549. Profits from export business – Whether both manufacturers and export houses/trading houses who pass on benefit under new section 80HHC to manufacturers are entitled to the deduction under section 80HHC
1. Section 80HHC as substituted by the Finance Act, 1985, provides that where an assessee, being an Indian company or a person (other than a company) resident in India exports out of India during the previous year, any goods or merchandise to which this section applies, he will be allowed a deduction of an amount not exceeding 50 per cent of the profits derived from the export of such goods or merchandise.
2. Representations have been received to the effect that the manufacturers of goods or merchandise exported through the export houses/trading houses do not derive any benefit under the amended provisions of section 80HHC. It has further been represented that if the tax benefit derived by the export house/trading house under section 80HHC is passed on to the concerned manufacturer, the amount so passed on should be allowed as a deduction in the computation of the total income of the export house/trading house.
3. The matter has been examined by the Board. It has been decided that if any export house/trading house holding a certificate in this regard issued by the Ministry of Commerce for the relevant accounting period passes on to the manufacturer part or whole of the amount of tax benefit derived by the former on account of deduction under section 80HHC, then the amount of actual payment made to the manufacturer for passing on the tax benefit may, subject to the limit laid down hereinafter be treated as business expenditure and be allowed as deduction in the computation of the total income of the export house/trading house.
4. The total amount of tax benefit on account of deduction under section 80HHC and the tax benefit on account of the deduction in paragraph 3 above shall, in no case, exceed the maximum amount of tax benefit available under section 80HHC to the export house/trading house. For computing the maximum amount of tax benefit under section 80HHC, however, the ‘profits’ as referred to in that section, will be determined after taking into account the deduction referred to in paragraph 3 above.
5. It has further been decided by the Board that the payment so received by any manufacturer whose goods or merchandise are exported through the export house/trading house will not be included in the total income of the manufacturer if such claim for non-inclusion is supported by a certificate by the export house/trading house.
Circular : No. 466 [F. No. 178/54/86-IT(A-I)], dated 14-8-1986.
JUDICIAL ANALYSIS
EXPLAINED IN : Sea Pearl Industries v. CIT [2001] 247 ITR 578 (SC), in following words :
“Circular No. 466, dated 14-8-1986, issued by the Central Board of Direct Taxes as well as the amendment in 1989 to section 80HHC, 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.” (p. 585)
EXPLAINED IN : ACIT v. Cham Marine Products (P.) Ltd. [2001] 77 ITD 13 (Rajkot – Trib.) in following words :
“The Central Board of Direct Taxes issued a Circular No. 466, dated 14th August, 1986, for the first time enabling the sharing of tax benefits under the section between recognised trading houses or export houses on the one hand and the exporter actually exporting the goods through them on the other. But this circular is applicable w.e.f. assessment year 1987-88 and the same has no application for the assessment years 1983-84 to 1986-87.” (p. 29)
