1. Dispute regarding the eligibility of a supporting manufacturer to claim deduction under Section 80HHC of the Income Tax Act at par with a direct exporter. (Para 3 )
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2018 Supreme(SC) 421
SUPREME COURT OF INDIA
R.K. AGRAWAL, ABHAY MANOHAR SAPRE, JJ.
Commissioner of Income Tax, Karnal (Haryana) – Petitioner
Versus
M/s Carpet India, Panipat (Haryana) – Respondent
Civil Appeal Nos. 4590, 4601, 4602, 4591, 4597, 4599, 4592, 4593, 4596, 4594, 4603, 4595 & 4598 of 2018 (Arising out of Special Leave Petition (C) Nos. 8368 of 2009, 7331, 9284 of 2017, 19482 of 2010, 20408, 10542 of 2013, 20941, 23683 of 2010, 3133 of 2012, 27636, 27635 of 2010, 29783 of 2011, 33058 of 2012)
Decided On : 27-04-2018
Important Points
The Court referred the question of whether a supporting manufacturer receiving export incentives (such as Duty Draw Back and DEPB) is entitled to deductions under Section 80HHC of the Income Tax Act, 1961, at par with a direct exporter, to a larger Bench for reconsideration.
Subject
Taxation Law - Income Tax
Act Referred
Headnote
Income Tax Act, 1961 – Section 80HHC – Deduction in respect of support manufacturer at par with direct exporter – Bench not agreeing with (2007) 290 ITR 323 (SC) and Civil Appeal No. 6437 of 2012 – Decisions requiring reconsideration – Matter referred to larger Bench. (Para 14, 15)
(2007) 290 ITR 323 (SC); Civil Appeal No. 6437 of 2012 – Referred
Facts of the case:
This batch of appeals is related to the interpretation of the provisions contained in Section 80HHC of the Income Tax Act, 1961.
The question of law arising in this case is whether in the facts and circumstances of the present case, supporting manufacturer who receives export incentives in the form of duty draw back (DDB), Duty Entitlement Pass Book (DEPB) etc., is entitled for deduction under Section 80HHC of the IT Act at par with the direct exporter?
Finding of the Court:
Court differs with earlier decisions.
Result: Matter referred to larger Bench for reconsideration of (2007) 290 ITR 323 (SC) and Civil Appeal No. 6437 of 2012.
Legal Category Hierarchy
Table of Contents
2. Revenue argues supporting manufacturers are not direct exporters and incentives differ from premiums; assessee claims entitlement to benefits similar to direct exporters. (Para 6 , 7 , 8 )
3. The court found that Section 80HHC Explanation (baa) specifically requires reducing 90% of certain export incentives from business profits, distinguishing them from export house premiums. (Para 10 , 12 , 13 , 14 )
4. The conflict between the statutory mandate of Explanation (baa) and existing judicial interpretations regarding export incentives for supporting manufacturers necessitates reconsideration by a larger bench. (Para 15 )
5. The appeals are referred to a larger bench to determine the substantial question of law regarding deductions for supporting manufacturers. (Para 16 )
6. What is the primary objective of Section 80HHC of the Income Tax Act?
The purpose of Section 80HHC is to promote the export business and maintain the competitiveness of domestic products in the global market by providing tax deductions on export profits. (Para 10 )
7. How does the Income Tax Act treat export incentives for supporting manufacturers under Section 80HHC?
Under Explanation (baa) of Section 80HHC, the profits of the business must be reduced by ninety percent of certain receipts, including duty drawbacks and profits from the transfer of Duty Entitlement Pass Books. (Para 10 , 12 )
8. Is the treatment of export house premiums the same as the treatment of export incentives under Section 80HHC?
No; the court distinguished between the two, noting that while export house premiums may be includible in business profits, specific export incentives are subject to a 90% reduction under Explanation (baa). (Para 13 , 14 )
JUDGMENT :
R.K. Agrawal, J.
1. Leave granted.
2. The above batch of appeals is related to the interpretation of the provisions contained in Section 80HHC of the Income Tax Act, 1961 (in short ‘the IT Act’).
3. SLP (C) 8368 of 2009
(a) M/s. Carpet India (P) Ltd.-the assessee is a partnership firm deriving income from the manufacturing and sale of carpets to M/s. IKEA Trading (India) Ltd. (Export House) as supporting manufacturer.
(b) The assessee filed a ‘Nil’ return for the Assessment Year (AY) 2001-2002 on 30.10.2001, inter alia, stating the total sales amounting to Rs. 6,49,83,432/- with total export incentives of Rs. 68,82,801/- as Duty Draw Back (DDB) and claimed deduction under Section 80HHC amounting to Rs. 1,57,68,742/- out of the total profits of Rs. 1,97,10,927/- at par with the direct exporter.
(c) On scrutiny, the Assessing Officer, vide order dated 25.02.2004, allowed the deduction under Section 80HHC to the tune of Rs. 1,08,96,505/- instead of Rs.1,57,68,742/- as claimed by the assessee while arriving at the total income of Rs. 57,18,040/-.
(d) Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) which was allowed vide order dated 12.08.2004 while holding that the assessee is entitled to the deduction of export incentives under Section 80HHC at par with the exporter.
(e) The Revenue went in appeal before the Income Tax Appellate Tribunal (in short ‘the Tribunal’) as well as before the High Court but the same got dismissed vide orders dated 23.02.2007 and 13.05.2008 respectively leaving it to take recourse of this Court by way of special leave.
(f) Since a common question of law has arisen in these appeals, it will be disposed of by this common order.
4. Heard learned counsel for the parties and perused the records.
Point(s) for consideration:-
5. The short but important question of law that arises before this court is whether in the facts and circumstances of the present case, supporting manufacturer who receives export incentives in the form of duty draw back (DDB), Duty Entitlement Pass Book (DEPB) etc., is entitled for deduction under Section 80HHC of the IT Act at par with the direct exporter?
Rival contentions:-
6. At the outset, learned counsel for the Revenue submitted that the assessee deals in the manufacturing of the carpets which it usually sells to various entities including M/s IKEA Trading (India) Ltd. (Export House/Trading House) which, in turn, further exports the goods manufactured by the assessee. While filing the return, the assessee claimed deduction at par with the direct exporter under Section 80HHC of the IT Act since it receives export incentives in the form of duty draw back (DDB) etc. It was further contended that in view of the fact that the assessee is working as a supporting manufacturer and also there is no direct export of the goods to the foreign constituents by the assessee firm, hence, it is not entitled to claim the deduction at par with the direct exporter. However, the High Court erroneously relied on the judgment of this Court, namely, Commissioner of Income Tax, Thiruvantanpuram vs. Baby Marine Exports (2007) 290 ITR 323 (SC) and held that the assessee is entitled to claim deduction at par with the direct exporter which is not sustainable in the eyes of law since the issues and facts are distinguishable from the facts and the circumstances of the instant case.
7. At this juncture, it was also pointed out that the High Court as well as the Tribunal erred in law while deciding the issue as they treated the export incentive at par with the premium paid by the export houses or trading houses to supporting manufacturer and not appreciated the fact that the ratio of the facts and issues involved in the case of the assessee-firm are totally different from the case of Baby Marine Exports (supra). It was pointed out that the said case dealt with the issue of eligibility of export house premium for inclusion in the business profit and the turnover of the as
