Income Tax Appellate Tribunal - Mumbai
Burlingtons Exports, Taj Mahal Hotel vs The Acit on 25 June, 2004
Equivalent citations: [2005]278ITR106(MUM), (2005)97TTJ(MUM)83
ORDER
Mukul Shrawat, Judicial Member
1. These appeals have been filed by the assessee arising out of the orders of ld. CIT (A) III, Mumbai for the assessment years 1988-89 & 1989-90, both dated 31/10/95. The issue involved in these appeals is identical, therefore, consolidated and hereby decided by this common order.
2. The only issue as per ground of appeal is regarding claim of deduction Under Section 80HHC of Rs. 11,75,891/- for the assessment year 1988-89 and Rs. 41,79,604/- for the assessment year 1989-90 in respect of exports made by the appellant assessee through a third party.
3. As the ground indicates the short and interesting issue is whether an assessee is entitled for claim of deduction Under Section 80HHC in respect of the exports made through a third party who was held as the main exporter being granted export quota. The facts of the case as enumerated from the order of the A.O can be summarized that the assessee has received foreign exchange from the foreign buyers. Foreign Exchange was received by the assessee because the L.Cs in respect of the said third party were drawn in favour of the assessee in A.O's view the convertible foreign exchange should have been gone to the third party namely M/s. Bhairav Enterprises. The A.O has mentioned that the export bills were made in the name of M/s. Bhairav Enterprises, so the actual exporter was the said party and not the assessee. In his opinion the assessee has wrongly shown the sales in its books of account and the sales should have been recorded by the said party as per the accounting principle. In the assessment order it was further enumerated that the export benefits should be allowed to the actual exporter i.e. M/s. Bhairav Enterprises because the quota for export was allotted to this party. Examining the provisions of Section 80HHC, A.O was of the view that for the purpose of deduction Under Section 80HHC an assessee must himself be the exporter of the goods and also bring in convertible foreign exchange in India. However he has also record a finding that the said party has not claimed any deduction Under Section 80 HHC. In respect of the policy of quota for export of garments A.O has elaborated that the assessee had already exported garments to the extent of the allotment of its quota and further export was made by using the quota of the said third party. A.O has concluded that the assessee has infringed the provisions and other rules of import and export policy of the Government of India, therefore, not entitled for claim of deduction Under Section 80HHC. Accordingly the claim of the benefit Under Section 80HHC was disallowed for both the years. The issue went in appeal.
4. Before the first appellate authority the facts were reiterated and the legal position was explained and certain case laws were cited. Before the first appellate authority an agreement made between the assessee and the third party was also elaborately discussed, however, ld. CST (A) was of the view that the export was made by the assessee which was not permissible, therefore, not entitled for claim of deduction Under Section 80HHC. Ld. CIT(A) was also of the view that M/s. Bhairav Enterprises was the real exporter entitled to claim REP Licence and Duty Drawback in respect of the said exports so entitled for the claim but not the assessee. Finally he has concluded that the appellant was not entitled for the relief Under Section 80HHC in respect of export made by a third party. Being aggrieved, now the assessee is further in appeal.
5. Both the parties have been heard at length and their contentions were carefully considered in the light of the orders of the authorities below as well as the case laws cited by them. The appellant firm is engaged in the business of export of ready made garments to European and Scandenevian countries since 1962. There is no dispute about this fact that the quota allotted to the assessee to export the garments was fully utilized. However, the assessee had procured more orders from the foreign buyers which has exceeded the quota allotted, therefore, to fulfill this requirement the appellant has utilized the quota allotted to a third party namely M/s. Bhairav Enterprises. For the Assessment Year 1988-89 the assessee has exported good of its own quota for the value of Rs. 2,85,82,816/- and exported the goods by utilizing the quota of the said party for the value of Rs. 1,78,04,794/-. Identical was the situation for the A.Y. 1989-90 in which the good exported through own quota valued at Rs. 4,99,61,293/- and the export by utilizing the quota of the said party amounted to Rs. 3,90,16,782/-. From the side of the appellant certain uncontroverted facts were again narrated before us by ld. A.R. Ms Aarti Vissanji, can be summarized as follows:
(1) The Export contract was booked by the appellant.
(2) The letter of credits were in the name of the appellant.
(3) The raw material for the purpose of export was procured by the appellant.
(4) The manufacturing activity was carried out by the appellant.
(5) The appellant undertook all the formalities of shipping of goods and fulfilled all other requirement of export.
(6) The payments related to the forwarding and shipping of good's were made by the assessee fir. All the shipping documents were negotiated by the firm and recorded in its name.
(7) All the transactions and transfer of money was through bankers of the assessee firm.
(8) The payments were received in convertible foreign exchange which were credited in the account of the appellant firm.
(9) The third party has also issued a waiver certificate not to claim benefit Under Section 80HHC.
(10) All the liability in respect of the export was undertaken by the assessee.
(11) All claims and disputed were agreed to be settled by the assessee firm and responsibility in all manner after there was rejection of good by the buyer for the reason of quality, delay etc./ (12) In the even of non payment or default the bankers of the appellant firm were made liable and not the bankers of the third party.
In support of the above summarized factual matrix which are not in dispute ld. A.R has also drawn our attention on supporting evidences such as agreement entered between M/s. Bhairav Enterprises and the appellant, the orders booked by the appellant, the bank statement and certificate of exports, a waiver certificate certifying claim Under Section 80HHC issued by M/s. Bhairav Enterprises, other statement of accounts and a note on the methodology in respect of accounting of sales etc. Further she has also drawn our attention on an agreement entered into between the assessee as a party of the first part and M/s. Bhairav Enterprises as a parry of the second part executed on 1st day of Jan. 1986, which was also discussed by ld. CIT (A) in his order. Some of the clauses of this agreement which were stressed upon are produced for the sake of ready reference.
"1. The party of the 2nd part will allow to the party of the 1st part to export Cotton & Rayon Readymade Garments to their clients in European and American countries on their quota on the following terms and conditions.
3. The full documentation wok will be done by the party of the 1st part on behalf of the party of the 2nd part and shipments will be made by Air, Sea/Air & Sea through the clearing and forwarding agents of the party of the 1st part only.
4. All bank charges Interest charges, L/C Charges, Discount charges, document fee levied by different authorities will be borne by the party of the 1st part.
5. The party of the 1st part undertake that the bill/s drawn on behalf of the party of the 2nd part for the said exports will be duly honoured as per the payment terms stipulated in the letter of credits.
6. The party of the 1st part undertake to get all the necessary export documents such as E.P. Copy and draw back copies of Shipping bill Original bank Certificates of Exports, Bank Certified Invoices, Custom Certified Invoices, Airway Bill/Bill of Lading and all relevant documents that are to be preserved for record and for claiming the Drawback, REP Licence C.C.S Quota."
She has also distinguished a decision of Hon'ble Apex Court in the case of Sea Pearl Industries, 247 ITR 578. The main distinction ld. A.R has drawn was that both the export house as well as the appellant were claiming the deduction Under Section 80HHC, therefore, the Hon'ble Court has held that the appellant was not entitled for the benefit She has also expressed that the Hon'ble Court has considered the Circular No. 466 issued by CBDT dated 14/8/86 reported in 161 ITR 68(St.) and on that basis decided the issue which is not applicable in the present context.
6. From the side of the revenue we have also carefully examined the contentions of Shri Sunil Agarwal: Ld. D.R has cited certain decisions and stressed upon that the said party was entitled for REP Licence and Duty Drawback as the quota was in its name, therefore, the assessee should not be termed as an exporter. He has argued that any deduction under IT Act should not be allowed so as to defeat the provision of any other enactment. He has expressed this view mainly because of the reason that the export quota was granted by AEPC which is neither transferable nor negotiable. The functioning of AEPC is in accordance with export import policy announced by RBI within the provision of FERA. So the assessee has contravened the express provisions of the said enactment and due to this infringement of law the assessee should not be allowed any benefit under IT Act. For this proposition case law cited are Maddi Venkataramn, 229 ITR 534(SC) and India Cements, 241 ITR 62(Mad). Ld. D.R has also relied upon the decision of Sea Pearl industries (Supra) and further mentioned that in a recent decision of Hon'ble Kerala High Court in the case of Poyilakkada Fisheries, 133 Taxman 651 the Hon'ble High Court has followed the decision of the Sea Pearl Industries(supra) and held that the assessee in that appeal being not a real exporter not entitled for the benefit. Ld. D.R has also brought to our notice that the Hon'ble Kerala High Court decided the issue basically relying upon the decision of Hon'ble Supreme Court but also disallowed the claim because of non production of disclaimer certificate by the assessee from the formal exporter. However, he has pointed out that for the A.Y 1988-89 there was no requirement in the provision for issuance of disclaimer certificate, therefore, this plea of the assessee otherwise deserves to be dismissed.
7. The issue raised before us has to be answered considering certain uncontroverted factum as well as the intention of legislation of this beneficial section. The object of Section 80HHC is to grant an incentive to earners of foreign exchange. In our humble opinion this matter will, therefore, have to be considered with reference to this object. The object of the enactment enumerates that a country's economic strength is measured by the amount of foreign exchange reserve held by it, because that gives it the purchasing power in the inter national market. So the object of the enactment of this section was to encourage larger exports of certain goods and consequent augmentation of foreign exchange earnings. With the result a beneficial section i.e. Section 80HHC was inserted with a view to encourage larger exports of goods by providing tax relief to Indian Exporters. Hence, to our understanding this issue has to be decided within this compass. Otherwise also it is an accepted position of law that while interpreting a statutory provision which is beneficial in nature then real intention has to be borne in mind and to be applied in liberal manner. In construing a beneficial statute it is an accepted position of law that the Courts ought to give to it widest operation which its language will permit. The words of such a statute must be so construed as to give the most complete remedy which the phraseology will permit so as to clear that the relief contemplated by the statute shall not be denied to the clause intended to be relieved. With this general principle of interpretation of statute we have to examine the factual matrix of the present case. Uncontroverted facts have also been numbered above and on careful examination one thing squarely emerges that except utilizing the quota of the third party i.e. Bhairv Enterprises the assessee has done everything right from getting the export order till the final receipt of the sale price in convertible foreign exchange. The entirety of the facts thus establishes without any doubt that the appellant is the actual exporter. Otherwise also correctness of these facts has also not been doubted. As listed above the fact remain uncontroverted that all the formalities of shipping and thereafter realization of foreign exchange was fulfilled by none other but the appellant itself. There is no dispute that the export has directly been made by the assessee and thereafter all the documentation was made through bank by the appellant and the sale proceeds were paid directly in convertible foreign exchange into the bank account of the appellant. This is the main reason due to which in our opinion the assessee is the only person entitled for the benefit under this section. The opening words of Section 80HHC are also unambiguous to the extent that where an assessee being an Indian Company is engaged in the business of export out of India of any good or merchandise to which this section applies, they shall be allowed a deduction to the extent of the profits derived by the assessee from the export. A Sub-section (2) (a) has further clarified that the main beneficial section applies to certain good or merchandise if the sale profits of such goods or merchandise exported out of India are received in or brought into India by the assessee in convertible foreign exchange within a specific period. So the main as well as the only ingredient for incorporation of this beneficial section is that the sale proceeds should arrive in India in convertible foreign exchange. As is evident and not in controversy in the present case the assessee is the manufacturer who has exported the goods outside India and earned convertible foreign exchange. After recording these finding we are of the firm view that the appellant has fulfilled the basic conditions prescribed Under Section 80HHC so entitled for the benefit provided therein. We have forgotten to mention in the beginning that earlier this appeal has traveled upto to the stage of the Tribunal for the same assessment years A.Y 1988-89 and 1989-90 bearing ITA No. 5568 & 5569/B/91, however restored back to the stage of A.O by "A" Bench Mumbai vide order dated 26/11/92 with certain directions. The Tribunal has expressed certain apprehension regarding factual position of receipt of foreign exchange which was not made clear at that time. An observation was made that as per A.O the foreign exchange was received by M/s. Bhairav Enterprises whereas as per assessee it was received and deposited in assessee's account. So the Tribunal has restored the entire issue back to examine the applicability of export policy and other relevant rules. Certain questions were framed in that order of the Tribunal requiring reconsideration and reexamination of the facts. On the basis of foregoing discussions now it clearly emerges that all such questions which were raised have been answered from the side of the appellant. The only question yet to be answered is whether there was any infringement of law or disobedience of export policy from the side of the appellant. As far as the revenue is concerned there is nothing to indicate that the assessee has infringed any law specially in utilization of export quota granted by AEPC to the other party. The facts have revealed that the assessee has obtained the orders to export the garments more than the quota allotted to it, therefore, used unutilized quota of the said third party. In our opinion if the quota already granted by the prescribed authority remains unutilized then if it is not an infringement of law then in the interest of earning foreign exchange it is useful to get it utilized by another exporter. As far as the decision of Sea Pearl industries (supra) is concerned that was a case of export house and both of them were claiming deduction Under Section 80HHC. The issue has basically traveled around the Circular No. 466 (cited supra) where it was clarified that a supporting manufacturer can claim a deduction only on furnishing a certificate from the export house stating that the export house has not claimed the deduction. Certain case laws in this regard as cited from the side of the revenue have also been examined but we have observed that since there was no violation of any law in utilization of unutilized quota issued to a third party by AEPC, hence the assessee is the one who has exported the goods and earned foreign exchange, therefore, entitled for the deduction Under Section 80HHC. Definitely there is distinction between irregularity and illegality. What is irregular may or may not be illegal. Albeit there was a presumption from the side of the revenue about some irregularity in utilization of another's quota but that too was not pin pointed by citing any specific clause in that statute i.e. AEPC or under any other law. When the irregularity has not been pin pointed then what to say about illegality. Even otherwise if we presume that there was irregularity the issue is not in respect of invoking the Explanation to Section 37(1) which has prohibited allowance of any expenditure incurred by the assessee for any purpose which is an offence under any law. In refuting the doctrine of "substance of the matter" Lord Tomlin observed Quote "It is said that in revenue cases there is a doctrine that the court may ignore the legal position and regard what is called 'substance of the matter'. This supposed doctrine seems to rest for its support upon a misunderstanding of language used in some earlier cases. The sooner this misunderstanding is dispelled, and the supposed doctrine given its quietus, the better it will be for all concerned for the doctrine seems to involve substituting 'the uncertain and crooked cord of discretion' for 'the golden and straight metwand of the law'. In the same case Lord Wright pointed out that "the true nature of the legal obligation" arising out of a genuine transaction "and nothing else is the substance" Unquote Even otherwise there can, however, be no doubt that exemption provided in the statute are made with a beneficent object e.g. to give incentive to a tax payer. These incentives are being provided in the Income Tax Act to encourage the tax payer in several areas. So the concession provided has to be construed liberally. Under the totality of the circumstances and in view of the opinion expressed in above paras we hereby reverse the finding of ld. CIT (A) and allow the ground raised by the assessee for both the years.
8. In the result, both the appeals of the assessee are allowed.