sub-s. (1B). This is subject to further condition provided in sub-s. (4A) which requires furnishing by the supporting manufacturer along with his return of income (a) report of an accountant certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the export house and (b) disclaimer certificate of the export house that it has not claimed the deduction and which shall be duly certified by an auditor. 9. It is not in dispute that the assessee is a 'supporting manufacturer' a....
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....nt only if profits from the exports of manufactured goods and ignore its loss from the export of trading goods. The Hon'ble Supreme Court resolved this issue in the following manner observing: "In this case we are concerned with the wordings of sub-s. (3)(c) of s. 80HHC. As noted earlier sub-s. (3)(a) deals with the case where the export is only of self-manufactured goods. Sub-s. 3(b) deals with the case where the export is only of trading goods. Thus, when the legislature wanted to take exports from self-manufactured goods or trading goods separately, it has already so provided in sub-ss. (3)(a) and (3)(b). It would not be denied that the word 'profit' in s. 80HHC(1) and ss. 80HHC(3)(a) and (3)(b) means a positive profit. In other words, if there is a loss then no deduction would be available under s. 80HHC(1) or (3)(a) or (3)(b). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-s. (3)(c) deals with cases where the export is of both self-manufactur....
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....the IT Act, 1961: Sharing of tax benefit between the export houses/trading houses and manufacturers-Regarding. Sec. 80HHC as amended by the Finance Act, 1985, provides that where an assessee, being an Indian company or a person (other than a company) resident in India exports out of India during the previous year, any goods or merchandise to which this section applies, he will be allowed a deduction of an amount not exceeding 50 per cent of the profits derived from the export of such goods of merchandise. 2. Representations have been received to the effect that the manufacturers of goods or merchandise exported through the export houses/trading houses do not derive any benefit under the amended provisions of s. 80HHC. It has further been represented that if the tax benefit derived by the export house/training house under s. 80HHC is passed on to the concerned manufacturer, the amount so passed on should be allowed as a deduction in the computation of the total income of the export house/trading house. 3. The matter has been examined by the Board. It has been decided that if any export house/trading house holding a certificate in this regard issued by the Ministry of Commer....
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....xport House or Trading House issues a certificate in a prescribed form that in respect of any amount of export turnover, deduction under sub-s. (1) is to be allowed to a supporting manufacturer, the amount of deduction available to the Export House or the Trading House shall be reduced by such an amount which bears to the total profits of the export business of the Export House or the Trading House issuing the certificate, the same proportion as the amount of export turnover specified in the certificate bears to the total export turnover of the Export House or the Trading House as the case may be. 28.4 As a measure to extend the benefit provided under sub-s. (1) to the supporting manufacturers, a new sub-s. (1A) has been inserted to provide that where the supporting manufacturer has sold goods to any Export House or Trading House in respect of which the latter has issued a certificate in the prescribed form in accordance with the provisions of sub-s. (1) read with the proviso, deduction will be allowed in the computation of the income of the supporting manufacturer, of the whole of the profits derived by it from the sale of goods or merchandise to the Export House or Trading Hou....
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.... accountant shall be the one as defined in the Explanation below sub-s. (2) of s. 288; and (b) a certificate from the Export House or the Trading House that in respect of the export turnover mentioned in the certificate, the Export House or the Trading House has not claimed any deduction under this section. The certificate issued by the Export House or the Trading House shall be certified by the auditor auditing the account of the Export House or the Trading House under the provisions of this Act or under any law. 28.7 The working of the benefit under this section, as can be shared between a recognised export house or a trading house with the supporting manufacturer, has been illustrated in the example below: Total export earning in convertible foreign exchange of an Export House : 50 crores Net profit from exports at 2% : 1 crore Amount of deduction eligible under S. 80HHC(1) : 1 crore Exp....
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....e export house/trading house. For the purpose, a new proviso to sub-s. (1) and a new sub-s. (1A) to s. 80HHC has been introduced. Correspondingly, sub-ss. (3A) and (4A) were also introduced to provide for the manner of computation of the profits of the supporting manufacturer and for the manner of issuing disclaimer certificate by the export house. The only condition stipulated by the legislation is that the same benefit should not be claimed by both the export house and the supporting manufacturer. To ensure the same, it was made a precondition that the export house should furnish a certificate of disclaimer in respect of the export turnover, and the amount of the deduction available to the export house would be accordingly reduced in the specified manner. Similarly, it was provided in sub-s. (1A), the supporting manufacturer can claim tax benefit only on the basis of the disclaimer certificate of the export house. We could not see any other conditions stipulated in these provisions. The scheme of these provisions suggests that the supporting manufacturer gets an independent right to claim deduction once he gets in his favour a disclaimer certificate from the export house. In the ....
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....he fact that there was no realization of foreign currency. We are not in a position to subscribe to such a view. A careful analysis of the transaction would reveal that the STC has made exports at the instance of Government of India, from the rice sold to it by the assessee. The transaction between the assessee and the STC, and that between the STC and Government of India, cannot be characterized as "gift" as consideration has been received by STC from the Ministry of External Affairs, and also by the assessee from the STC, though in Indian currency. May be the transaction between Government of India and Cambodia could be one of aid or gift for diplomatic or humanitarian considerations, without any tangible commercial value. The next issue would be whether it could be characterized as 'protocol exports'. We were not able to lay our hands to any statutory definition for the meaning of protocol exports. However, in the common parlance, it refers to the exports based on or with reference to a protocol i.e., agreement between two States or Governments. It is quite possible that in such type of exports, the realization may be on credit or may not be immediate, being Government to Govern....