Income Tax Appellate Tribunal - Madras
Assistant Commissioner Of Income-Tax vs Aswini Fisheries Ltd. on 9 March, 2000
Equivalent citations: [2001]77ITD561(MAD)
ORDER
G.E. Veerabhadrappa, Accountant Member
1. The appeal by the Revenue and the cross objection by the assesses for the assessment year 1994-95 arise out of the order dated 17-10-1997 of the CIT (Appeals) and the cross appeals for the assessment year 1995-96 arise out of the order dated 25-9-1998 of the CIT(A). The main issue involved in all these appeals centres around the computation of deduction under section 80HHC. This issue is found in the assessee's appeal for the assessment year 1995-96 and its cross objection for the assessment year 1994-95. We have heard these appeals together and find it convenient to dispose of the same by a consolidated order.
2. The assessee is a company carrying on business of processing and export of marine products. It has exported frozen marine products both directly and also through recognised export houses. There seems to be no dispute as to the assessee's claim and satisfaction of other procedural requirements for claiming deduction under section 80HHC of the Act in respect of the export transactions. The only dispute is with reference to the computation of relief which the assessee is entitled to under section 80HHC (1 A) of the Act. The provisions of section 80HHC gives a deduction in the case of an Indian company or any other resident persons engaged in the business of export out of India of any goods or merchandise to which such section applies, a deduction of the entire profits derived by the assessee from the export of such goods or merchandise. Similar deduction is also admissible to the export house under the proviso to section 80HHC(1) of the Act in respect of such export transactions. It is also provided in the proviso to section 80HHC(1) that such export house may disclaim its eligibility for deduction under section 80HHC in favour of supporting manufacturer. If such a disclaimer is made the provisions of section 80HHC(1A) provides that such deduction shall be allowed in the hands of the supporting manufacturer to the extent of 100% of profits derived from the sale of goods or merchandise to the Export House in respect of which the certificate has been issued. As already stated, the entitlement of the assessee or the Export House is not at all in dispute. The computation as regards the assessee's claim for deduction under section 80HHC(1) in respect of direct exports also appears to be not in dispute. The only dispute relates to the assessee's claim for deduction of the said relief as a supporting manufacturer on the basis of the certificate issued by the Export House. The dispute between the parties arose due to the fact that the assessee as a supporting manufacturer has sold to the Export House or charged the Export House an additional price at 5% of f.o.b. value of each export and treated the same as part of its turnover. Such additional price realisation of the f.o.b. value of each export in the assessment year 1994-95 was to the extent of Rs. 37,20,184 and Rs. 2,48,76,965 for the assessment year 1995-96. To understand the dispute more clearly in respect of the sales by the Export House to the overseas buyers the Export House has charged Rs. 100 on the export on the f.o.b. value. In respect of this sale, the supporting manufacturer bills the Export House at Rs. 105 of the f.o.b. value. The said value is reflected in the invoices prepared by the supporting manufacturer in the name of the Export House. The relief under section 80HHC has been worked out by the Assessing Officer by excluding the additional sale price of 5% of f.o.b. value from the profits of business. The assessee claims it to be a part of the business profits for the purpose of deduction under section 80HHC(1A) of the Act. Before the Assessing Officer the assessee stated that,
1. The additional sale margin realised from and out of each such sale invoice raised on the export house, the margin being quantified at an agreed percentage on the f.o.b. value of each export invoice.
2. The additional sale margin so realised is directly related to and in addition to the sale value and rightly included as part of turnover.
The sale margin or commission (in the words of the Assessing Officer) received by the assessee does not form part of neither the export sales nor the local sales because of the following reasons :
"According to sub-section (1A) of section SOHHC, 'whereas the assessee being a supporting manufacture has during the previous year sold goods or merchandise to any export house or trading house in respect of which the export house or trading house has issued a certificate under the provision to sub-section (1) there shall in accordance with and subject to the provisions of the section, be allowed in computing the total income of the assessee a deduction of the profits derived by the assessee from the sale of goods or merchandise from the export house or trading house in respect which the certificate has been issued in Form No. 10CCAB by the export house or trading house".
In this case, the certificate in Form No. 10CCAB issued by the various export houses, as per sub-section (1A) of section 80HHC, it is indicated the FOB valueof the goods exported excluding the sale margin or commission of Rs. 37,20,184 since it is not a part of export turnover.
Secondly, it can't be considered even as the local sales inasmuch as the only the sale that took place between the assessee's company and the export house is none other than the goods meant for export and the consideration received for the same is nothing but the FOB value as mentioned in Form No. 10CCAB, export invoices, bill of lading and other export documents.
Merely by entering into an agreement, that assessee company should raise a bill on the export house at an amount of 105% of FOB value does not change the nature or transaction or the nature of the receipt. Hence, the basic nature of the receipt of whatsoever name you call, is explained below:
Generally, export houses, are in need of export quotas, so as to fulfil, their targets for the purpose of import entitlements from the export and import authorities. In a case, where there is a heavy competition in the market, to get the exports from the supporting manufacturers who are less in number, a premium or commission is offered to the supporting manufacturer which is purely out of the domain of either the export turnover over or the local turnover. It is nothing but a commission at the percentage of a total sale value.
In view of the above discussion, it is quite clear that both the processing charges and the commission received by the assessee fall under the domain of clause (baa) of Explanation to section 80HHC. Therefore, these receipts are excluded from the turnover and 90% of the same is reduced from the total profits of the business for the purpose of section 80HHC deduction.' Similar discussions are made for the assessment year 1995-96 to substantially reduce the claim for deduction under section 80HHC of the Act. The CIT (Appeals) more or less endorsed the views of the Assessing Officer by taking support from the order of the Tribunal in the assessee's own case for the assessment year 1992-93. The assessee is aggrieved.
3. The learned counsel for the assessee pointed out that the assessee is a processor and obtains export orders from foreign buyers. The processor loads the goods on board theship and hands over the documents to Export House. The Export House raises the commercial invoice on the foreign buyer. The documents negotiated by the Export House and the sale price is credited to the account of the processors. The processors are alone responsible for the quality, defects if any in regard to the goods shipped to the foreign buyer and the Export House is not held responsible in terms of the agreement. The real interest of the Export House is only to get the benefits provided under the Import & Export Policy of the Government of India accruing on account of export of goods. For this purpose they have necessarily show that the exports are done on their account. In consideration of the processor executing export order on behalf of the Export House, the Export House is prepared to purchase the goods at a price higher than the price which they realised from the export. In each and every purchase order on the foreign buyer the assessee's name will be mentioned to signify that they are manufacturers of the goods. The brand name under which the goods are shipped in each and every invoice is that of the assessee. In all the shipping documents the assessee's name will figure as "Shipper/Manufacturer" to authenticate that the goods covered by the invoice have been manufactured/processed by the assessee company. The assessee during the year processed and exported marine and frozen products both directly and also through recognised Export Houses. In respect of indirect export routed through Export Houses, the company had entered into agreement with the Export Houses and in pursuance of the terms and conditions agreed therein the assessee had charged the sale value at a mutually agreed price. The total sale price of the goods is quantified at an agreed percentage of f.o.b. value of each export. That is to say that the Export House purchases goods at a price which is higher than the f.o.b. value at which the Export House exports the goods. This is being done by the Export House, presumably so that the Export House would like to achieve certain prescribed turnover to preserve their status as Export House and the attendant benefits. For that purpose Export Houses are prepared to purchase the goods for exports at prices higher than the actual prices they may realise from the ultimate foreign buyers. The learned counsel for the assessee pointed out that in such a situation the profit derived from the sale of goods or merchandise to the Export House should be treated by taking the full value of consideration received in respect of the transactions with the Export House. The learned counsel for the assessee pointed out that the department is not justified in treating it as a commission and reducing 90% of the said sum under Explanation (bad) of section 80HHC(4A). The learned counsel for the assessee contended that the contract between the assessee and the Export House is only for the supply of marine products and not for rendering any service or anything else. The entire sale price payable under the agreement to the assessee was only the price charged for the sale of goods. The invoice raised on the Export House would also show that the entire amount which is due in the transaction was only towards the sale of goods. The entire sale consideration is shown as sales in the books of account and the said amount is also taken as sales turnover in the Sales-tax assessment. There is no reason or scope for artificial splitting the sale consideration and treating a part of it as being for services and none of the authorities below has given a finding that there was any extra service rendered by the assessee. The learned counsel for the assessee pointed out that although the Tribunal in the assessment year 1992-93 has held the issue against it, the same is pending by way of miscellaneous petition before the Tribunal. It was pointed out that the facts in this case are different from the facts that prevailed in the earlier assessment year. In the earlier year charges were shown separately and in that year such charges were collected by way of debit notes and not through sale invoices.
In this year the agreement clearly shows that they are part of the sale price and it is a part of the invoice price raised on the Export House. Our attention is further drawn to the decision of the Cochin Bench of the Income-tax Appellate Tribunal in the caseof A.M. Mossa v.Asstt. CIT [1996] 54 TTJ (Coch.) 193 where it is held that f.o.b. value of export received by the supporting manufacturer from the Export House cannot partake the nature of receipts towards "charges" within the meaning of Explanation (baa) of the said section 80HHC(4A) of the Act. The view canvassed by the assessee, according to the learned counsel, is directly covered in its favour by the decision of the Kerala High Court in the case of G. Gangadhamn Nair v. CIT [1999] 238 ITR 685 where the Hon'ble High Court held that unless there is a clear finding that the extra consideration is for any specific services, apportionment of sale price is not permissible. In the case of the assessee the Assessing Officer had not substantiated the nature of any services rendered by the assessee to the Export House and has not established that part of sale price is for services rendered to justify for exclusion of the same from business profits. The learned counsel for the assessee further pointed out that the entire sale price realised by the assessee to the Export House should be included as business profits for the purpose of section 80HHC and no part of it can be excluded even under the Explanation (baa) of the said section. Alternatively, it was contended that if a portion of the sale price were to be excluded in terms of the Explanation (baa), only the net receipt in respect of such income should be excluded in terms of the said Explanation. The learned counsel for the assessee has also invited our attention to the decision of the Tribunal in the case of MAC Industries Ltd. v. Asstt. CIT [IT Appeal No. 1595 (Mad.) of 1996]. The learned counsel further pleaded that the additional sale price realised from the Export House cannot be treated as brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits within the meaning of clause (1) of Explanation(baa) to section 80HHC(4A) of the Act. The additional consideration is nothing but the sale consideration and is a part of the business profits from the exports. The learned counsel for the assessee further pleaded that when once the Legislature extends the benefit of deduction in respect of export made by the Export House in favour of the assessee, it does not say that the entire sale consideration should be realised in foreign exchange. The relief under that section depends upon total profits under the head "business or profession", as multiplied by the ratio of the export turnover divided by the total turnover. Obviously, the entire business profits could not have been realised in foreign exchange. The learned counsel for the assessee has filed before us copies of the invoices raised on the Export House, copies of the agreement entered into with the Export House and also disclaimer certificates in Form No. 10CCAB of the Act. He has also filed the copies of the assessment order of sales-tax authorities wherein the additional sale price consideration is treated as part of sale consideration.
4. The learned departmental representative on the other hand, strongly supported the impugned order in the light of the decision of the Tribunal in the assessee's own case for the assessment year 1992-93. The learned departmental representative pointed out that the sale price has not been fully realised in foreign exchange. The assessee is therefore not entitled to the full relief under section 80HHC of the Act. In relation to the services rendered for which the additional consideration is received from the Export House, he heavily relied upon the order of the Tribunal in the assessee's own case for the assessment year 1992-93. The learned departmental representative further argued that the additional sale consideration is nothing but a commission which is specifically dealt with under clause (1) of Explanation (bad) to section 80HHC(4A) of the Act.
5. We have carefully considered the rival contentions and perused the material on record and have gone through the various authorities to which reliance was placed by both the parties. The provisions of section 80HHC which are relevant for understanding the issue are extracted below :--
"80HHC (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which the section applies,thereshall,inaccordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the (profits) derived by the assessee from the export of such goods or merchandise:
Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a TradingHouse, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this subsection is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the (total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods).
(IA) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading house in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of the (profits) derived by the assessee from the sate of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House.
***** (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be,--
(a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business ***** Explanation.--For the purposes of this section,--
***** (bad) 'profits of the business' means the profits as computed under the head 'Profits and gains of business or profession' as reduced by-
(1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (IIIC) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;
(c) *****
(d) 'supporting manufacturer' means a person being an Indian company or a person (other than a company) resident in India, [manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export.]' [Emphasis supplied] A reading of the provisions of section 80HHC(1A) shows that the assessee shall be allowed in computing the total income, a deduction of the profits derived by the assessee from the sale of goods or merchandise to the Export House. The scheme provides that when once the certificate is issued by the Export House to the supporting manufacturer the latter is entitled to claim deduction, in computing the Income, the entire profits derived by the assessee from the sale of goods or merchandise to the Export House. There is no scope for dividing the sale price as one pertaining to some services rendered and the other pertaining to the sale of goods. The agreements which are almost identically worded to the one which we are referring, provides in the preamble that the processors/ shippers (assessee) are one of the largest processors/shippers of frozen marine products and registered with Small Scale Departments and have their processing unit in Bhimavaram and are SSI Unit, but not a recognised Export House and whereas the Export House has approached the processors/shippers to ship the frozen marine products processed by the processors/shippers and have agreed to ship the products through the Export House on the following terms and conditions :
" 1. The Processors/Shippers agreed to ship their Frozen Marine Products against export orders received by the Export House provided the Processors/Shippers approve of the prices and Letters of Credit terms at which these orders have been booked.The Processors Shippers also agree to ship the said frozen marine products against export orders in the name of the Export House.
2. The Processor/Shippers agree to complete all the formalities with regard to the export of frozen marine products and to ship the frozen marine products under Bills of Lading which Bills of Lading will show the goods shipped by the Processor/Shippers on account of the Export House.
3. The Processors/Shippers further agree to submit to the Export House after each shipment the relevant Letter/Letters of Credit and all relevant documents pertaining to the said shipment including inter alia, valid bill of lading duly endorsed, duplicate copy of GR form, packing lists, weight certificates, and all other necessary documents in accordance with the requirements of the Letters of Credit.
4. The above-mentioned documents are to be made available to the Export House within such period as will enable the Export House to negotiate the documents within 15 days of the date of Bill of Lading. After such shipment the Export House agrees to negotiate the relevant documents pertaining to the said shipments through the Bankers specified by the Processors/Shippers and to instruct the bankers to realise and credit the entire proceeds of such negotiated documents to the packing credit account of the Processors/Shippers.
5. The parties mutually agree that the title to the goods shall pass on from the processors to the Export House in the course of Export on board the ship outside the customs frontiers of India at the C&F prices concluded with a foreign buyer. The Shipper shall raise a bill on the Export House for a sum calculated at 103.75% of the FOB value of exports on receipt of related shipping documents. However, such bill shall indicate the deduction of amounts already received by the Processor from their bankers.
6. In respect of the shipments made by the Processors/Shippers under the terms of this agreement, the Export House, being a recognised Export House, will be entitled to claim advance lincences, and all the benefits accruing to a recognised Export House under the terms of present Import Trade Control Policy.
7. Export House shall undertake to furnish the Processors/Shippers the disclaimer certificate in regard to the exports effected during the financial year in prescribed manner and shall ensure that the certificates are provided within such time stipulated by the Processors/Shippers so that the Processors/Shippers are entitled to claim such relief as provided under the Income-tax Act, J96J. All other benefits arising out of exports shall accrue to the account of Export House. The Processors/Shippers hereby agree to ship to Japan, U.K., Europe, U.S.A. and other countries, in the name of the Export House, frozen fish/shrimp/ lobster tails/cattle fish/squids, etc. to the extent of FOB value of Rs. One crore (plus or minus 596) against the export orders received by the Export House.
8. For the purpose of calculating the FOB value of the export, it is agreed that the rate of exchange adopted by the negotiating bank in negotiating the relative export invoices will be the rate of exchange for the purpose of such calculation.
9. That any demand or levy towards the local/central taxes like sales tax, or purchase tax, octroi or any other levy of any nature whatsoever shall be borne by the Processors/Shippers.
10. The Processors/Shippers agree that all expenses incurred or to be incurred in connection with the said export such as bank charges, stamp duty charges, negotiating charges will be borne by the Processors/ Shippers. The Processors/Shippers further agree that all freight and insurance charges in respect of the shipments made by the Processors/ Shippers, will also be borne by the Processors/Shippers. The Processors/ Shippers shall get the goods insured if it is required under the conditions of the Letter of Credit.
11. The Processors /Shippers hold themselves fully responsible for the quality, shortages, and delivery terms to the overseas buyers. The Processors/Shippers will be responsible for making good the losses/ damages to the overseas buyers on account of default on the part of Processors/Shippers with regard to quality and timely shipment. The Processors/Shippers hold themselves responsible on account of default on the part of overseas buyers and shall reimburse the amount of claims, damages to the Export House immediately."
[Emphasis supplied] The invoice raised in respect of the above as found in page 4 is reproduced below :--
"December 1, 1994 M/s. Jagatjit Industries Limited, Ashoka Estate, 9th Floor, 24, Barakhamba Road, New Delhi- 110001.
Ref: JIL/003/ECS/036/94-95 Dated 25-11-1994 "Seizure memo No./page Description Date of Document Amount Brokerage as above A-8/96 to 100 Sale Deed 12-7-1991 43,48,750 43,487 @1 % A-8/103 and 104 Sale Agreement 31-1-1992 64,000 1, 080@2% Brokerage 44,567 When once the certificate has been issued under the provisions of section 80HHC(1A) by the Export House to the supporting manufacturer, the supporting manufacturer will be entitled for the deduction of the profits derived by the assessee from the sale of goods to the Export House in its entirety. In fact, the agreement provides that the consideration for the sale as stated in clause (5) shall be at 103.75% of the fob value of export. Even the bill raised on the exporter is also 103.75% of the f .o.b. value which is Rs. 60,70,384. The assessee has accounted for the entire sum of Rs. 60,70,384 in respect of this transaction as sale consideration received in respect of the export transactions. The said sum is assessed by the Sales-Tax Department as turnover under the relevant Act. In spite of these it cannot be said that the sale consideration was only 100% of the f.o.b. value and not 103,75% of the f.o.b. value as stated by the parties.
6. The Karala High Court in the case of G. Gangadharan Nair (supra) was concerned with a similar situation. There the assessee dealt in marine products through the Export Houses. On verification of the accounts the assessing authorities noticed that the assessee had received a total sum of Rs. 5,93,072 from various Export Houses. These receipts were credited to the "Export earnings premium". The assessee entered into agreements with various Export Houses who agreed to pay a percentage of f .o.b. value of exports to the assessee. Such amount was described in different agreements as incentive/premium. The Assessing Officer concluded that the amounts constituted service charges and that it was deductible from the profits and gains of business for arriving at the profit of business as defined in Explanation (baa) to section 80HHC(4A). On appeal, the appellate authority confirmed such finding of the Assessing Officer. On further appeal the Appellate Tribunal also affirmed the order of the appellate authority. On a reference, the Hon'ble Kerala High Court held that neither the Assessing Of ficer nor the appellate authority assigned any reason whatsoever to come to the conclusion that premium/incentive was paid to the assessee for rendering services to the Export Houses; nor did either authority elaborate the services, allegedly rendered by the assessee to the Export Houses. Hence the question whether the amounts received by the assessee was includible in the total turnover for purposes of section 80HHC could not be answered. The matter was remitted to the Tribunal.
7. The ITAT, Cochin Bench had an occasion to consider such an issue in the case of AM. Moosa (supra) in that case certain percentage of the f .o.b value of exports was received by the assessee from the Export Houses which the department treated as a part of the 'charges' within the meaning of clause (1) of Explanation (baa) to section 80HHC(4A) of the Act. To consider certain receipts under section 80HHC, 4A Explanation (bad) of the Act, it should be by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature.
8. In the facts before us, a careful appreciation of the agreement and the invoice clearly shows that the so-called additional sale consideration or the commission isnothing but the consideration received in respect of sale of goods or merchandise to the Export House and does not pertain to any specific services rendered by the assessee to the Export House. The assessee's relationship with the Export House is only that of a vendor of the goods which are the subject-matter of export. The agreement also does not provide for any type of services other than which are normally incidental in connection with the saleof goods. We, therefore, do not agree with the stand of the Revenue that the additional sale consideration over and above the f.o.b value of the export is not part of the business profits derived by the assessee from the sale of goods to the Export House. When once the Export House gives a disclaimer certificate, it is not necessary that the assessee should show the profit that is claimed under section 80HHC results in the receipt of convertible foreign exchange. The Legislature itself extends the benefit to a supporting manufacturer who does not receive any convertible foreign exchange directly. But in respect of the transactions the Export House definitely receives the convertible foreign exchange. In the normal circumstances the Export House would have claimed relief under section 80HHC in respect of such exports. But the Legislature in its wisdom thought it fit to extend such relief to the supporting manufacturer who has made enormous investments in the plant and machinery which enabled the Export House to export the goods and earn valuable foreign exchange for the country. The department is, therefore, not justified in not treating the additional sale price consideration as part of the business profit derived by the assessee from the sale of goods to the Export House. It is equally wrong in treating it as part of the brokerage, commission etc. specified in the Explanation (baa) to section 80HHC(4A) of the Act. In the light of the decision of the Kerala High Court as also the decision of the Tribunal, Cochin Bench in the case of AM. Moosa (supra) and the fact that there are different types of agree-ments between the assessment year 1992-93 and the current assessment years, we are not inclined to follow the order of the Tribunal in the assessee's own case for the assessment year 1992-93.
9. It may also be pointed out that the learned CIT (Appeals) has treated the additional sale price as a profit derived from the industrial undertaking while extending the relief under section 80-1 of the Act. When it comes to section 80-1, he took it as part of business profits but when it came to section 80HHC, he excluded the same which in our view is not correct considering the scheme of deduction under section 80HHC of the Act.
10. We, therefore, direct the Assessing Officer to allow the deduction by treating the additional sale price consideration as part of the profits derived by the assessee from the sale of goods to the Export House under section 80HHC(1A) of the Act.
11. In view of our finding that the entire additional sale price should be treated as part of the business profits, we do not feel it necessary to go into the alternative plea that the expenditure that are already debited in connection with placing the cargo on board etc. should be excluded from the items of expenditure.
12. The ground No. 8 in the cross objection filed by the assessee for the assessment year 1994-95 reads as under :--
"The learned Commissioner ought to have held that for computing relief under the proviso to section 80HHC(3), the entire export turnover including the exports made by the Respondent through the medium of Export Houses, should be taken into account.
The Respondent contends that when an Export House issues a disclaimer certificate, the supporting manufacturer is deemed to be the exporter for the purposes of the said section, it is only a logical corollary to treat the sale made to the Export Houses as Export Turnover of the Supporting manufacturer as otherwise it will lead to anomalous results."
This ground in the assessment year 1994-95 deals with the proviso to section 80HHC(3) of the Act in relation to export incentives received. 90% of such incentives multiplied by the factor export turnover to the total turnover is allowed to be deducted under the said proviso. While considering the export turnover the department has taken only the direct exports of Rs. 5,19,51,323. The exports through the Export House to the extent of Rs. 9,08,08,651 has admittedly not been considered as export turnover.
13. We have heard the learned counsel for the assessee who strongly argued that when once the Export House issues a disclaimer certificate in favour of the assessee, supporting manufacturer, the entire exports done through the Export House should be treated as own exports and should be so included in the export turnover for the purpose of arriving at the numerator required in the factor under the proviso to section 80HHC(3) of the Act. For this heavy reliance was placed on the decision of the Tribunal in the case of Eastern Leather Products (P.) Ltd. v. Dy. CIT [1999] 68 ITD 358 (Delhi). The learned departmental representative, on the other hand, strongly supported the computation made by the Assessing Officer.
14. We have carefully gone through the contentions and perused the material on record. Identical issue was before the ITAT, Delhi Bench in respect of the relief under the proviso to section 80HHC(3) of the Act. The Tribunal has gone through the Budget Speech of the Finance Minister, reported in 170 ITR St. I, which made it clear in para 99 thereof that to increase exports he proposed to enhance the existing tax concession under section 80HHC for export profits so as to exempt hundred per cent of export profit from income-tax. It was also proposed to extend the benefit to supporting manufacturers exporting through trading or Export Houses. It is clear from the budget speech of the Finance Minister and notes on clauses relating to new provisions inserted in the Act, providing for benefit of section 80HHC to the supporting manufacturer, that supporting manufacturers are also entitled to hundred per cent exemption on export profits as was available for the direct exporters. The export incentives in the shape of cash assistance, duty drawback and profit earned on sale of replenishment licence are income within the meaning of section 28(iiia), (iiib) and (iiic) and the same had been earned apparently from the export business of the assessee-company. Such export incentives being the income, have therefore, necessarily to be considered for the purpose of claim of deduction under section 80HHC, even in cases of supporting manufacturers, if received. The Tribunal further held that the provisions of tax statute granting incentives and benefits for promoting growth and development of the industry are required to be construed liberally and to the best advantage of the taxpayers. Further, it is settled law that while interpreting the statutory provision, harmonious view be taken so as to achieve the obvious intention of the Legislature. Taking support from these discussions, we are of the view that the export turnover mentioned in the proviso to section 80HHC(3), apart from including the direct exports should also include the exports done through Export House. Therefore, the Assessing Officer shall re-work the relief under the proviso to section 80HHC(3) by treating the exports through the Export House as part of the export turnover.
15. The next ground in the assessee's cross objection for the assessment year 1994-95 and in its appeal for the assessment year 1995-96 relates to consideration of the sale of advance licence credited as income in the profit & loss account and also treated as income derived by the industrial undertaking for the purpose of relief under section 80-1 of the Act. For similar relief granted by the CIT (Appeals) in respect of interest income under section 80-1, the Revenue has taken identical ground. The CIT (Appeals), it may be stated, has treated all interest income accrued from L.C. Margin or deposits with Sales-tax Department, Electricity Board etc. as part of the profits of the industrial undertaking for the purpose of relief under section 80-1 of the Act. The CIT(Appeals) has treated all interest except the interest levied under section 244A of the Act as part of the profits of the industrial undertaking and the revenue is aggrieved.
16. We have heard both the parties and perused the material on record. The Supreme Court in the case of CIt v. Sterling Foods [1999] 237 ITR 579 was concerned with import entitlements. The assessee therein was engaged in processing prawns and other sea foods which it exported. It also earned some import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. It sold the import entitlements that it had earned to others and claimed relief under section SOHH of the Act as profits and gains derived by theindustrial undertaking. The Hon'ble Supreme Court after elaborately discussing the terminology "derived from" held that the source of the import entitlements cannot be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus was held to be not direct but only incidental. On the same reasoning, the interest income and the income from sale of advance licence cannot be said to be income derived by the industrial undertaking. The wordings under sections 80HH and 80-1 are identical. We, therefore, decide the issue against the assessee. The cross objection of the assessee in this regard should be treated as dismissed and the Revenue's appeal on the issue regarding interest should be treated as allowed.
17. The next dispute in the Revenue's appeal relates to the processing charges within the meaning "charges" to be excluded under Explanation (baa) to section 80HHC(4A) of the Act. The assessee apart from processing marine products also undertook processing on behalf of other exporters. Such processing charges were treated as part of the profits of the business. The Revenue roped such charges under section 80HHC (4A) and reduced the relief under that section. The CIT (Appeals) was of the view that the processing involved utilisation of the entire resources of the assessee like manpower, machinery and power. The only difference between the regular manufacture and processing for others was that the assessee did not own the goods. Other than that the assessee incurred heavy expenditure in undertaking processing for others as they would incur for manufacture on their own account. The amount sought to be excluded from profits of business was only receipt by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. The intention of the Legislature while excluding these amounts was to ensure that relief under section 80HHC was not obtained in respect of income for which no substantial amount of expenditure was incurred. In fact, the Legislature had estimated the normal expenditure on such receipts to be 10% and excluded the balance 90% of the receipts. The learned CIT (Appeals) opined that merely because the word "charges" was used, the item would not fall within the above type of receipts contemplated under Explanation (baa) to section 80HHC(4A) of the Act. The learned CIT (Appeals) further relied upon the rule of ejusdem generis which mandated that the general word following the specific words will have its meaning restricted by those specified words. In that context, brokerage, commission, rent or interest are items of receipt for which the effort and expenditure put in are minimal. According to him, the processing charges derived by the assessee was not contemplated to be included in the said Explanation and the Revenue is aggrieved.
18. The learned departmental representative relied upon the decision of the Pune Bench of the Tribunal in the case of Salgaocar Mining Industries Ltd. v. Dy. CIT[ 1997] 61 ITD 105 and the decision of the Delhi Bench of the Tribunal in the case of International Research Park Laboratories Ltd. v. Asstt. CIT [1994] 50 ITD 37 (SB) and supported the view of the Assessing Officer.
19. The learned counsel for the assessee, on the other hand, pointed out that the decision of the Delhi Bench was for the year prior to assessment year 1992-93 and the decision of the Pune Bench is not applicable to the facts of the case.
20. We have carefully considered the rival contentions and perused the material on record. In our view, the order of the CIT(A) does not require any interference. The two decisions relied upon by the Revenue do not in any way advance the case of the Revenue for the assessment years in question. The processing charges received by the assessee, as already pointed out by the CIT (Appeals) (for which there seems to be no dispute) involves utilisation of the entire resources of the assessee like manpower, machinery and power, other manufacturing and administrative set up. The only difference between the regular manufacturer and the processing for others is that the assessee did not own the goods in respect of which processing has been carried out. Nonetheless, the entire set up of the assessee was engaged in processing the goods belonging to others. Such profits cannot be excluded as charges falling under Explanation (baa) to section 80HHC(4A) of the Act. As rightly pointed out by the CIT (Appeals), the amount sought to be excluded by the said Explanation is by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. These kinds of receipts specified therein are the receipts for which no significant utilisation of the assessee's apparatus is required. For earning interest and rent what is required of the assessee is only deployment of funds or letting out of the property whereas in the instant case the entire set up of the assessee has been used to process the goods for others. Therefore, the processing charges, in our view, has rightly been held to be the profits of business for the purpose of relief under section 80HHC of the Act. We, therefore, decline to interfere. The assessee's cross objection in support of these findings of the CIT (Appeals) is similarly dismissed as infructuous.
21. The next dispute in both the years relates to the consideration of the additional sale price, vehicle hire charges, and storage charges in the assessment year 1995-96 as part of the profits of the industrial undertaking for the purpose of section 80-1 of the Act.
With regard to the additional sale price realised from the Export House, we have already held it to be business profits of the assessee. Therefore, it automatically follows that such realisation should be treated as profit while computing the relief under section 80-1 of the Act also. As regards the vehiclehire charges in both the years the assessee was using insulation vehicles for transporting frozen cargo. When they were not used for own assignments, they were let out to others and hire charges collected. These hire charges, according to the assessee, were part of the profits of the industrial undertaking for the purpose of relief under section 80-1 of the Act.
22. We have heard both the parties and find that the vehicles were the commercial assets utilised in the business. The maintenance expenses of these vehicles were totally debited to the assessee's accounts and had depressed the profits of the undertaking. It was therefore, absolutely necessary to treat the hire charges as part of the income of the industrial undertaking for the purpose of working out the relief under section 80-I of the Act. We do not find any infirmity in the order of the CIT (Appeals) on this issue.
23. Similar claims were made with regard to the storage charges of Rs. 38,435 in the assessment year 1995-96 and that they should be treated as profits derived by the industrial undertaking. After hearing the parties we are of the view that the storage charges were the profits derived by the industrial undertaking as held by the Supreme Court in the case of Sterling Foods (supra). The order of the CIT (Appeals), in our view, therefore, does not require any modification.
24. In the result, the appeals and the cross objections are to be treated as partly allowed.