TaxTMI 
TaxTMI 
2006 (1) TMI 116
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....2. Whether the Tribunal is justified in holding that 90 per cent. of the receipts from the Export House are deductible from the business profits determined under the Explanation to clause (baa) under subsection (4A) of section 80HHC for the purpose of quantifying relief under section 80HHC?" 2. The assessee is a company engaged in manufacture and export of marine products. Besides own exports, the assessee exported the marine products through an Export House also, during the relevant assessment years. In consideration of such export, the assessee received service charges from the export house at 3.5 per cent. FOB value of the invoice price of the product exported and claimed deduction in respect of the sum so received under section 80HHC. The Assessing Officer applied the provision of clause (baa) of the Explanation to section 80HHC and reduced 90 per cent. of the service charges from the profit of the business while computing exemption under section 80HHC. As against that order, the matters were carried on appeal to the Commissioner of Income-tax, who dismissed the appeal. The said orders were carried on further appeal to the Tribunal. The two members of the Tribunal differed i....
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....r cent. of the FOB value from the Export House cannot be regarded as profit with reference to the provision under section 80HHC. 5. We heard the argument of learned counsel on either side and perused the material on record. 6. The assessee, a limited company, exported marine products through an Export House viz., Adani Exports Limited (for short" AEL") apart from its direct exports. For exporting through AEL, the assessee entered into an agreement. As per clause 7 of the agreement, the assessee is entitled to service charges at 3.5 per cent. of the FOB value of the goods that are exported through the Export House AEL. As per the agreement dated July 22, 1994, the assessee agreed to export marine products to the extent of Rs. 15 crores (FOB value) for AEL. AEL agreed that the proceeds of the goods exported by the assessee would be received directly by the assessee and issued a disclaimer certificate in favour of the assessee. It was agreed that the assessee would bear all expenses till the goods are placed on the board of the ship. It was also agreed that 25 per cent. of the 3.5 per cent. of the FOB value of the exports would be paid on signing the contract and the balance 75 ....
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.... House in respect of which the certificate has been issued by the Export House or trading house. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (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, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf (b) .... Explanation 1.- The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2.-For the removal of doubts, it is hereby declared that where any goods or merchandise are ....
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....s 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) ... (e) ... (f) ... (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be, (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or trading houses, the profits of the business; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the prof....
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.... 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 after the 1st day of April, 1991, the expression 'total turnover' shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (baa) 'profits of the business' means the profits of the business as computed under the head 'Profits and gains of business or profession' as reduced by- (1) ninety per cent, of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges of any other receipt of a similar nature included in such profits; and (2) ... (c) ... (d) ....
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....f 1947), cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India and clause (iiic) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971. 12. As per sub-section (1A), where a supporting manufacturer during the 13 previous year has sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, subject to the provisions of section 80HHC be allowed in computing the total income of the assessee a deduction of the profit derived by the assessee from the sale of goods or merchandise to the Export House or Trading House, in respect of which certificate has been issued by the Export House or Trading House. 13. As per sub-section (3A), for the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or m....
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....ssessee in Indian currency. On the Export House issuing a disclaimer certificate, the assessee received the foreign exchange credited to its account after conversion into Indian rupee. The Export House, in this process received various benefits by way of incentive from the Government of India. The Export House gave certain amount as service charges so as to keep the assessee to have all the exports routed through the Export House. The service charges or export premium thus received are not part of the sale price of the exported goods. The sale price is the invoice price which had been received in foreign exchange from the buyer. The sum received from the Export House in India in Indian currency as service charges or incentive or by whatever name called would not become part of the sales turnover of the assessee. The convertible foreign exchange received by the assessee as sale proceeds or the sale proceeds transferred to the supporting manufacturer by the Export House alone form part of the sales turnover. Nothing in excess of that amount can be regarded as a subject matter of section 80HHC. 17. Having regard to the provisions referred to above, we are of the view that the servi....
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....in holding that the freezing and processing charges and labour charges received from the exporters in respect of processing of goods for export by such exporters, is not eligible for relief under section 80HHC?" 20. It is the case of the assessee that the assessee apart from exporting the goods for themselves and through Export House is also processing marine products for other exporters. The income derived in a sum of Rs. 35,21,735 out of the processing of the goods, which were ultimately exported by other exporters for whom freezing and processing has been made by the assessee have been claimed as business profit. The Assessing Officer rejected the claim on the ground that the sum received did not have any direct nexus with the export activity. On appeal, before the Commissioner of Income-tax, it was argued by the assessee that the freezing and processing charges received involves utilisation of the entire resources of the assessee like machinery, power and the other manufacturing and administrative set up. The only difference between the regular manufacturing and processing for others is that the assessee did not own the goods in respect of which processing has been carried o....