TaxTMI 
TaxTMI 
2007 (3) TMI 206
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly to the buyers and also through export houses. The assessee in the instant case has entered into contracts with the export houses, whereby, as and when the assessee sells the goods or merchandise to an export house, as consideration for the sale, it receives the entire F.O.B. value of the exports plus the export house premium of 2.25 per cent. of the F.O.B. value. The relevant clause dealing with F.O.B. value and incentive commission of the contract entered into between the assessee and the export house in this case is reproduced as under: "Clause (12) : The Export House agrees to pay the manufacturer/shipper an incentive of 2.25 per cent. on the F.O.B. value (net of overseas commission) of the said frozen marine products shipped by the manufacturer/shipper." The assessee has been filing its income-tax returns showing the export house premium as part of its total turnover and, thereby seeking deductions available to an exporter and/or a supporting manufacturer under section 80HHC(1A) of the Income-tax Act. The assessee has shown the export premium as part of sale consideration having an element of turnover and not commission or service charges. The Income-tax Officer, Ward-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tribunal allowed the appeal of the assessee and upheld the stand of the assessee that the export house premium received by the assessee is includible in the "profits of the business" of the assessee while computing the deduction under section 80HHC of the Income-tax Act, 1961. Being aggrieved by the decision of the Tribunal, the Revenue went in appeal before the High Court. The High Court vide order dated August 22, 2003, dismissed the appeal of the Revenue by observing that the questions involved in the appeal were squarely covered by its decision in 1. T. A. Nos. 251 of 2002 and 166 of 2002 dated July 1, 2003, which were decided in favour of the assessee and against the Revenue. In those cases, the High Court had meticulously examined the issues involved in these appeals. While answering the questions involved, the High Court had observed as under: "In the present case the assessees are getting the deduction not by virtue of the provision of section 80HHC(1) but only by virtue of the provision of section 80HHC(1A). The said sub-section provides that the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any export house or tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the Revenue, the High Court has erred in interpreting the term "profits of the business" contained in clause (baa) of the Explanation to section 80HHC by holding that the premium received by the assessee from the export house was profits of business and not any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or any receipt by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits. It has been further stated that on a proper construction of the provisions of sub-sections (1A) and (4A) of section 80HHC, the assessee being a supporting manufacturer is entitled to deduction under this section only on the sale price of the assessee's goods exported through the export house, inasmuch as the premium received by the assessee from the export house cannot be held to have been "derived from" the export business of the assessee. It was asserted by the appellant that the High Court erred in holding that the assessee was entitled to deduction under this section by ignoring the provisions of sub-section (4A) of section 80HHC according to which the assessee being the supporting manufacturer was required to furni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of Indian Export Organisation (FIEO) which further entitled the export houses to attend the various buyers/seller meet all over the world, to participate in the international exhibitions and as members of delegation with the Government and also to attend international conferences etc. The benefits were many, only some illustrations have been given above." Thus, in effect the money which was paid by the export houses to the supporting manufacturers in the form of premium/incentive is nothing but the money which was received by the export houses in the form of one incentive or the other, some of which is cash in the sense that the same can be freely sold in the market at a premium and the others are long-term benefits which accrue to the export houses over the years. The source of the money accordingly is within India and the money paid by the export houses to the supporting manufacturer has no nexus or link to the foreign buyers who paid the value of the goods on being sold to the supporting manufacturer through the export houses. The assessee, i.e., the supporting manufacturer would be entitled to claim the incentive/premium as part of its export turnover if the origin of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ium earned by the assessee is the domestic earning of the assessee totally unrelated to the export of goods and hence the assessee cannot claim any deduction whatsoever in respect of such earning under section 80HHC(1A). Shri S. Ganesh, learned senior advocate appearing for the respondent-assessee contended that the claim of the assessee for deduction under section 80HHC is by virtue of the provision of section 80HHC(1A). He also submitted that as far as the assessee is concerned, the export premium forms part of the export transaction between the assessee and the export houses and, therefore, it forms part of the export transaction and consequently, the income by way of export premium is profit derived by the assessee from the export of such goods or merchandise. The export premium received by the assessee from the export house forms part of the price settled between the parties for sale of the goods and that it is neither brokerage nor commission nor interest nor rent nor charges, etc. Mr. Ganesh, referred to the decision of the Bombay High Court in CIT v. Bangalore Clothing Co. reported in [2003] 260 ITR 371, wherein the Bombay High Court has referred to and followed the Circ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct 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-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods. the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing House for the purposes of export" : According to the said definition, the respondent clearly comes within the purview of supporting manufacturer. On plain construction of section 80HHC(1A) the assessee being supporting as manufacturer shall be entitled to a deduction of the profit derived by the assessee from the sale of goods or merchandise. The respondent-a supporting manufacturer sold the goods or merchandise to the export house and received the entire FOB value of the goods plus the export house premium of 2.25 per cent. of the FOB value. The relevant clause 12 of the agreement has already been extracted in the earlier part of the judgment and according to the said clause, the export house is under obligation to pay to the supporting manufacturer an incentive of 2.25 per cent. on the F.O.B. value according to the terms of the agreement. The respondent, a supporting manufacturer, admittedly sold the goods to the export house in respect of which the export house has issued a certificate under proviso to sub-section (1). According to the section, the respondent-assessee, in computing the total income be allowed a deduction to the extent of profits referred to in sub-section (....