The Commissioner Of Income Tax Coimbatore v. M/S.bannariamman Exports Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 23.09.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMANandThe Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Appeal) No.962 of 2009 The Commissioner of Income TaxCoimbatore...Appellant/Respondentvs M/s.Bannariamman Exports Ltd.252, Mettupalayam RoadCoimbatore....Respondent/Appellant Prayer: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal,Chennai 'D' Bench dated 25.11.2005 in ITA.No.1270/Mds/99 for theassessment year 1996-97 as against the order of the Commissioner ofIncome Tax (Appeals), Coimbatore, made in ITA No. 1468/98-99 dated28.06.1999 arising out of the assessment order of Joint Commissionerof Income Tax, Special Range - I, Coimbatore for the Assessment year1996-97 dated 21.01.1999 P.A.N./G.I.R. 49-524-C2-1327. For Appellant: Mr.N.V.BalajiStanding Counsel for Income TaxDepartmentFor Respondent: Mr.Vijayaraghavan forM/s.Subbaraya Aiyar JUDGMENT (The Judgment of the Court was made byCHITRA VENKATARAMAN, J.) The Revenue is on appeal as against the order passed by theIncome Tax Appellate Tribunal, Chennai 'D' Bench dated 25.11.2005 inITA.No.1270/Mds/99 relating to the assessment year 1996-97 raisingthe following questions of law: " 1. Whether on the facts and in the circumstances ofthe case, the Income Tax Tribunal is right in holding thatdemurrage and dead freight are to be allowed while https://hcservices.ecourts.gov.in/hcservices/ calculating the relief under Sec.80 HHC for the assessmentyear 1996-97? 2. Whether on the facts and in the circumstances of thecase, the Income Tax Tribunal is right in law in notconsidering the explanation 'b' under Sec.80HHC whereinexport turnover does not include freight or insuranceattributable to the transport of goods or mercantile beyondthe customs station?". 2. The assessee is a trading concern exporting Molasses,granites, diamond and leather. It exported molasses worthRs.6,14,87,164/-. As per the terms and conditions of the sale ofmolasses to M/s.United Molasses, London, demurrage and dead freightincurred by virtue of loading molasses at Kochin Port had to be borneby M/s.United Molasses, London and the same was to be paid to theChartered Ship owners. M/s.United Molasses, London in turn,collected the demurrage and dead freight charges from the assessee onthe ground that the delay in loading was attributable to theassessee. Thus the demurrage and dead freight incurred wasRs.31,44,590/- and Rs.3,33,405/- respectively. Instead of theassessee paying the amount towards demurrage and dead freight, thepurchaser, M/s.United Molasses, London deducted the said amount fromthe sale consideration and remitted the balance sale proceeds to theassessee company. The assessee submitted that the deduction underSection 80 HHC has to be worked out on the sale consideration ofRs.6,14,87,164/-. However, the Assessing Officer rejected the saidclaim and restricted the deduction only to the net amount received bythe assessee. 3. Aggrieved by this, the assessee went on appeal before theCommissioner of Income Tax (Appeals); having lost the same, theassessee filed an appeal before the Income Tax Appellate Tribunal,which allowed the assessee's appeal. In considering the said claim,the Tribunal however, pointed out that the issue had to be seen inthe context of the agreement between the assessee and the foreigncompany. Consequently, it remitted the matter back to the AssessingOfficer to give a finding from the materials on record as to whetherthis sum were actually of such nature to be borne by the assessee. 4. Aggrieved by this, the Revenue is on appeal before this Courtand the learned Standing Counsel appearing for the Revenue brought toour attention the definition to "Export Turnover" appearing inExplanation (b) to Section 80HHC of the Income Tax Act, 1961 whichreads as follows: 4. Aggrieved by this, the Revenue is on appeal before this Courtand the learned Standing Counsel appearing for the Revenue brought toour attention the definition to "Export Turnover" appearing inExplanation (b) to Section 80HHC of the Income Tax Act, 1961 whichreads as follows: "Export turnover" means the sale proceeds, [receivedin, or brought into, India] by the assessee in convertibleforeign exchange [in accordance with clause (a) of sub-section (2)] of any goods or merchandise to which thissection applies and which are exported out of India, but does not include freight or insurance attributable to thetransport of the goods or merchandise beyond the customsstation as defined in the Customs Act, 1961 (52 of 1962)." 5. In the background of this, learned Standing Counselsubmitted that the amount being deducted represented dead freight,the net consideration alone would represent the export turnover andnot the sum of Rs.6,14,87,164/-. 6. Learned Counsel for the respondent/assessee however pointedout that the agreement between the assessee and the Exporter on theexport of Molasses was on the consideration of Rs.6,14,87,164/- only.As per the agreement any delay in shipment on account of the assesseewould have to be borne by the assesseee only and as per the agreementbetween the parties, the liability was already charged against theassessee. Instead of the assessee paying the amount to the CharteredShip Owners for the delay caused by them, the Foreign Company paidthe same and after deducting the demurrage on the delay caused bythe assessee, the Foreign Company remitted only the net amountpertaining to the sale proceeds. 7. Considering the agreement between the parties, the assesseethus rightly claimed that the Chapter VI deduction should be on theagreed amount on the sale of molasses and not what was receivedultimately after deducting the demurrage charges, which is an issuetotally deferred. 8. To that end, he placed reliance on the decision of the ApexCourt reported in [1997] 223 ITR 271 [J.B.Boda and Co.Pvt.Ltd. vs.Central Board of Direct Taxes]. The said case related to an assesseewho was the reinsurance broker for Oil and Natural Gas Commissionwhich has insured all their off-shore oil and gas exploration andproduction operations with an Indian Insurance company. The assesseetherein applied to the Reserve Bank of India for permission asregards the payment of total re-insurance premium payable to theforeign parties; after deducting the brokerage due to the assesseefor technical services rendered, the balance was remitted to theLondon brokers, who were the brokers for placing all re-insurancebusiness. The assessee sought for approval of the Central Board ofDirected Taxes in terms of Section 80-O of the Income Tax Act, 1961on the ground that the reinsurance brokerage retained in India underagreement with the London Brokers amounted to receipt of income inconvertible foreign exchange. On the Board refusing to give theapproval and after the dismissal of the writ petition filed, theassessee approached the Apex Court by way of an appeal. The ApexCourt pointed out that the formal remittance to the foreign re-insurers first and thereafter receipt of the commission from theforeign re-insurer was unnecessary and that the entire transactioneffected by the assessee showed a two-way traffic. Thus, on facts,to first insist on a formal remittance to the foreign insurer and then thereafter to receive the commission from the foreign insurer bythe assessee would be an empty formality and a meaningless ritual.Thus on going through the nature of the transaction and the statementof remittance filed in the Reserve Bank of India regarding thetransaction, the Apex Court held that the income received in India inconvertible foreign exchange in a lawful and permissible mannerthrough the premium institution concerning the subject matter was tobe given its due credence and that the Board was not correct indeclining the agreement of the assessee with the Foreign ReinsuranceCompany. 9. In the circumstances, the Apex Court held that the remittanceto the foreign insurer after deducting the commission was to begiven its proper recognition. 10. Applying the said decision, to the facts of this case, asrightly pointed out by the learned counsel for the asseseee, theRevenue does not dispute the fact that the assessee had exportedmolasses worth Rs.6,14,87,164/-. The Revenue also does not disputethe fact that there was an agreement between the assessee and theforeign buyer as regards the liability of either of the party ondemurrage, as per which, the demurrage and dead freight was payableby the assessee on account of its delay in boarding of Molasses andconsequently, the charges payable thereon were to be paid by theassessee. Accordingly, the foreign company deducted the amounttowards demurrage and dead freight and remitted the balance amount tothe assessee.This does not mean that the sale consideration wasanything less than Rs.6,14,87,164/- for the purpose of claimingdeduction under 80 HHC of the Act. There is nothing on material toshow that the parties had agreed that the balance after adjustingdemurrage and dead freight charges alone would be the safeconsideration. 11. In the circumstances, we agree with the assessee that theassessee is entitled to the claim and we do not find there is anyneed for even a remand also in this case. Consequently, we have nohesitation in dismissing the Revenue's appeal on the facts, thusreferred to above. 12. In the result, the Tax Case (Appeal) is dismissed. Nocosts.Sd/Asst.Registrar/true copy/Sub Asst.Registrar vj2