IMPORTANT POINT
An unrecognised exporter who exported goods under an agreement with a recognised Export house, exported processed goods and exported same on the account of Export house on the basis of orders placed on the Export house by the foreign buyers was not entitled to deduction under Section 80 HHC of the Income Tax Act.

Headnote:Income Tax Act, 1961-Section 80-HHC-Exporter-Deduction-Assessee processed goods and exported same on account of recognised Export House on basis of orders placed on Export house by foreign buyers-Assessee not an exporter as far as Income Tax Authorities were concerned-Not entitled to deduction.
       Section 80 HHC requires (i) the assessee to export the goods and (ii) the sale proceeds to be receivable by the assessee in convertible foreign exchange. The foundation of the appellant s arguments before us, as far as the first requirement is concerned, is the agreement between the appellant and the export house and in particular the clause which provides that the property in the goods would pass to the export house only after they had crossed the Customs barrier. However, as rightly contended by the respondent, the question of title or property in the goods exported is not relevant to Section 80 HHC. The Section does not in terms require the exporter to be the owner of the goods. Even Section 2(18) of the Customs Act does not include the idea of ownership within the definition of the word export . (Para 10)
       The object of Section 80-HHC is to grant an incentive to earners of foreign exchange. The matter will, therefore, have to be considered with reference to this object. The transaction commenced with the agreement between the Californian buyer and the export house. But for this contract, there would be no export and no receipt of foreign exchange at all. In fulfilment of its obligation under the contract the export house had entered into an independent contract with the appellant. The appellant was not a party to the first contract. If the first contract were breached, the assessee could not demand the foreign exchange from the buyer. Again, if the goods were not exported, the foreign buyer could not look to the appellant for reimbursement. Admittedly, the shipment was also made by the appellant on account of the export house. This was in accordance with the agreement. Furthermore, the appellant was party to a declaration to the concerned authorities under the Policy that the export house was the exporter. It may be that this was for the purposes of enabling the export house to reap the benefit of the Policy but it was also for the added advantage of the commission earned by the appellant from the export house. The export house had also claimed and been allowed deductions in respect of the amount realised by the export under Section 80 HHC. The appellant having allowed the authorities to act on that basis, did so at its peril. It cannot now disclaim the position. (Paras 11 and 12)
       Secondly, the phrase "sale proceeds ... receivable by the assessee" in Section 80 HHC sub-section (2), cannot be construed to mean `sale proceeds ultimately received . Payment for the export was by the Letter of Credit. The Letter of Credit being in favour of the export house, the foreign exchange was "receivable" by it. That the export house may have chosen to transfer the foreign exchange to a third party under some independent arrangement would not make the third party the exporter. Whatever be the internal arrangement between the export house and the appellant, as far as the Income Tax authorities were concerned, the export house would clearly be the exporter. (Para 14)
       Finally, different statutes have conferred benefits and cast obligations on an exporter but none of the statutory provisions allows more than one person either to claim the benefit given or be subjected to the obligation cast. Import and Export Policy for the year 1982-83 recognises that there may be a situation where the export documents contain more than one name - but the privilege of obtaining a REP licence can be claimed by only one. Similarly, the Circular No. 446 dated 14.8.1986 issued by the Central Board of Direct Taxes as well as the amendment in 1989 to Section 80 HHC, allow a supporting manufacturer to claim deductions in respect of profits of the export provided the supporting manufacturer furnishes a certificate from the export house, inter alia, stating that the export house had not claimed deductions under the Section. Both the Circular as well as the amendment indicate that were it not for the clarification/amendment, it would be the export house alone which could have claimed deductions under the Section: a right which could be waived in favour of the supporting manufacturer. It was for this reason that the agreement between the appellant and the export house had divided the benefits and obligations obtainable by an exporter between them. Under clauses 7 and 8 of the agreement, the export house was alone entitled to claim the REP import licence benefits and all the benefits accruing to an eligible merchant exporter under the terms of the Import Trade Control Policy. On the other hand, in clause 10 the export house confirmed that it would not claim "benefits available from the Customs and Central Excise authorities and or any other Government Departments in respect of the export of shrimps." It may be that in claiming the deduction under Section 80HHC, the export house has violated this term of the agreement but that cannot make the appellant the exporter. (Paras 15 and 16)

JUDGMENT

Ruma Pal, J.-The question to be decided in this appeal is whether the appellant was an exporter for the purposes of Section 88 HHC of the Income Tax Act, 1961.

2. The appellant processes sea foods. It exported some of its products directly to foreign buyers but it was not an eligible export house under the Import and Export Policy 1982-1983 (referred to as the Policy ) and it could not avail of the special facilities granted to eligible export houses under the Policy. An agreement was entered into between an export house and the appellant on 24th August, 1982 by which the appellant agreed to export the processed sea food in the name of the export house against purchase orders placed on the export house by foreign buyers so that the export house could claim the benefits under the Policy in consideration for which the appellant would be paid 2.25% of the FOB value of the goods exported. In terms of the agreement, the appellant s processed sea foods were to be sold to the export house after the goods crossed the customs barrier. All formalities of export were to be completed by the appellant but the shipment would be on account of the export house. The Letter of Credit opened in favour of the export house by the foreign purchases would be endorsed in favour of the appellant. While the benefits from the agreement as far as the export house was concerned were limited to those available under the Policy, the appellant would not only be entitled to the entire sale proceeds realised by the export, but in terms of the agreement it could alone claim all the privileges available under other statutory provisions to an exporter, in addition to the commission of 2.25%.

3. The particular transaction with which we are concerned began with a purchase order placed on the export house by a buyer in California. The buyer opened a Letter of Credit in favour of the export house. The goods were duly shipped and the documents were handed over by the appellant to the export house for negotiation. The Letter of Credit was endorsed in favour of the appellant by the export house and the entire amount of the foreign exchange credited in the appellant s account. The appellant then claimed deductions permissible to an exporter under Section 80 HHC of the Income Tax Act, 1961 for the assessment year 1983-84.

4. Prior to its amendment in 1989, Section 80 HHC in so far as it is relevant read :

"80 HHC (1) Where the assessee, being an Indian company or a person (other than a company) who is resident in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, the following deductions, namely :-

(a) a deduction of an amount equal to one per cent of the export turnover of such goods or merchandise during the previous year; and

(b) a deduction of an amount equal to five per cent of the amount by which the export of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately proceeding year.

(2) (a) This section applies to all goods or merchandise (other than those specified in clause (b) if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange."

5. The appellant s claim for deduction was rejected by the respondent. The appellant preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal relying on the definition of the word export in Section 2(18) of the Customs Act which says that " export means taking out of India to a place outside India". According to the Tribunal, when the goods cleared the customs barrier, the export house was nowhere on the scene and that the export process having been actually done by the appellant/asse

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2001 Supreme(SC) 41

Cases Referred (2)