CIT, Thiruvanantapuram v. Baby Marine Exports

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The Tax Publishers2007 TaxPub(DT) 1126 (SC) : (2007) 290 ITR 0323 : (2007) 209 CTR 0183 : (2007) 160 TAXMAN 0160 CIT, Thiruvanantapuram v. Baby Marine Exports INCOME TAX ACT, 1961 Deduction under section 80HHC- Allowability-Export house premium Assessee was engaged in the business of selling marine products both in domestic market and also exporting it. It was exporting directly to the buyers and also through export houses. It had entered into contracts with the export houses, as and when it would sell the goods or merchandise to an export house, as consideration for the sale, it would receive 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. It had been filing its income tax returns showing the export house premium as part of its total turnover and not commission or service charge and claiming deductions available to an exporter and/or a supporting manufacturer under section 80HHC(1A). AO rejected the impugned claim on the ground that the same was a commission or service charge for routing the exports through the export houses. CIT(A) disallowed claim of the assessee. Tribunal allowed the appeal of the assessee and upheld the view of the assessee that the Export House Premium received by it was includible in its profits of the business while computing the deduction under section 80HHC. The High Court dismissed the appeal of revenue. *Held:According to section 80HHC(1), the export house in computing its total income is entitled to deduction to the extent of the profit derived by the assessee from the export of the goods or merchandise. According to section 80HHC(1A), the assessee being supporting manufacturer shall be entitled to a deduction of profit derived by the assessee from the sale of goods or merchandise. [Para 28] The assessee, a supporting manufacturer, admittedly sold the goods to the export house in respect of which the export house had issued a certificate under proviso to sub-section (1). According to the section, the assessee, in computing the total income be allowed a deduction to the extent of profits referred to in sub-section(1B) derived by the assessee from the sale of goods to the export house. [Para 29] Tribunal had rightly concluded that the export house premium was nothing but an integral part of sale price realized by the assessee -a supporting manufacturer from the export house. The Tribunal further held that the Export House Premium could not possibly be considered to be either commission or brokerage, as a person could not earn commission or brokerage for himself. [Para 30] As per section 80HHC(1A), the assessee was entitled to claim deduction of the premium amount received from the export house in computing the total income. The Export House Premium could be included in the business profit because it was an integral part of business operation of the assessee which consisted of sale of goods by the assessee to the export house. [Para 34] The order of the Tribunal, which had been upheld by the High Court, was based on proper construction of section 80HHC. Hence, the appeal filed by the revenue was to be dismissed. Income Tax Act, 1961* Section 80HHC Case Law Analysis:G. Gangadharan Nair v. ITO [IT Appeal No. 610 (Coch.) of 1994, dated 21-12-1994] (para 5), CST v. Bangalore Clothing Co. [2003] 260 ITR 371/ 127 Taxman 637 (Bom.) (para 24), KRN. Marine Exports Ltd. v. Asstt. CIT [2006] 153 Taxman 437 (Mad.) (para 25), Berger Paints India Ltd. v. CIT [2004] 12 SCC 42 (para 25), Sea Pearl Industries v. CIT [2001] 2 SCC 33 (para 26), IPCA Laboratory Ltd. v. Dy. CIT [2004] 12 SCC 742/ 135 Taxman 594 (SC) (para 26) and Bajaj Tempo Ltd. v. CIT [1992] 3 SCC 78 (para 27). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2007 TaxPub(DT) 1126 (SC) : (2007) 290 ITR 0323 : (2007) 209 CTR 0183 : (2007) 160 TAXMAN 0160

CIT, Thiruvanantapuram v. Baby Marine Exports

INCOME TAX ACT, 1961

Deduction under section 80HHC- Allowability-Export house premium

Assessee was engaged in the business of selling marine products both in domestic market and also exporting it. It was exporting directly to the buyers and also through export houses. It had entered into contracts with the export houses, as and when it would sell the goods or merchandise to an export house, as consideration for the sale, it would receive 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. It had been filing its income tax returns showing the export house premium as part of its total turnover and not commission or service charge and claiming deductions available to an exporter and/or a supporting manufacturer under section 80HHC(1A). AO rejected the impugned claim on the ground that the same was a commission or service charge for routing the exports through the export houses. CIT(A) disallowed claim of the assessee. Tribunal allowed the appeal of the assessee and upheld the view of the assessee that the Export House Premium received by it was includible in its profits of the business while computing the deduction under section 80HHC. The High Court dismissed the appeal of revenue. Held:According to section 80HHC(1), the export house in computing its total income is entitled to deduction to the extent of the profit derived by the assessee from the export of the goods or merchandise. According to section 80HHC(1A), the assessee being supporting manufacturer shall be entitled to a deduction of profit derived by the assessee from the sale of goods or merchandise. [Para 28]

The assessee, a supporting manufacturer, admittedly sold the goods to the export house in respect of which the export house had issued a certificate under proviso to sub-section (1). According to the section, the assessee, in computing the total income be allowed a deduction to the extent of profits referred to in sub-section(1B) derived by the assessee from the sale of goods to the export house. [Para 29]

Tribunal had rightly concluded that the export house premium was nothing but an integral part of sale price realized by the assessee -a supporting manufacturer from the export house. The Tribunal further held that the Export House Premium could not possibly be considered to be either commission or brokerage, as a person could not earn commission or brokerage for himself. [Para 30]

As per section 80HHC(1A), the assessee was entitled to claim deduction of the premium amount received from the export house in computing the total income. The Export House Premium could be included in the business profit because it was an integral part of business operation of the assessee which consisted of sale of goods by the assessee to the export house. [Para 34]

The order of the Tribunal, which had been upheld by the High Court, was based on proper construction of section 80HHC. Hence, the appeal filed by the revenue was to be dismissed.

Income Tax Act, 1961 Section 80HHC

Case Law Analysis:G. Gangadharan Nair v. ITO [IT Appeal No. 610 (Coch.) of 1994, dated 21-12-1994] (para 5), CST v. Bangalore Clothing Co. [2003] 260 ITR 371/ 127 Taxman 637 (Bom.) (para 24), KRN. Marine Exports Ltd. v. Asstt. CIT [2006] 153 Taxman 437 (Mad.) (para 25), Berger Paints India Ltd. v. CIT [2004] 12 SCC 42 (para 25), Sea Pearl Industries v. CIT [2001] 2 SCC 33 (para 26), IPCA Laboratory Ltd. v. Dy. CIT [2004] 12 SCC 742/ 135 Taxman 594 (SC) (para 26) and Bajaj Tempo Ltd. v. CIT [1992] 3 SCC 78 (para 27).