Ita/10/2009 Of The Commissioner Of Income Tax v. M/S Shamanur Kallappa And Sons

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THR 12[th]DAY OF JANUARY, 20195) PRESENT THR HON' BLE MR. JUSTICK N.KUMAR ANT) THR HON' BLE MR. JUSTICEK B. VEBRAPPA INCOME TAX APPEAL No. 10/2009 BBRTWERE 1.The Commissioner of Income Tax,284/1, Park View Building,2[th]Main, P.J. Extension, Davangere-95/7/ OO2 a2The Asst. Commissioner of Income Tax, Circle-1, Davangere _ APPBRLLANTS| (BY SRI K V ARAVIND, ADVOCATE) AND: M/s. Shamanur Kallappa & Sons,No. 22/1-2, Chowkipet, Davangere. —. RBSPONDBENT (BY SRI 8S. PARTHASARATHI, ADVOCATE) This ITA is filed under Section J6O0O-A of thIncome Tax Act, 1961 arising out of Order dated29.08.2008 passed in ITA No. 1288/BNG/2007, for the assessment year 2003-04 praying to formulate thesubstantial questions of law stated therein and to allowthe appeal and set aside the order passed by the ITATBangalore Bench ‘A’ in ITA No.1288/BNG/2007, dated2OQO OS .2OO This Income Tax Appeal coming on for Hearingthis day, N. Kumar J., delivered the following: JUDGMENT The assessee is a partnership firm carrying on thebusiness of trading in Sugar, Pulses and export of Rice. —For the assessment year 2003-04, the assessee filedreturn oT|incomedeclaringtotalincomeoT|Rs.2,20,955,450 /atterclaiming|deductionoT|Rs.80,95,004/- under Section 80HHC of the Income TaxAct, 1961 (for short hereinafter referred to as ‘the Act’). 2. It is not in dispute that the assessee exportedrice to Pnomphenh, Cambodia through State TradingCorporation of India Ltd., (for short hereinafter referredto the ‘STC’, Jalandhar as a supporting manufacturerand therefore, they claimed deduction under Section 80.HHC of the Act. The assessee produced a letter dated 28.11.2003 trom the STC to the effect that STC had not|claimed any export benefit on the said exports and thatthe said exports are under protocol exports i.e.Government of India to Government Aid Programme andthat the export consideration was received in Indianrupees from the Ministry of External Affairs. <A.certificate of disclaimer from STC in the prescribedForm 10CCAB and the bill of lading was also filed beforethe Assessing Officer. 3. The Assessing Officer disallowed the said claimon the ground that the STC had declared loss. In otherwords, they had not earned any profit out of suchexports. Secondly on the ground that deduction undersection 8OHHC of the Act is permissible only when therealization is in foreign exchange. Aggrieved by the saidorder, the assessee preferred an appeal to theCommissioner of Income Tax (Appeals), who confirmed the order of the Assessing Authority against which theassessee preferred an appeal to the Tribunal. 4 The Tribunal on consideration of variousprovisions of law as well as Circulars held that underthe scheme, the supporting manutacturer gets anindependent right to claim deduction once he gets adeclaration certificate in his favour from the ExportHouse. What is to be seen is whether the benefit isclaimed by both the Export House and the supportingmanutiacturer. If the export house is not claiming thebenefit and the issue of certificate of disclaimer is in/respect of export turn over, then the supportingmanufacturer is entitled to the benefit. After referring tothe circulars issued by the Central Board of Taxesdealing with the protocol exports, it was held that thesupporting manufacturer has realized the considerationin Indian currency. Whether the Government of India has realized some foreign currency is not the criteria. | In view of the specific provision as contained in Section80 HHC(1A) of the Act, the supporting manufacturer isentitled to the said benefit. Aggrieved by the said order,the revenue is in appeal. has realized some foreign currency is not the criteria. | In view of the specific provision as contained in Section80 HHC(1A) of the Act, the supporting manufacturer isentitled to the said benefit. Aggrieved by the said order,the revenue is in appeal. o. The learned Counsel appearing for the revenueassailing the impugned order contended that when theexport house has not earned any profit, the question ofpassingOT)thesaid|benefit CO thesupporting|manutacturerdoes|NOTarise.secondly,the.Government of India gifted the rice to Cambodia and itis not a sale and no foreign exchange is realized andtherefore, he submits Section 80HHC of the Act has noapplication to the facts of this case. 6. Per contra, learned Counsel for the assesseesubmitted that the present case falls under SectionSOHHC(1A) of the Act and all the conditions prescribedtherein are fulfilled as held by the Tribunal and therefore, no case for interference is made out in the) impugned order. 7. The appeal was admitted to consider thefollowing substantial question of law: “Whether the Tribunal was right in holding|that the respondent-assessee was entitledto the benefit of the provisions of SectionSOHHC(1A) of the Income Tax Act, 1961even without actually exporting any foodgrains to a foreign country?” 8. Section SOHHC of the Act provides for deduction in respect of profits return from exportbusiness. In the instant case, the role of the assessee is_that of the supporting manufacturer and therefore, it issection 8OHHC(1A) of the Act that is attracted whichreads as under:| “SectionSOHAC(IA):WheretheASSESSECE,beingFTSupportingmanufacturer, has during the previous| year, sold goods or merchandise to any.Export House or Trading House in respectof which the Export House or Trading|House has issued a certificate under theproviso to sub- section (1), there shall, in|accordance with and subject to _ thprovisions of this section, be allowed incomputingthe|totalincome|of|the|assessee, a deduction to the extent of|profits, referred to in sub-section (1B)derived by the assessee from the sale of|goods or merchandise to the ExportHouse or Trading House in respect ofwhich the certificate has been issued by|the Export House or Trading House.” 9. To attract the said provision, the supportingmanutiacturer who sells the goods or merchandise to theexport house or trading house, the export house andtrading house has to issue a certificate under theproviso to Sub-section (1) of Section 8O0HHC of the Act. If these two conditions are fulfilled, then the supportingmanutacturer1SentitledTO the.deductionaS| contemplated under Section 8OHHC of the Act to anextent aS mentioned in Section 8O0HHH(1B) of the Act. It is immaterial whether in the process, export house ortrading house sells the goods to any foreign country orearns profit or realizes any foreign exchange. In orderto attract Section 80HHC(1A) of the Act, after purchaseoT|goods|OTmerchandisefromthesupporting|manufacturer, the said goods has to be exported out ofIndia. Once such export is established, a certificateunder the proviso to Sub-section (1) 1s issued by theexport house or trading house and when they are notclaiming benefit under Section 8O0HHC, the assesseewould be entitled to the benefit ot deduction as!prescribed under Section 80HHC(1A) of the Act. Eventhe circulars relied on do support the case of theaSSECSSECE. 10. In that view of the matter, we do not see anymerit in this appeal. The substantial question of law is. answered in favour of the assessee and against the TEVENUE. 11. Yet another substantial question of law which arises for consideration in this appeal is as under: 10. In that view of the matter, we do not see anymerit in this appeal. The substantial question of law is. answered in favour of the assessee and against the TEVENUE. 11. Yet another substantial question of law which arises for consideration in this appeal is as under: “WhetherOTLthe|factsandIn|thecircumstances of the case, the Tribunalwas right in law and on facts in coming tothe conclusion that the assessee hasapparently complied with the _ statutorrequirementsprovidedin|SectionSOHHC(1A) for claiming the deduction,even though the requisite certificate dulysigned by an accountant as defined in theExplanationbelow|Sub-section|(2),of|section 288 of the Income Tax Act, 1961,has not been filed along with the R/IP” 12. This Court had an occasion to consider thisquestion in the case of INCOME TAX OFFICER —-vs-MANDIRAiDVAKHARIA12001|(250).TTR430)(Karnataka)} where it has been held that even though the requisite certificate duly signed by an accountant asdefined in Sub-section (2) of Section 88 of the Act is notproduced along with return. If it is produced even in thecourse of proceedings, it has to be taken note of andgiven the benefit. Therefore, the Tribunal was justifiedin granting the relief to the assessee relying upon thecertificate produced in the course of the proceedings. —Therefore, we do not see any merit in this contentionalso and the substantial question of law is answered infavour of the assessee and against the revenue.| No merit. The appeal is dismissed. od/-| Judge od/- Judge Nsu/-_