Commissioner Of Income-Tax Thiruvananthapuram v. M/S Baby Marine Exports, Kollam

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ClFUIWLD 2 omOMhS SLO Faths ClutwHheasotlor 2.29% GOFTIMSOW 2 MUHDWTOMT Bovosy MM ws)! SEWUUHSAPLIYAOSTrETAMA. LOAILILIL_Lor Hors] Ou(MmwOTesr out) HHH CWTHA OU(MLIGSWTS sTMMIwWs! Hlmow 2 wit WHUL] OFTMSOW SHMTL_igww sOMIwW AFM HD 2 MUDASWTM(HSCHr ou(muorer ole Flt 8O ore ore F (lor) oCUP HISULIHW AYAHAVEMOOT OSM H WHSAIUUi_tLrot ailmucsmer wm) Uwedtlesr ah UGSwWTS oMMIw O5TOSOW AT_OHSIMM. BOH HIG FTOSuUTECaT, SBLor O5aTMSWTHCoBIL Lt aivon 30.03.1999 CGaiyuil_e 2° S57 aq UU WSIILIL_Lrorher CarManso A COMMISSIONER OF INCOME-TAX THIRUV ANANTHAPURAM v. MIS BABY MARINE EXPORTS, KOLLAM MARCH 30, 2007 B [ASH OK BHAN AND DAL VEER BHANDARI, JJ.] Income Tax Act, 1961: , Section BOHHC (JA)-Export house premium:_beduction while , Section BOHHC (JA)-Export c computing total income-Held, permissible. The short question oflaw involved in the instant appeals was-whether the export house premium received by the assessee is includible in the "profits of the ~usiness" of the assessee while computing tlie deduction under Section D [80HHC ][of ][the. Income '.fax Act, 1961. ] Answering the question in the affirmative and disposing of the appeals, the Court 't· HELD 1.1 The Export House premium is an integral part of the sale E price realized by the assessee from the a;xport house and can be included in the business profit. The assessee thus is entitled to claim deduction of the premium amount in computing the total income. [Paras 26 and 29) (639-A-B, F) CST v. Bangalore Clothing Company, 260 ITR 371; KRN Marine F Exports Ltd. ACIT, (2006) 153 Taxman 437; Sea Pearl Industries v. CIT Cochin, (2001) 2 SCC 33; IPCA Laboratory Ltd v. Dy. Commissioner of Income Tax, Mumbai, (2004) 12 SCC 742 and Bajaj Tempo Ltd. v. Commissioner of Income Tax, Bombay, [1992) 3 SCC 78, referred to. Berger Paints India Ltd v. Commissioner of Income Tax, Calcutta, [2004) G 12 sec 42, relied upon. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6146 of2005. From the Final Judgment and Order dated 22.08.2003 of the High Court of Kerala at Ernakularn in ITA No. 45 of2003. COMMNR. OF INCOME-TAXTHIRUVANANTHAPURAM v. BABY MARINE EXPORTS, KOLLAM (DALVEER BHANDARI. J.J 629 WITH C.A. Nos. 281-284, 286 of2006. Vikas Singh. ASG., T. L. V. Iyer., Ranvir Chandra, Gaurav Dhingra (for B. V. Balaram Das), Gopalakrishnan, R. and Jai Kishore Singh (for Subramonium Prasad) for the Appellant. S. Ganesh, C. N. Sree Kumar, Anil B. Nair and K. Gireesh Kumar for the Respondent. The Judgment of the Court was delivered by DALVEER BHANDARI, J. The controversy involved in these appeals revolves around a short but important question of law - whether 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? Since a common question of law arises for consideration in these appeals, therefore, they are being disposed of by this common judgment. However, for the sake ofreference, the essential facts of Civil Appeal No. 6146 of2005 are reproduced as under. The respondent-assessee, Mis Baby Marine Exports, Kollam is engaged in the business of selling marine products both in domestic market and also exporting it. The assessee is exporting directly to the buyers and also through export houses. The assessee in the instant case has entered into contracts with the F export houses, whereby, as and when the assessee sells the goods or merchandise to an export house, as consideration for the sale, receives the entire F.O.B. value of the exports plus the export house premium of2.25% 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: G "Clause (12): The Export House agrees to pay the manufacturer/ shipper an incentive of 2.25% on the F.O.B. value (net of overseas commission) of the said Frozen Marine products shipped by the manufacturer/shipper." 630 SUPREME COURT REPORTS [2007] 4 S.C.R. 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 80-HHC (IA) of the Income Tax Act. The assessee has shown the export premium as part of sale consideration B having an element of turnover and not commission or service charges. 630 The Income-tax Officer, Ward-I, Quilon rejected the claim of the assessee by his order dated 30.3 .1995. In this connection; the assessing officer referred to the relevant clause 12 of the agreement entered into between the assessee and the export house and observed that the narration of the clause shows c the nature of the payment. According to the assessing officer, this is clearly a "commission or service charge" for routing the exports through the export houses who receive import licenses required by them. The assessing officer in support of his findings referred to and relied upon the decision ofITA T, Cochin Bench in ITA No.610 (Coch)/1994) dated 21.12.1994 in G. Gangadharan D [Nair ][v. ] [Ward-1, ][Mattanchery. ] The respondent assessee aggrieved by the said order filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) also examined the main question being E [whether the export house premium will ][form ][part ][of ][the export turnover ][for ]the purpose of computing the amount of deduction under the proviso to sub-section (3) to Section SOHHC? The Commissioner (Appeals) relying upon the decision of the ITAT dated 28.3.1995 in Income Tax Officer v. Sea Pearl Industries Ltd directed the F assessing officer to include the value of export through export houses also in the export turnover for the purpose of computing_ deduction under Section SOHHC. The Commissioner (Appeals) held that "what the appellant has received is only a reimbursement of certain expenses or payments towards commission or br.okerage. That being the case; the export premium receipts G [will ][fall ][within the ambit ][of ][clause 1 ][of ][Explanation (baa) ][to ][Section ] and, therefore, the Assessing Officer was justified in excluding 90% of such receipts to arrive at the profit of the business as defined in Explanation (baa)". The Commissioner (Appeals) further held !hat "the Assessing Officer was not justified in excluding the indirect export from the export turnover. He is directed to include the indirect export also in the export turnover for the H purpose of Section 80HHC". COMMNR. OF INCOME-TAX THIRUVANANTHAPURAM •·BABY MARINE EXPORTS. KOU.AM (DALVEER BHANDARI. J.) 631 The respondent aggrieved by the order of the Commissioner (Appeals) A .\.. .~ 'approached the Income Tax Appellate Tribunal. The Tribunal extracted the findings of the Commissioner (Appeals) in its order in extenso and relied on the decision of the Tribunal. The Tribunal allowed the appeal of the assessee and upheld the stand B 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 before the High Court. The High Court vide order dated 22.8.2003 c appeal before the High Court. The High Court vide order dated 22.8.2003 dismissed the appeal of the Revenue by observing that the questions involved in the appeal were squarely covered by its decision in IT A Nos.251/2002 and 166/2002 dated 01. 7 .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. 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HUTADA HMuorhiser GUTATMUNEOM BVHoWNUUSMSroT DQuuML_wts HST Dbblu OlFovroaicsstl ssmmiwds) / sore) SuuMoFva HeISoTHASW Q)Te4r(h) OSBMoaysomorujs) QAGSTeTLommitp 1994 Df, 6(LILI6YUL_OUT HH1h)M1) OUoTooLyd) வைக CFTHSSULILL TMMIWS) Hlyioicrb | ursdSS HlMoorb / HL FHIIT OUTHHH HG@UUT Lt MTHS MIMO croor BHDASMSASULILL Hor oulonow virtue of the provision of S. 80-HHC (1) but only by virtue of the provision of S. 80-HHC(lA). The said sub-section provides that the assessee, being a supporting manufacturer, has during the previous E year, 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 provision to sub-section (1), there shall in accordance with and subject to the provisions of Section 80-HHC be allowed in computing the total income of the assessee, a deduction of the profits derived by the assessee from the sale of goods or F merchandise to the export house or trading house in respect of which certificate has been issued. From the above, it would appear that it is the sale of goods or merchandise to the export house which entitles the assessee to get the deduction under the sub-section and it is the profits derived by the assessee from the sale of goods or merchandise G to the export house that is liable to be deducted in the computation of the total income. It is only by virtue of the agreements between the assessee and the export houses the assesses got the FOB value of the goods exported and a percentage of the FOB value as export premium. Thus, both the amounts constituted the consideration received by the assessee for the sale of goods or merchandise to the export house. Thus, even applying the principles laid down by the Supreme Court and of this Court in the decisions relied on by the senior counsel for the Revenue, it has to be held that the assesses ·are' entitled to the benefits of section 80HHC on the export premium received from the export houses." Being aggrieved by the decision of the High Court, the Revenue has come to this Court by way of filing the instant appeal. The Revenue has ra.ised many questions of la'Y in this appeal, but we are only concerned with the following question: "Whether, on the facts and in the circumstances of the case, the . assessee is entitled to any benefit on the export house premium?" In appeal, it has been stated by the Revenue that the High Court has erred in law in· holding that the premium received by the assessee from the export house, which has exported the goods on behalf of the assessee, being D the ·supporting manufacturer, was profit ort which the assessee was e;'ltitled to a benefit of deduction under Section 80-HHC of the Act inasmuch as it did not -form part of the sale proceeds of the goods exported by the assessee through the e~port house but it was merely a receipt. from the Export House in con_sideration of the permits/service rendered to them for facilitating the E [export ][of ][goods. ] Acc.ording to the Revenue, the High Court has erred in interpreting the term "profits of the business" contained in clause (baa) of Explanation to Section 80-HHC by holding that the premium received by the assessee from the export house was profits of bu~ines~ ·and not any suin referred to in F [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 provisions of sub-section (IA) and (4A) of Section 80-HHC, the assessee being a supporting manufacturer is entitled to deduction under this Section only on the sale price of the assessee's goods export:ed through the export G house inasmuch as the premium received by the assessee from the export house cannot be held to have been "deriver! from" the export business of the assessee. It was asserted by th-e appellant that the High Court erred in holding H [that the assessee was entitled to deduction under this Section ][by ][ignoring ]