TaxTMI 
TaxTMI 
2006 (4) TMI 352
X X X X Extracts X X X X
X X X X Extracts X X X X
....he facts and circumstances of the case. (d) assuming that the ratio of Bombay High Court decision in the case of Bombay Burma Trading Co. Ltd. v. CIT 188 ITR 122 is not applicable to the appellant's case as the issue considered was whether goods were exported out of India for the purpose of deduction under section 35B of the IT Act, 1961. Therefore, concluding that the export of goods made by the appellant under clause 154D of Import & Export Policy, 1992-93 of Foreign Trade (Regulations & Development) Act, 1992 was not an export eligible for deduction under section 80HHC of the Act, 1961 at Rs. 181,42,968. Ground No. 2.-Without prejudice to the above ground on the facts and circumstances of the case the learned CIT(A) erred in confirming the deduction under section 80HHC at Rs. 89,225 as determined by the learned Assessing Officer as against the appellant's claim at Rs. 1,81,502." 2. The only issue in this appeal is regarding the claim of deduction under section 80HHC of the Income-tax Act, 1961. The assessee had claimed deduction under section 80HHC of the Act. The Assessing Officer observed that out of the total export sales of Rs. 4,33,97,326 relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Hon'ble Bombay High Court in the case of Bombay-Burmah Trading Corpn. Ltd. v. CIT [1991] 188 ITR 122 and held that there is no need for physical export of goods out of Indian territory for availing the weighted deduction under section 35B on such exports. In this context, sending of goods out of India, the Hon'ble Bombay High Court held as under: "It is not dispute that the assessee satisfied all the requirements of section 35B, except in regard to the requirement, according to the Revenue, that the export should be made from India. To get the advantage of the deduction, under section 35B, the expenditure has to be incurred wholly and exclusively on the performance of the services outside India in connection with or incidental to the execution of any contract for the supply outside India of goods which the assessee deals in the course of its business. The assessee deals in tea. In the course of its business, the expenditure was incurred in regard to the performance of the services outside India, i.e., in East Africa and the United Kingdom, in connection with the execution of a contract for the supply of tea in the United Kingdom. The provision does not requir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Government may by published in Official Gazette make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. The FTRDA-92, the Central Government may from time-to-time formulate and announce by notification in the Official Gazette the export and import policy and may also in like manner amend that the policy." In exercise of powers vested in section 5 FTRDA-92. Ministry of Commerce, Government of India had issued a notification on 31-3- 1992 - Export & Import Policy for the period 1992-97 (E&IP 1992-1997). This also covers all the aspects of imports and exports in the nature of physical movement of goods and in cases where physical movement of goods were not necessary. In Chapter XIV-A - Trade and Indian Joint Venture brought out the objectives of this Chapter in clause 154B which is as under : "154B. Visualizing economic relationship well beyond the realm of physical exports and recognizing the close relationship between international trade and flow of investment, it is imperative to establish a more dynamic policy framework for making India to emerging and active partner in the global trade and ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....custom duty and custom clearance are covered under Customs Act, 1962 etc. In the assessee's case as the goods imported and exported without bringing it into India, the question of filing of custom manifest or bill of entry etc. does not arise and, therefore, the Customs Act, 1962 has no role to play. The FTRDA - 92 and E & IP - 92-97 and FERA and RBI guidelines only apply. The definitions under FTRDA - 92 of Import and Export. Under section 2(e), Import and Export means to bring into or taking out of India may goods by land, sea or air. Similarly under E & IP 92-97 under clause 7(16) means a person who exports or intend to export and holds and importer-exporter code number. Under clause 7(19) importer-exporter code number. Under Rule 7(26) merchant exporter means a person engaged in trading activity and exporting or intending to export the goods. What is significant in the above definitions are that the definition under section 2 of FTRDA - 92 no doubt, specifies that bringing into or taking out of India of any goods amounts to import or export. This definition is intended to govern these physical import and export, which was also regulated by Foreign Trade (Regulation & Developmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India and claimed deduction under section 80HHC on the profits earned from this transaction. The assessee claimed that the supply of such machinery from Germany directly to Bangladesh was a business activity of "export out of India". The term "export" has not been defined under the Income-tax Act. However, it has been defined in the Customs Act, 1962 and the Foreign Trade (Regulation & Development) Act, 1992 (FTRDA 1992). In section 2(18) of the Customs Act, the word "export" has been defined as : "(18) "Export", with its grammatical variations and cognate expressions, means taking out of India to a place outside India." The relevant section 2(e) of FIRDA, 1992 reads as under : "2(e) "import and export" means respectively bringing into, or taking out of India any goods by land, sea or air." 2.3 The CIT(A) observed from the two definitions that an "export" activity requires taking out of India any goods to a place outside India. It follows that only those goods can be exported which have either originated/manufactured in India or have been imported (brought into India) earlier. The assessee did not bring the machinery into India and, consequently, did ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of goods out of India". The clause 154D simply permits third country trade transaction. It does not make export of goods out of Germany, equivalent to the export of goods out of India as observed by the CIT(A). To sum up, the assessee's action of buying the machinery from Germany and selling it in Bangladesh and did not result in "export", even in terms of the provisions of FTRDA - 1992. Further reference to the provisions of the FTRDA - 1992 and E & IP - 1992-97 was not called for because, as stated by the assessee itself, section 80HHC is a complete code by itself. The aforesaid transactions of the assessee did not require any clearance of goods at any customs station in India. Therefore, no export was made by the assessee in respect of machinery worth Rs. 4,23,34,960 purchased in Germany. Accordingly, the order of the Assessing Officer on the point was upheld by the CIT(A). The same has been opposed before us. 3. We find that the assessee claimed deduction under section 80HHC on goods purchased by assessee-company from Germany and sold it directly to the customer in Bangladesh. The deduction has been denied by lower authorities. The main issue is whether this sale constitutes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....: "Export n. 1. A product or service created in one country and transported to another; Domestic export. A product originally grown or manufactured in the United States, as distinguished from a product originally imported into the United States and then exported; 2. The process of transporting or services to another country; Export vb. 1. To send or carry abroad 2. T send, take, or carry (a good or commodity) out of the country to transport (merchandise) from one country to another in the course of trade : 3. To carry out of convey (goods by sea.)" Submitting that the definitions did not even remotely suggest that the goods had to be transported from one's own country, then it was pointed out that if the Legislature had intended "exports" to mean only "domestic exports". Since the word used was only "export", the widest possible meaning had to be given to that word. The word "export" in 'Supreme Court on Words & Phrases' by Justice R.P. Sethi, Former Judge, Supreme Court of India, to say nowhere was it contemplated that exports had necessarily to emanate from one's own country. In the absence of any provisions under the Income-t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee that the objective of any legislative enactment must not be lost sight of while interpreting the provisions of the Act. In support of his contention, the learned Authorised Representative of the assessee relied on the decision rendered by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 at page 194, observed as under : "Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the unintended consequence of construing the clause literally, as was done by the High Court, for which it cannot be blamed, as the provisions is susceptible of such construction if the purpose behind its enactment, the objective if sought to achieve and the mischief it intended to control are lost sight of." It was also pleaded that if two views were possible then the view favouring the assessee should be adopted. 3.8 It was also pointed out on behalf of the assessee that section 80HHC(1) of the Act spoke of "business of export out of India of any goods or merchandise", as d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962)." It was further stated on behalf of the assessee stated that the explanation referred specifically and only to the purchase of goods in a shop, emporium or any other establishment in India. It was submitted that if the meaning of the section as intend to cover all exports as interpreted by the CIT(A), the Legislature would not have used the words "in a shop emporium or any other establishment situate in India". The fact that these sales outlets were specifically mentioned in the Explanation amply showed that the said Explanation (aa ) was confined only to over-the-counter sales in these establishments. It was explained that the purpose of introducing the said Explanation was to plug the loophole of parties claiming export benefits without actually exporting such goods. The reference to Customs Act in Explanation (aa) was to ensure that such goods were actually taken out of the country. In support of this proposition, the learned Authorised Representative of the assessee took us through the decision in the case Ram Babu & Sons v. Union of India [19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laining the purpose of introducing Explanation (aa) reads as under: "32.16 The issue whether sale of goods to foreigners in shops or other establishments situated in India is export, has been a subject-matter of litigation. The view of the Department, all along, has been that such counter-sales within India do not constitute export and, therefore, are not eligible for the tax concession under section 80HHC. To give finality to this view and to end all judicial controversies, a clarificatory amendment has been made in order to reiterate that "export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment in India, not involving clearance at any customs station." The learned Authorised Representative of the assessee also drew our attention of Circular No. 624, dated 23-1-1992, analyzing that even the Board's Circular state the Explanation (aa ) refers only to counter-sales in India. 3.13 Finally, the learned Authorised Representative of the assessee invited our attention to the case of Asif Taherbhai v. ITO [ITA No. 101 (Mum.) of 2002] where, under similar facts, the Mumbai Bench "A" of the Tribunal he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se cases without considering whether the decisions cited by him applied to the facts of the assessee's case. He added that it was obvious that the customs clearance would be required when the goods left the shores of India, but not when the goods were shipped directly from a third country to another. The learned Authorised Representative of the assessee reiterated that it made no economic sense to bring the purchased machinery into India just to claim the section 80HHC benefits, spend large sums on berthing and demurrage, and then ship the machinery to Bangladesh. That would merely be an empty formality and a ritual that the Hon'ble Supreme Court disapproved of, as stated in the case of J.B. Boda & Co. (P.) Ltd. (supra). Countering the contention of the learned Departmental Representative in respect of import of goods resulted in an outflow of foreign exchange, the learned Authorised Representative of the assessee stated that this was not prohibited, more so when profits in foreign exchange was actually brought into India. What is important is that deduction under section 80HHC is given only on profits. It was undisputed that in the case under appeal the assessee had shown profits ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was explained by the Hon'ble Allahabad High Court in the case of Ram Babu & Sons (supra) in the following words: "Section 80HHC of the Income-tax Act, 1961, was enacted to give certain benefits to exporters Explanation (aa) to section 80HHC inserted by the Finance (No. 2) Act, 1961, with effect from April 1, 1986, was to plug a loophole in the Act since there was possibility that the goods after purchase may not be exported at all and yet the benefit may be claimed." The law as existed before 1986 contained a loophole which could be used by tax-payers to get export benefits without exporting the goods at all. The Hon'ble Allahabad High Court had clarified this situation and the same was approved by the Hon'ble Supreme Court in the case of Silver & Arts Palace (supra). The above two decisions read with Circulars of the CBDT which have been brought to our notice, show that Explanation (aa ) applies only to sales made over the counter in a shop, emporium or such other establishment. It is obvious that in the present case such is not the position. We find that the assessee ordered the machinery in Germany and instead of bringing the same physically within the territorial l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....insures first and, thereafter, receipt of the commission from the foreign reinsures was unnecessary. To insist on a formal remittance first and thereafter to receive the commission from the foreign re-insurer, will be an empty formality and a meaningless ritual, on the facts of this case. 6.2 We have also perused pages 103 and 104 of the paper book which contains a compilation of new Import Export Policy and Procedures, 1992 to 1997. The Chapter XIV-A of New Import Export Policy and Procedures 1992-1997 speaks of Trade and Indian Joint Ventures Abroad. The objective of the new Import Export Policy is to establish a more dynamic policy framework making India an emerging and active partner in the global trade and services. One of the important schemes to attaining this objective was through Merchanting or Third Country Trade. "154D. An Indian trader may carry on merchanting trade or third country trade by buying in one country and selling in another country. In such transactions it is not necessary to physically import the goods into India and then re-export the same RBI is the authority to grant general permission of Export Houses/Trading Houses/Star Trading Houses/Super....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6.3 We find that Mumbai 'A' Bench of the Tribunal in the case of Asif Taherbhai (supra) has observed as under:- "Though the ship was salvaged to Chitagong, the nearest Port, and was therefor the next two years pending formalities of the global tender, its acceptance, handing over the ship to the highest bidder till the agreement kit made with the foreign parties and pending the Chitagong parties completion of formalities of Import, as per rule, Ship was treated as Indian property. The payment of berthing charges was also made by the Indian part. All these indicate that neither the Indian nor Bangladesh party treated the ship as imported scrap up to 18-1-2001. Taking to totality of all the facts and circumstances of this case, before us, and also on the interpretation section, as propounded by the Hon'ble High Court, in the above case of Ram Babu Sons ( supra), we are of the view that the Revenue Authorities were not justified in not giving the benefit of section 80HHC of the Income-tax Act, 1961, to the assessee. Therefore, the above appeal is hereby allowed." The assessee had purchased in Bangladesh a ship belonging to Shipping Corporation of India which had d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be no dispute with this proposition. But in none of the authorities has it been held that the "obiter dicta" of the Supreme Court of India is not binding on the Tribunal which is placed on a much lower rung in the hierarchy of Courts or Tribunals in India. The question whether obiter dicta of the Supreme Court are binding on the High Courts may be one for consideration and there may even be divergent views. But so far as the Tribunal is concerned, we have grave doubts whether it is at all open to it (the Tribunal) to consider certain observations of the highest Court of the country as "obiter dicta" and proceed to disregard the same. In fact, our humble view is that it cannot do so." 6.6 In the case of Shree Bharkha Synthetics Ltd. v. Asstt. CIT [2002] 83 ITD 714 (Jodh.) too it was held: "It is the settled position of law that the law declared by the Hon'ble Supreme Court is the law of the land and that even obiter dicta of the Hon'ble Supreme Court is also binding on the subordinate Courts/Tribunals/Judicial authorities." 6.7 Even if it is conceded that Bombay Burmah Trading Corpn. Ltd.'s case (supra) was in the contention of section 35B and not section 80HHC. We a....