AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2005 (8) TMI 535
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....st under section 234B of the Act. 2. We have heard the parties. 3. The brief facts, as have been revealed from the records and are relevant for disposal of this appeal are that the assessee-company, which was a recognized Export House had filed its return of income for assessment year 1996-97 declaring an income of Rs. 1,40,44,800 on 30-11-1996 and had claimed deduction under section 80HHC of the Act amounting to Rs. 22,23,53,775. Admittedly, prior to this year, the assessee was exporting only pharmaceutical products which were in the form of tablets, liquids, vials, capsules, ointments, etc. after purchasing the same from the open market, during the previous year relevant to assessment year 1996-97, the assessee, in addition to exporting the usual trading goods, exported Soyabean and Rice after purchasing the same from so-called Supporting Manufacturers (SM). During the course of export business, the assessee earned a profit of Rs. 21,31,27,219 on trading goods exported by it after making purchases from the open market, but suffered a loss of Rs. 3,62,87,480 on the export of goods (Rice and Soyabean) purchased from 'SM'. 3.1 The working of assessee's claim of deduction un....
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....38.00 Export turnover (98.85%) 1,14,81,68,232.00 Less : Unrealised export turnover 3,80,11,836.00 Export turnover realized (95.57%) 1,11,01,56,396.00 Direct cost of trading goods (as per working in the Auditor's report) 86,71,51,972.00 Direct cost of trading goods of sale proceeds was realized 83,84,43,602.00 Indirect cost (as per working in the Auditor's report filed with R.I.) 9,92,70,749.00 Total Sales Rs. Total indirect expenses allocated in proportion to export turnover (95.57% of Rs. 9,92,70,749) 9,48,73,055.00 Export Profit :- Export turnover as above 1,11,01,56,396.00 Less : Direct cost Rs. 83,84,43,602 Indirect cost Rs. 9,48,73,055 93,33,16,657.00 Export Profit 17,68,39,739.00 Export Profit x Disclaimed Export Turnover Total Export Turnover (Rs.) 17,68,39,739 x 28,15,22,876 = 4,33,59,876 1,14,81,68,232 Deduction un....
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...., for reasons beyond his control, unable to realize the amount of sale proceeds within the specified period, no deduction on the amount of such sale proceeds can be allowed under section 80HHC. 3.2.2 The second contention of the appellant is to the effect that the Assessing Officer should not have reduced the amount of deduction under section 80HHC by a sum of Rs. 4,33,59,876 on account of disclaimed export turnover passed on to the supporting manufacturers. In this regard, the legal position is as follows. To enable the supporting manufacturers to claim deduction under section 80HHC, the recognized export/trading house has to issue them disclaimer certificate in respect of the export turnover in Form No. 10CCAB. Where the recognised export/trading house disclaims the tax concession in favour of the supporting manufacturer, the deduction under section 80HHC to the recognized export/trading house is reduced by the amount which bears to the total export profits of trading goods the same proportion as the disclaimed export turnover bears to the total export turnover of trading goods. The export profits in such cases are to be computed as under :- Export profits - (Export p....
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....5 In view of the above, both the contentions raised by the appellant on this ground of appeal are rejected." 4. It was, in the light of above facts and circumstances of the case, that the parties have advanced their respective arguments. The ld. counsel for the assessee (referred to as 'AR') first of all, recapitulate the brief facts in his own terms, as under :- (i)That, the assessee is a recognised export house. It exports primarily medicines and medical formulations. However, during the previous year relevant to this appeal it exported rice and soyabean, etc. also which it bought from the supporting manufacturers and issued disclaimer certificates to be concerned supporting manufacturers for the export turnover of the said items of rice and soyabean, etc. (ii)That, from the export of medicines and medical formulations it earned an export profit of Rs. 21.31 crores (Rs. 21,31,27,219 to be precise) and incurred a trading loss of Rs. 3.63 crores (Rs. 3,62,87,480 to be precise) in export of rice and soyabean etc. It received some export benefit of Rs. 0.36 crore (Rs. 35,68,431 to be precise) and for applying the proviso to section 80HHC(3) 9 per cent thereof came to Rs. 0.3....
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....xport turnover passed on to the supporting manufacturers. In this regard, the legal position is as follows. To enable the supporting manufacturers to claim deduction, under section 80HHC, the recognized export/trading house has to issue them disclaimer certificate in respect of the export turnover in Form No. 10CCAB. Where the recognized export/trading house disclaims the tax concession in favour of the supporting manufacturer, the deduction under section 80HHC to the recognized export/trading house is reduced by the amount which bears to the total export profits of trading goods the same proportion as the disclaimed export turnover bears to the total export turnover of trading goods. The export profits in such cases are to be computed as under :- Export profits - (Export profits of trading goods x disclaimed export turnover) Total export turnover" 4.1 That, the assessee, being aggrieved with the aforesaid finding of the CIT(A) has came in appeal before the Tribunal and submits as under :- "(i)The AR's main contention is that the aforesaid proviso takes into its ambit only the figures relevant to the issuance of disclaimer certificates and no o....
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.... the total export turnover of trading goods for which disclaimer certificates have been issued and this is obvious on account of existence of word "such" towards the end of that proviso. The assessee's counsel supplied the dictionary meaning of the word "such" from the Prem's Legal Dictionary and Oxford University Dictionary. It was emphasized that the existence of that word "such" makes all the difference with the result that the numerator as well as the denominator for determining the specified proportion one has to take the respective figures of export turnover relating to the trading goods for which disclaimer certificates have been issued. (iii)Yet another plea taken on behalf of the assessee was that in the ultimate analysis export profit in trading goods is to be computed in terms of section 80HHC(3)(b). Thereunder export turnover is to be reduced by the sum of direct cost and indirect cost. In other words, the main provision viz. section 80HHC(3)(b) requires that actual figures of export turnover should be reduced by the sum of actual figures of direct cost and indirect cost. So, assessee's entitlement under section 80HHC(3)(b) is to be computed by adopting each of these....
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.... the proviso to section 80HHC(1) words "total profits derived by the assessee from the export of trading goods" would take into its ambit only the profits derived from such trading goods on which disclaimer certificates as required under section 80HHC(4A)(b) have been issued. On this basis there will be no reduction in the figure of deduction under section 80HHC in this case which is attributable to the issuance of disclaimer certificate. The assessee is entitled to deduction under section 80HH in a sum of Rs. 17.68 crores plus the undisputed component of export benefits in a sum of Rs. 0.31 crore. (viii)Further, referring to the proviso, the Ld. A.R. submitted that the second item viz. the effect of proviso to section 80HHC(1) has evoked really interesting arguments. For the facility of exposition, it would be better to consider the proviso and therefore drew our attention to the proviso, which reads as under :- "Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereinafter in this section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred to in clause (b) of sub-sec....
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.... to be applied and therefore, we are of the opinion that first of all it is desirable to find out the intention and purpose of the Legislation behind the enactment of the provisions of sections 80HHC, as a whole, the proviso to section 80HHC(1), provisions of section 80HHC(1A), 80HHC(3) and 80HHC(4A)(b) in special and therefore we, first proceed to do this exercise. "80HHC. Deduction in respect of profits retained for export business.-(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be), issues a certificate referred to in clause (b) of sub-sect....
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....reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and ( iiic) of section 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 clause (b) of sub-section (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 ....
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....res the goods only for the purpose of Export by so-called Export Houses/Trading Houses and do not export the goods so manufactured. 7.3 Further, the Legislature, in its wisdom, has, by enacting the provisions of sub-section (1A) of section 80HHC, provided concession/exemption to the Supporting Manufacturers ('SM') and to be sure that these provisions are not misused the Legislature has, further, gone to enact the provisions of sub-section (4A) of section 80HHC of the Act which prescribes the extent of concession/exemption admissible to the 'SM' and that too only if the Export/Trading House(s) issues a disclaimer certificate in favour of such 'SM' foregoing its claim of concession/exemption on the profit earned on the export of goods purchased from the 'SM'. 8. Since the Legislature has prescribed exemption to the 'SM' on the basis of profit earned by them on sales made to Export/Trading Houses, it was but natural that the Legislature could not have intended to allow further exemption out of export profit earned on the goods of 'SM', to the Export or Trading Houses and it is this reason that the Legislature seems to have thought it fit to bring provisions of proviso to sub-sec....
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.... first interpretation of the proviso, as has been made out by the assessee, then the assessee becomes entitled to deduction to the extent of Rs. 21,61,96,689 as against deduction of Rs. 17,68,39,739 to which he would have entitled to (by virtue of provisions of section 80HHC(3) and decision of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521^1 which is more than the deduction to which the assessee is otherwise entitled to. 12. On the other hand, if we consider the Legislature intention that the Export/Trading Houses are not to get the deduction under section 80HHC(1) of the Act on the export profit, if any, earned on the goods of 'SM', the only conclusion is that- (i)The proviso is applicable only to the trading goods exported by Export/Trading Houses are same/similar as the goods of 'SM' and it is so because if the goods of 'SM' are of different kind/nature, then the trading goods exported by the export/trading houses after purchasing the same from the open market, then the profit or loss on the goods of 'SM' will be separately known and in that case- (a)If there is profit on the trading goods of 'SM', then the same can be ignored ....
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....) read with section the provisions of sub-section (2A) of section 80HHC the benefit under section 80-HHC on such profit, i.e., profit on trading goods of 'SM'; is admissible to the 'SM' and not to the Export House/Trading House, the Legislature has thought fit to bring the proviso statute and has provided a formula to exclude proportionate profit out of total export profit resulting in denial of benefit of section 80HHC to the Export/Trading House against export profit on trading goods of the 'SM'. (b)If, there is overall total loss, then there is no question of having any profit on the goods of 'SM' and, consequently, the Export/Trading House is not to get any deduction under section 80HHC(1) of the Act and if that is the case, then there is no question of invoking the proviso to sub-section (1) of section 80HHC. (c)In case, there is neither loss nor profit, then also the assessee is not to get any deduction under section 80HHC(1) and in that case also there is no necessity for invoking the proviso in question. 14. In view of above discussion and facts and circumstances of the case, we are of the opinion that so far as present case is concerned, the trading goods of 'SM' ....