TaxTMI 
TaxTMI 
2008 (10) TMI 384
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....Orientated Unit located in SEEPZ having manufacturing facility at SDF-VII, Special Economic Zone, Mumbai and was subsidiary company of Tara Jewellery and Exports Limited (hereinafter called "TJEL"). It was stated that it has satisfied all the requisite conditions as laid down in the section for availing of the amount of deduction as per law towards the export of the goods. The assessee furnished party-wise details of exports made in the year in question, which has been reproduced in the assessment order as under :- Sr. No. Name of the party Amount of Sales (Rs.) 1. Combine International, CT Troy, USA 7,52,55,346.56 2. Sam Adams 7,85,827.57 3. I Kurgan & Co. California 9066-7317, USA 8,33,88,762.94 4. Cosmopolitan Gems Corpn., New York, USA 14,14,30,249.88 5. Kurgan International, Hunghum, KLN 58,24,118.46 6. Audin International Ltd., New York, USA 3,49,66,631.00 7. Goldman, New York, USA 3,20,440.00 8. NXP Jewels Inc., 37, Main Street, St. Thmas 26,18,551.00 9. Original Designs Fermor Inc., New York, USA 4,56,430.00 10. Tara Jewel Exports Pvt. Ltd., G-44, G & J Complex-1, SEEPZ,....
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.... Sr. No. Description Export Local Total 1. Finished Jewellery (Own) (Traded Export) (Inter Unit Sales) 317,786,167.45 32,313,105.00 46,029,659.00 Nil Nil Nil 317,786,167.45 32,313,105.00 46,029,659.00 2. Diamonds 101,979,559.00 101,979,559.00 3. Gold 10,390,025.00 10,390,025.00 4. Findings 686,215.00 686,215.00 5. Consumables & Stores 178,509.00 178,509.00 6. Alloys 62,734.00 62,734.00 7. Exchange Difference (export) 9,671,681.00 9,671,681.00 405,800,612.45 113,297,042.00 519,097,654.45 He held that the belief of the Assessing Officer about the local sales at not more than 25 per cent of the total sales as primary condition for claiming deduction under section 10A, was not correct. In his view the assessee could claim deduction on export turnover notwithstanding the local sales at more than twenty five per cent, but the deduction would not be available on the local sales, if it exceeded the prescribed percentage. As in this case the domestic sales were found to ....
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....ited. The third item is the local sales made to Shanker Jewelleries at Rs. 90,932. Both these parties are stated to be not related to the assessee and domestic sales represent that of the finished goods. All the components of the total turnover are in challenge before us either by the assessee or the revenue. 8. We will address to the issues raised before us one by one. I. Interpretation of proviso to sub-section (1) 9. The learned Departmental Representative contended that the assessee was not at all entitled to deduction under section 10A in view of the proviso as per which if the domestic sales exceed twenty five per cent of the total sales, then the benefit of deduction will not be available. On the other hand the ld. CIT(A) has not accepted the way in which this proviso has been interpreted by the Assessing Officer. In his opinion the deduction can still be allowed de hors the domestic sales exceeding twenty five per cent of the total turnover but the amount of deduction is to be restricted to the export of the manufactured goods only for the reason that if the domestic sales exceed the prescribed percentage of the total turnover, then no deduction can be allowed to t....
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....eduction on profits and gains derived from the domestic sales apart from the export, by deeming such profits as derived from the export turnover. There is nothing in the language of the proviso by which it could be inferred that if the domestic sales exceed twenty five per cent of the total sales, then the benefit of deduction under section 10A would be denied in total. We, therefore, do not find any merit in this contention of the ld. DR. 9.4 On the contrary the scope of deduction has been widened by also entitling the eligible units to avail the further deduction even on the profits derived from the domestic sales to the extent of twenty five per cent of the total sales. The ld. CIT(A) has interpreted this proviso as the benchmark for availing the deduction on the profits of the domestic sales, that is if the domestic sales are less than twenty five per cent of the total turnover, only then the benefit of deduction on the profits derived from the domestic sales can be availed and in the converse case if the amount of domestic sales is more than the prescribed percentage, then no deduction is permissible on the profits derived from the domestic sales. In our opinion, the ld. CI....
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....tion in respect of profits and gains derived by an eligible undertaking "from the export of articles or things or computer software". The later part of this sub-section provides that this deduction is available for a period of ten consecutive assessment years starting with the "assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software". The reference to manufacture or production of eligible articles is only for the purposes of settling the first year of the ten consecutive assessment years in which the assessee will be entitled to deduction under this section. The qualifying amount for deduction is the "profits and gains as are derived by an undertaking from the export of articles or things or computer software". Such eligible articles are not restricted to only those which are produced or manufactured by the assessee. The material consideration is the export of the eligible goods and not whether these are manufactured or purchased by the assessee. Section 10A is akin to section 80HHC in some respects, as will be seen infra and the later section also provides for deduction in respect of profi....
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....for the assessee to avail deduction under this section is to directly make the export. The position becomes more clear when we read sub-section (3) of section 10A which provides that this section applies to the undertaking if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange. Receiving of the convertible foreign exchange by the assessee in India towards sale proceeds of the export of eligible articles is sine qua non for the claim of deduction under this section. When the assessee is making local sales to other parties, what is brought into his account is only Indian rupees and not any foreign exchange. So unless the assessee brings into India the convertible foreign exchange from the sale proceeds of the eligible articles, it cannot legally lodge its claim for deduction under this section. The point turns out to be more apparent when we go through sub-section (4) of section 10A which stipulates that the profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the....
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....les made to holding company without profit - whether qualfies for exclusion from export and total turnover 12. The assessee claimed deduction on the total income of Rs. 3.46 crores. The ld. CIT(A) came to hold that local sales of raw material as made by the assessee to its holding company to the tune of Rs. 11.32 crores be included in the total turnover but not in the export turnover. The learned AR vehemently argued before us that such amount of sales was liable to be excluded from the total turnover because no element of profit was involved in it. He explained that it was not, in fact, sales at all as the assessee made purchases in unison for itself and also on behalf of its holding company. Explaining further he stated that whenever the assessee intended to import diamonds or gold etc. for its business purposes, it used to consult its holding company if they were also interested in making import of such raw material. And if the holding company consented then a common purchase order was made in the name of the assessee so as to avail turnover discount. And on the receipt of the goods in India, the assessee was raising invoice on its holding company immediately at no profit no ....
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....d or not. 12.2 The short point raised before us in this segment of the arguments is to decide as to whether or not the local sales of raw material made by the assessee to its holding company, without any element of profit, can be regarded as part of total and domestic sales. From the factual position recorded above, it is noted that the assessee imported diamonds, gold, findings, etc. These purchases were recorded as its own. The payment for the entire lot was made by the assessee. Subsequently, the some part of these goods was sold by the assessee to its holding company viz., TJEL. The contention raised by the assessee for excluding the, amount of Rs. 11.32 crores from the local as well as total sales is that the deal was made with the foreign parties to have economy of large scale buying. However, no material worth the name has been placed on record to demonstrate the economy flowing from such purchases at large volume. No comparison of the buying rate has been made available to exhibit that if the assessee had not purchased the goods meant for its holding company, then the rate of purchase would have been higher. We further observe that if the contention of the assessee had b....
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....Act. Section 77 of the Contract Act, prior to its omission, defined "sale" to mean exchange of property for a price. It involves the transfer of ownership of the things sold from the seller to the buyer. 12.6 Section 54 of the Transfer of Property Act, 1882 defines "sale" as 'transfer of ownership in exchange for a price paid or promised or part paid or part promised'. 12.7 From the meaning of the term "sale" as assigned in various enactments, it is apparent that it refers to the transferring of property of goods from one person to another for a valuable consideration. The necessary ingredients of sale can be culled as under :- (i)There should be a property. (ii)Such property should be transferred from one person to another. (iii)Such transfer should be for a valuable consideration. 12.8 It, therefore, follows that when the above referred elements are satisfied, the transaction assumes the character of "sale". We are unable to concur with the view point raised by the learned A.R. that the sales made by the assessee to its holding company without profit be not viewed as sale and hence excluded from the total sales as well as domestic sales for the purpose of comput....
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.... us to exclude the value of the goods itself. In our considered opinion, there is no force in the submission of the learned A.R. that the sale of raw material for a sum of Rs. 11.32 crores be excluded from the domestic as well as total sales. We, therefore, hold that this amount merits inclusion in the total sales for the purposes of calculating the benefit of deduction under section 10A. 12.11 In view of the foregoing discussion, we direct the Assessing Officer to recompute the deduction under section 10A by considering the export turnover at Rs. 31.64 crores (Rs. 31.77 crores as shown in the table at page 7 of the impugned order as reduced by the local sale made to M/s. Neogem India Limited at Rs. 12.27 lakhs and to M/s. Shankar Jewels at Rs. 0.90 lakhs). The export in trading goods worth Rs. 3.23 crores is also to be considered as part of export turnover. The sale of finished goods made to holding company at Rs. 4.60 crores is to be excluded from the purview of export turnover but included in the total turnover. Similarly the amount of Rs. 11.32 crores representing local sales of raw material to the holding company is to be included in the total turnover but, excluded from th....
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....s per sub-section (3) of section 10A. He contended that the said amount is eligible for deduction in the year in question for the reason that the amount of total export proceeds was realized in this year. Reliance was placed on certain orders of the Tribunal for contending that there would not be any change in the amount of deduction under section 10A even if the said amount is considered as export turnover of the year of realization. In the opposition, the learned D.R. relied on the impugned order. 16. We have heard the rival submissions on this point and perused the relevant material on record. Sub-section (1) of section 10A provides for allowing deduction in respect of profits and gains as are derived by an undertaking from the export of eligible articles subject to the fulfilment of the conditions. Sub-section (4) lays down the mechanism for computing the profit from the export of eligible article for the purposes of sub-section (1). Sub-section (3) provides that the deduction is available if the sale proceeds of the eligible articles exported out of India are received in or brought into India in convertible foreign exchange within a period of six months from the end of the ....