Case Law Details
RELEVANT PARAGRAPH
7. A plain reading of the section would show that Sub. Sec (1) of 80HHC deals with deduction to be allowed to an assessee who is engaged in the business of export of goods or merchandise. The manner of determining the profits derived from export for the purpose of computation of deduction is provided in sub-sec (3), which has three clauses (a), (b), and (c ) covering three different aspects. The extent of profits available as deduction is provided in sub-sec (IB). There is a proviso to sub-sec (1) which is attracted when the assessee being a holder of an export house certificate or a trading house certificate issues a certificate of disclaimer in favour of the supporting manufacturer in the manner provided in clause (b) of Sub-Sec4A.. This certificate has to be issued in the prescribed form containing prescribed particulars and certifies that the assessee has not claimed deduction under sub-sec (1) of sec.80HHC, with reference to the export turnover stated therein. Once such certificate is issued, the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profit derived by the assessee from the export of trading goods, the same proportions as the amount of export turnover specified in the certificate bears to the total export turnover of the assessee in respect of such trading goods.
8. Sub-section (1A) to 80HHC provides for deduction to be allowed to a supporting manufacturer, who has sold goods or merchandise to a trading house or export house which has issued a certificate of disclaimer under the proviso to sub-sec (1). The profits derived by the assessee from the sale of goods or merchandise to the export house has to be determined in the manner provided in sub-sec (3A), and the extent of profits to be allowed as deduction is provided in Sub.Section (lB). This is subject to further condition provided in sub-section (4A) which requires furnishing by the supporting manufacturer along with his return of income (a) report of an accountant certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the export house and (b) disclaimer certificate of the export house that it has not claimed the deduction and which shall be duly certified by an auditor.
9. It is not in dispute that the assessee is a `supporting manufacturer’ as per clause (d) of explanation to section 80HHC, and that the State Trading Corporation Ltd., Jalandhar is a `Export house’ as per clause (c) of Explanation to sec. 80HHC. It is also not disputed that the assessee has sold goods to the State Trading Corporation during the relevant previous year which was exported to Cambodia. The certificates required under Sub-Sec (4A), namely the disclaimer certificate from the State Trading Corporation Ltd. certifying that it has not claimed deduction under sec. 80HHC (1) on the export of trading goods, filed in the prescribed forms has not been doubted. Therefore, it can be said that the assessee has apparently complied with the statutory requirements provided in sec. 80HHC(1A) for claiming the deduction. However, there are certain contentious issues, which relate to the realm of interpretation and are discussed below.
10. The main issue for our consideration would be whether the decision of the Hon’ble Supreme Court rendered in the case of IPCA Laboratory Ltd. v. DGFF (reported in 266 ITR 521) has_been_rightly_ applied to the facts of the assessee’s case. The Revenue contends that it has been rightly applied and on the other hand, the assessee contends that the said decision of the Supreme Court is not applicable to its case. The arguments of both the parties have been heard and carefully considered by us.
11. As the contentions relate to interpretation of a statutory provision which provide for tax benefit to the assessee, the principles relating to the same, as enunciated by the Hon’ble Supreme Court would be relevant for our consideration. The Hon’ble Supreme Court in the case of IPCA laboratory Ltd observed,
“Undoubtedly section 80HHC has been incorporated in the Income-tax Act, 1961, with a view to providing incentive for earning foreign exchange. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of the section. If the wording of the section is clear, then benefits which are not available cannot be conferred by ignoring or misinterpreting words in the section”.
In other words, this would mean that these provisions are to be interpreted plainly and literally. Once the basic conditions are satisfied then there is scope for liberal interpretation.
12. The principal issue or rather the only issue before the Supreme Court in the IPCA Laboratory Ltd was whether the assessee, an export/trading house, for the purpose of deduction under sec. 80HHC, take into account only if profits from the exports of manufactured goods and ignore its loss from the export of trading goods. The Hon’ble Supreme court resolved this issue in the following manner observing, “In this case we are concerned with the wordings of sub-section (3)(c) of section 80HHC. As noted earlier sub-section (3)(a) deals with the case where the export is only of self manufactured goods. Sub-section 3(b) deals with the case where the export is only of trading goods. Thus when the Legislature wanted to take exports from self manufactured goods or trading goods separately, it has already so provided in sub-sections (3) and (3)(b). It would not be denied that the word “profit” in section 80HHC(1) and sections 80HHC(3)(a) and (3)(b) means a positive profit. In other words if there is a loss then no deduction would be available under section 80HHC(1) or (3)(a) or (3)(b). In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. Sub-section (3)(c) deals with cases where the export is of both self manufactured goods as well as trading goods. The opening part of sub-section( 3)(c) states “profits derived from such export shall”. Then follow (i) and (ii). Between (i) and (ii) the word “and” appears. A plain reading of sub-section (3)(c) shows that “profits from such exports” has to be profits of exports of self manufactured goods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in sub-sections (3)(c)(i) and (ii). The opening words “profit derived from such exports” together with the word “and” clearly indicate that the profits have to be calculated by ounting both the exports. It is clear from a reading of sub-section (1) of section 80HHC(3) that a deduction can be permitted only if there is a positive profit in the exports of both self manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits.”
13. It could be seen that the entire issue related to the interpretation of the word ‘profit’ in sec. 80HHC(1) and section 80HHC(3), particularly clause (c) of sub-sec 3 to sec. 80HHC. It would be relevant to mention that the conditions as to allowing deduction to supporting manufacturer in terms of sub Sec. 80HHC (1A) or the manner of computation of profit in terms of sub Sec 80HHC (3A) were never an issue before the Hon’ble Supreme Court. Hence we are of the opinion that the action of the Assessing officer in applying the above decision to the assessee’s case, who is only a supporting manufacturer and who has. made his claim under sec. 80HHC (3A) is not correct. We take support for the above view in the light of the decision of the Hon’ble Supreme Court in the case CIT v Baby Marine Exports – (reported in -290 ITR 323) wherein the Hon’ble Supreme Court has observed, ” …further the supporting manufacturer’ s claim of deduction is only under sec. 80HHC (1A) and not under sec. 80HHC (1) which applies to export houses only.”
(16) A careful perusal of the above circulars would reveal that the legislative intent was to provide certain tax benefit to the supporting manufacturers exporting goods through the export house/trading house. For the purpose, a new proviso to sub-sec (1) and a new sub-sec 1A to sec. 80HHC has been introduced. To ensure the same, it was made a pre-condition that the export house should furnish a certificate of disclaimer in respect of the export turnover, and the amount of the deduction available to the export house would be accordingly reduced in the specified manner. Similarly, it was provided in sub-section 1A, the supporting manufacturer can claim tax benefit only on the basis of the disclaimer certificate of the export house. We could not see any other conditions stipulated in these provisions. The scheme of these provisions suggests that the supporting manufacturer gets an independent right to claim deduction once he gets in his favour a disclaimer certificate from the export house. In the light of these discussions, we are of the view that the assessee would be entitled to claim deduction as per section 80HHC (1A) of the I.T.Act. Further from the illustration presented in the circular clearly exhibits that benefit derived under Sec.80HHC(lA) by the Supporting Manufacturer could be higher than the benefit available under 80HHC(1) to the Export House in the case where the Export House themselves exported the goods with out the help of Supporting Manufacturer. This establishes the fact that there is no correlation as regards to profit element of both Export House & Supporting Manufacturer for the purpose of claiming benefit under the Act. Moreover in the present case the Export House is STC, an organization being the extended limp of the Government created for the purpose of facilitating, promoting and encouraging exports and not only for the purpose of profit motive.
What is total export turn over?
Total of
1 Export by the manufacturer.
2 Sale to Export house.
OR only [1] above?