In a repreive to the assessee, the Bombay High Court has ruled that while computing the direct cost attributable to export, the freight and insurance should be excluded for arriving at export profits. The objective of the exclusion of freight and insurance is to ensure that the benefit of the deduction under provision of the Income Tax Act is confined to profits derived from export, said the high court turning down the plea of the revenue department.
While defining the expression ‘export turnover’, Parliament has evinced an intent to exclude freight and insurance attributable to the transport of the goods or merchandise beyond the customs station. Such freight and insurance has to be excluded from the sale proceeds received in India by the assessee in convertible foreign exchange.
The object of the exclusion of freight and insurance is to ensure that the benefit of the deduction under section 80HHC (Income Tax Act) is confined to profits derived from export.
Freight and insurance is, therefore, liable to be excluded in computing the export turnover in pursuance of the legislative object of ensuring that section 80HHC is a provision for incentives to export, said a division bench comprising justices DY Chandrachud and JP Devadhar. The Department had taken the plea that the language of the section 80HHC of the Act as it stands, freight and insurance would have to be factored in twice.
First, while excluding this component from the sale proceeds received by the assessee and second again while reducing the direct costs from the export turnover. The court, however, rejected it.
“The language of the section, in our view, does not warrant such a conclusion. The plain meaning of the section must be given effect to by the court in advancing the legislative intent. Freight and insurance attributable to the transportation of goods beyond the customs station does not constitute a part of the direct costs which are defined to mean costs directly attributable to the trading goods exported out of India. The words, ‘exported out of India’ are used in a descriptive sense. In order that the costs can be regarded as direct costs within the meaning of explanation (b), they must be attributable to the trading goods which are eventually exported out of India,” the court pointed out. The court upheld the order of the Income Tax Appellate Tribunal.
It had ordered for the exclusion of freight and insurance amounting to Rs 1,71,87,614 incurred by an exporter assessee. It was challenged by the Revenue in the high court.