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2017 Supreme(Del) 2927
IN THE HIGH COURT OF DELHI AT NEW DELHI
S.MURALIDHAR, PRATHIBA M. SINGH, JJ.
Commissioner Of Income Tax Delhi-Ix, New Delhi - Appellant
Versus
M/S Arya Exports & Industries - Respondent
ITA 206 of 2005
Decided on : 18-08-2017
For The Appellant : Mr. Zoheb Hossain, Senior Standing Counsel With Mr. Deepak Anand, Standing Counsel
For the Respondent:Mr. Ajay Vohra, Senior Advocate With Mr. Aniket D. Agrawal And Mr. Rohit Jain, Advocates
The main legal principle established is that the entitlement to deduction under Section 80 HHC of the Act for a supporting manufacturer is separate from that of the exporter, and the lack of eligibility for the deduction by the exporter does not automatically disqualify the supporting manufacturer from claiming the deduction.
Headnote:
Income Tax - Deduction under Section 80 HHC - 1961 Act, Section 80 HHC
Fact of the Case:
The Assessee claimed deduction under Section 80 HHC of the Income Tax Act for the Assessment Year 1996-97. The dispute arose from the Assessee's export turnover and the entitlement to deduction under Section 80 HHC.
Finding of the Court:
The Court held that the Assessee was entitled to deduction under Section 80 HHC (1A) of the Act for the Assessment Year in question, despite the Export Trading House not having a valid Trading House Certificate at the time of issuing the disclaimer certificate.
Issues: The main issue was whether the Assessee was entitled to deduction under Section 80 HHC of the Act, given the Export Trading House's lack of a valid certificate at the time of issuing the disclaimer certificate.
Ratio Decidendi: The Court interpreted the legislative intent of Section 80 HHC, distinguishing between the deduction available to an exporter and a supporting manufacturer. It held that the Assessee, as a supporting manufacturer, was entitled to the deduction separately from the exporter, despite the exporter's ineligibility for the deduction.
Final Decision: The Court dismissed the appeal and held in favor of the Assessee, affirming their entitlement to deduction under Section 80 HHC (1A) of the Act for the Assessment Year in question.
S. Muralidhar, J.
1. This is an appeal under Section 260A of the Income Tax Act, 1961 (‘Act’) by the Revenue against the order dated 29th July, 2004 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No. 4148/Del/1999 for the Assessment Year (‘AY’) 1996-97.
2. By the order dated 22nd January, 2007, this Court framed the following question of law for consideration:
Whether the ITAT was correct in law in holding that the Assessee was entitled to deduction under Section 80 HHC of the Act?
Background facts
3. The facts leading to the filing of the present appeal are that the Respondent/Assessee filed its return of income for the AY in question declaring an income of Rs. 1,800 on 18th October, 1996. Along with the return the Assessee filed the balance sheet, manufacturing trading and Profit & Loss (‘P&L’) Account, the Auditor’s Report under Section 80 HHC (4A) and the certificate in Form No. 10 CCAB. The total sales during the year was to the tune of Rs. 2,74,05,000. The sales had been made to Ratan Exports & Industries Limited (‘REIL’), which had further exported the goods received from the Assessee to foreign buyers for Rs. 3,36,69,344.
4. REIL, which was an Export Trading House (‘ETH’), had issued to the Assessee a certificate in Form 10 CCAB confirming that no deduction under Section 80HHC (1) had been claimed by REIL in respect of the aforementioned export turnover of Rs. 3,36,69,344. The said certificate, which had been duly verified by the Managing Director of REIL on 29th August 1996, was enclosed with particulars relating to supporting manufacturers and particulars relating to Export House. These included the invoice number, date of invoice, shipping bill number, nature of the goods with quantities, etc.
5. In terms of the P&L Account filed by the Assessee its cost of manufacturing was Rs.1,07,21,711 and the total sales was Rs. 2,76,43,175. The Assessee, accordingly, declared a net profit of Rs.1,66,85,289 and in the computation of income filed with the return, the Assessee added Rs. 1,060 to the net profit. The total income, thus, declared by the Assessee was Rs. 1,66,86,349 and the net income, after deducting Rs. 1,66,84,549 under Section 80 HHC, was shown as Rs. 1,800, being 90% of the interest income which amounted to Rs. 2,000. In other words, the Assessee claimed 100% deduction under Section 80 HHC on the net profit shown in the P&L Account.
The assessment order
6. In a written reply by way of a letter dated 19th February 1999, addressed to the Assessing Officer (‘AO’), the Assessee explained that it had entered into an agreement with REIL on 11th February, 1995 for supply of 783 Metric Tonnes (‘MT’) of detergent. The Agreement was made on the understanding that REIL, which at that time had a trading house certificate (‘THC’) valid up to 31st March, 1995, would issue a disclaimer with regard to the deduction under Section 80HHC of the Act in favour of the Assessee. The Assessee further stated that it had dispatched 314.08 MT of detergent to REIL prior to 31st March, 1995. The balance quantity of the detergent i.e. 468.928 MT was supplied by it on various dates between 1st April, 1995 and 5th June, 1995. REIL, in turn, carried out the export of the said detergent on various dates starting 12th May, 1995. REIL issued the disclaimer certificate on 29th August, 1996.
7. The Assessee pointed out that under the Export Import Policy (Exim Policy) of the Government of India, the THC was valid for three years and upon expiry of which, the ETH was allowed a further period of six months to apply and to obtain a fresh certificate. During this period, the ETH would be eligible to claim all the “usual facilities and benefits except the benefit of a Special Import Licence.” The Assessee explained to the AO that the ETH had in the instant case filed an application for renewal of its THC by a receipt dated 16th October, 1995 issued by the Chief Controller of Imports & Exports (‘CCI&E’). This application was followed up by th
