551. Whether receipts of sale proceeds in respect of protocol exports eligible for deduction

1. Section 80HHC of the Income-tax Act provides for a deduction in the computation of taxable income with reference to the export turnover of certain goods or merchandise out of India in cases where the sale proceeds are receivable in convertible foreign exchange.

2. Representations have been received that exporters engaged in making ‘protocol exports’, i.e., exports under Government to Government credits, should be eligible for claiming deduction under section 80HHC of the Income-tax Act. Under protocol exports, the realisation of sale proceeds in the hands of exporter is from the Government of India and the mode of payment is in Indian currency. Bills sent to foreign parties are settled between the Government of India and the other Government in accordance with the bilateral agreement by adjustment against the credit allowed, which is realised in foreign exchange later.

3. The Central Board of Direct Taxes have examined the matter in consultation with the Ministry of Commerce and after examining all the aspects of protocol exports, clarify that the assessee exporting goods or merchandise under Government to Government credits are also eligible for claiming deduction under section 80HHC of the Income-tax Act irrespective of the fact that the sale proceeds of such exports are realised in their hands in Indian currency.

Circular : No. 562, dated 23-5-1990.

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