The Commissioner Of Income Taxchennai v. Glamour Saree Musuemharbour Shopnear Main Gatechennai 1

In the High Court of Judicature at Madras Dated : 1.10.2007 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIANand The Honourable Mrs.Justice CHITRA VENKATARAMAN Tax Case (Appeal) Nos.1259 to 1263 of 2007M.P.Nos.1,1,1 and 1 of 2007 The Commissioner of Income TaxChennai . .. Appellant in all the Tax cases Vs Glamour Saree MusuemHarbour ShopNear Main GateChennai 1. .. Respondent in all the tax cases TAX CASE (APPEAL) under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'A'Benchdated13.10.2006madeinI.T.A.Nos.47/Mds/2005,48/Mds/2005,49/Mds/200550/Mds/2005,51/Mds/2005 for the assessment years 1989-90 , 1996-97, 1997-98,1999-2000, 2000-01. (I.T.A.No.13/2002-03 dated 15.4.2003 andITA.Nos.466, 465, 467 and 468/2004-2005 dated 23.8.2004respectively on the file of the Commissioner of Income Tax(Appeals) IX Chennai 34 against i. PAN/GIR No.G.I.33010-G dated 22.3.2002 ii. PAN/GIR No.PAN AAA FG3971A/33010-G dated 31.3.2004 iii. PAN/GIR No.PAN /33010-G dated 31.3.2004. iv. PAN/GIR No.PAN AAA FG3971A/33010.G dated 31.3.2004 and v. PAN/GIR No.PAN. /33010-G dated 31.3.2004 respectivelyon the file of the Income Tax Office, Business ward VIII (4)Chennai-6. For Appellant : Mr.J.Narayanasamy Standing Counsel (Income Tax) https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J) The tax case appeals are filed by the revenue against theorder of the Income Tax Appellate Tribunal Madras 'A' Benchconfirming the order of the Commissioner of Income Tax Appealsgranting the relief under Section 80 HHC. The assessee herein isa shop located inside Madras Harbour, Chennai. In respect of saleseffected by the assessee, the assessee claimed deduction underSection 80 HHC. The assessing officer, however, rejected the pleaof the assessee on the ground that the assessee had not exportedthe goods or merchandise and that as the assessee was trading thegoods from his shop in India and held that the deduction underSection 80 HHC was not available. Aggrieved by the assessmentorders, the assessee preferred appeals to the Commissioner ofIncome Tax (Appeals), who allowed the appeals and granted therelief. As against this order, the Revenue preferred appealsbefore the Tribunal, which confirmed the decision of theCommissioner of Income Tax (Appeals) by following the decisions ofthe Apex Court and other High Courts, wherein it was held that whenthe assessee had sold the goods in foreign exchange and the goodswere taken outside India, the assessee was entitled for deductionunder Section 80 HHC. Aggrieved by the said order, the Revenue haspreferred the present tax case appeals by raising the followingsubstantial questions of law: 1. Whether in the facts and circumstances of the case, the Tribunal was right in holdingthat the assessee is entitled for the deductionunder Section 80HHC ? 2. Whether in the facts and circumstancesof the case, the explanation (aa) to section 40HHC(4C) which states that export outside Indiashall not include any transaction by way ofsale or otherwise in a shop situated in Indianot involving clearance at any customs stationis applicable to the assessee effecting salethrough a shop in India ? 2. Learned counsel appearing for the Revenue submitted thatthe assessee has not proved that the sale had involved clearanceat any customs station as defined in Explanation (aa) to Section80-HHC(4A) and hence, the assessee is not entitled to the reliefof deduction under Section 80-HHC. 3. A perusal of the order of the assessing authority showsthat the assessee had, in fact, produced before the assessingauthority at the time of assessment, the orders of the Income Tax https://hcservices.ecourts.gov.in/hcservices/ 2. Learned counsel appearing for the Revenue submitted thatthe assessee has not proved that the sale had involved clearanceat any customs station as defined in Explanation (aa) to Section80-HHC(4A) and hence, the assessee is not entitled to the reliefof deduction under Section 80-HHC. 3. A perusal of the order of the assessing authority showsthat the assessee had, in fact, produced before the assessingauthority at the time of assessment, the orders of the Income Tax https://hcservices.ecourts.gov.in/hcservices/ Appellate Tribunal relating to the sister concern made in ITANo.1618/Mds/93 dated 28.11.2000 and the copies of the agreementdated 14.2.1983 between the Trustees of Port Trust and theassessee; the copies of purchase and sales Invoices. In the courseof the proceedings before the Commissioner of Income Tax(Appeals), the assessee produced copies of invoices and clearancesthat the customs authorities had to give and take the goods insidethe customs notified area. The Commissioner of Income Tax Appealswrote a letter to the Additional Commissioner of Income Tax(Appeals) to enquire into whether the shop is located in thecustoms notified area and the mode of sales and other relevantinformation for deciding the case. The Assistant Commissioner(Customs), vide his letter dated 20..5.2004, has made hisclarification giving the following clarification. The same,extracted in the order of the Commissioner of Income Tax (Appeals),is as follows: (i)M/s.Glamour Saree Museum is having shopinside the Chennai Harbour which is Custom'sStation. (ii)On verification of their cash bill booksit is found that the goods are sold only onpayment of foreign currency and the same areencashed through authorised dealers. However,in the absence of any previous records, theDepartment is unable to confirm as to whetherthey could sell only against foreign currencyand whether sale against Indian currency willviolate any conditions prescribed while issuinglicence. (iii)Customs clearance is not required at thetime of sales, whereas the customs clearance isrequired when the goods are brought inside theharbour for sales. (iv)The goods are being purchased fromM/s.Glamour Saree Museum by tourite arriving bychartered ships and members of crew of variousvessels touching Chennai Harbour. Since thegoods are of Indian origin, the crew memberswho purchase the goods by paying foreignexchange can take it out at the time of signingoff. No customs clearance is required as thegoods are of Indian origin. (v)With regard to "customs notified area"there is no 'Customs notified area' whereas asper Chapter 12(11) and (13) of the Customs Act,1962 'Customs Area' means the area of Customsstation and includes any area in which importedgoods or export goods are ordinarily kept before clearance by Customs authorities: and'Customs Station' means any Customs port,Customs airport or land customs station. " 4. Going by all these clarifications, the first appellateauthority applied the decisions of the Supreme court reported in259 ITR 684 (CIT VS. SILVER AND ARTS PALACE); 258 ITR 346 ( ITOVS. VAIBHAV TEXTILES); 222 ITR 606 (RAM BABU & SONS VS. UNION OFINDIA) and held that the assessee had satisfied the two conditions(i) the goods were sold in foreign exchange and (ii) that the goodswere exported out of India and found that the shop was also locatedin customs notified area and the same could not come back intoIndia. Considering these aspects, the Commissioner of Income Tax(Appeals) rightly granted the relief under Section 80-HHC. Onfurther appeal, before the Tribunal, it was pointed out that theconditions set forth in the decision of the Supreme Court werefully satisfied. Consequently, the Tribunal held that assessee wasentitled to the relief under Section 80-HHC. 5. Learned counsel appearing for the Revenue submitted thatthe assessee had sold the goods from the shop situated near theHarbour and hence, the sale could not amount to an export toentitle to the deduction under Section 80-HHC. He further pointedout to the Explanation (aa) to Section 40-HHC(4C) that the salewould not fall under the category of 'export' to qualify for thededuction under Section 80-HHC. Learned counsel also referred tothe decision of the Allahabad High Court reported in 222 ITR 606(RAM BABU & SONS VS. UNION OF INDIA) as approved by the Apex Courtin the decision reported in 259 ITR 684 (CIT VS. SILVER AND ARTSPALACE) when Explanation (aa) to Section 80HHC (4A) has beenconsidered. 6. Section 80 HHC (4A) Explanation (aa) reads as follows:" Section 80-HHC (4A) Explanation (aa): "export out of India" shall not include anytransaction by way of sale or otherwise, in ashop, emporium or any other establishmentsituate in India, not involving clearance atany customs station as defined in the CustomsAct, 1962 (52 of 1962) " 7. As per the above explanation, a sale is not considered asan export sale (i) if it is a 'transaction by way of sale orotherwise in a shop, emporium or establishment in India and (ii) itdoes not include customs clearance. 8. Learned counsel appearing for the Revenue brought to ourattention the decision of the Apex Court in reported in 259 ITR684 (COMMISSIONER OF INCOME TAX Vs. SILVER AND ARTS PALACE), https://hcservices.ecourts.gov.in/hcservices/ wherein, under similar circumstances, the Apex Court had consideredthe introduction of explanation (aa) to Section 80-HHC(4A). In thesaid judgment, the Apex Court affirmed the judgment of theAllahabad High Court in the decision reported in 222 ITR 606 (RAMBABU AND SONS VS. UNION OF INDIA), wherein it has been held that asper Explanation (aa) to Section 80-HHC (4A) of the Income Tax Act1961, for the purpose of this Section, there will be no export outof India, if two conditions are cumulatively fulfilled, viz., (a)it is a transaction by way of sale or otherwise in a shop, emporiumor establishment situated in India, and (b) that it does notinvolve clearance in any customs station as defined in the CustomsAct. The Apex Court further held that there was no dispute betweenthe parties; that the transactions of counter sales effected bythe respondent involved customs clearance within the meaning ofExplanation (aa) to Section 80 HHC (4A) of the Act and furtherthat the sales were in convertible foreign exchange and in thosecircumstances, the Apex Court dismissed the appeal preferred bythe Revenue. 9. Interpreting Explanation (aa) of Section 80-HHC(4A), theApex Court referred to the decision of the Allahabad High Courtreported in 222 ITR 606 (RAM BABU AND SONS Vs. UNION OF INDIA) andpointed out that the said decision has been consistently followedby several High Courts. The Apex Court also pointed out that theSpecial Leave Petition filed against the decision of the AllahabadHigh Court reported in 222 ITR 606 (RAM BABU AND SONS Vs. UNION OFINDIA) was dismissed summarily. Going by the meaning ofExplanation (aa) to Section 80 HHC(4A) that the sales were inconvertible foreign exchange, the Apex Court held that theassessee was entitled to the special deduction under Section 80-HHCin respect of the counter sales. A reading of the decision of theAllahabad High Court reported in 222 ITR 606 (RAM BABU AND SONS Vs.UNION OF INDIA) shows that even if either of the two conditions isnot satisfied, it would be an export out of India. It held thatExplanation (aa) has nothing to do with the seller or purchaser.It is the transaction which would involve clearance of customs ifit is to be an export out of India within the meaning ofExplanation (aa). The Allahabad High Court pointed out that thetransaction would not be an export out of India, if two conditionsare satisfied, namely, (i) it should be a transaction by way ofsale in a shop, emporium or an establishment situate in India; (ii)it should not involve clearance in the customs as defined in theCustoms Act. 10. In the background of the above-said exposition of law, alook at the facts in the case on hand would show that admittedly,the shop run by the assessee is situated in the customs notifiedarea, as the assessee had also produced a copy the agreement dated14.2.1983 between the Trustees of Port Trust and the assessee. It is not denied by the counsel for the Revenue that the goods weresold in foreign exchange and after the goods were sold, the samecannot come back to India. Hence, the conditions required forgranting the relief under Section 80-HHC are fully satisfied. 11. Learned counsel for the Revenue submitted that theassessee had not produced any evidence as against its claim tohave the benefit of deduction. However, going by the letteraddressed by the Assistant Commissioner (Customs) dated 20.5.2004,which clearly shows that the assessee's shop is situated insidethe Chennai Harbour which is Custom's station and the goods sopurchased from there cannot come back into country for open marketdealing, we are of the view there is no force in the contention ofthe counsel for the revenue. For the foregoing reasons, we are ofthe opinion that there is no question of law much less substantialquestion of law arises in these appeals so as to entertain thesame. The tax case appeals are dismissed. Consequently, theconnected M.Ps are closed. Sd/-Asst. Registrar. krr/ksvTo: /true copy/Sub Asst. Registrar. 1. The Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 2. The Commissioner of Income Tax, Chennai. 3. The Commissioner of Income Tax, Appeals IX, Chennai 34. 4. The Income Tax OfficerBusiness Ward VIII (4), Chennai-6. 1 cc to Mrs. PushyaSitaraman, Sr. Standing Counsel for IR, Sr.61178Tax Case (Appeal) Nos.1259to 1263 of 2007 JRG (CO)kk 28/11