Income Tax Appellate Tribunal - Mumbai
Burlingtons Of Bombay vs Third Income-Tax Officer on 4 October, 1991
Equivalent citations: [1992]40ITD384(MUM)
ORDER
M.A. Ajinkya, Accountant Member
1. to 4. [These paras arc not reproduced here as they involve minor issues.]
5. The assessee is a registered firm engaged in the business of manufacturing and dealing in readymade garments and fabrics. During the year under appeal, (assessment year 1984-85), the assessee had claimed deduction under Section 80HHC of the Act on export turnover of Rs. 40,28,057, out. of which direct exports by the assessee are to the tune of Rs. 18,13,604. The rest of the sales which are claimed as export sales were sales effected by the appellant in its shop situated in Taj Mahal Hotel. The ITO took the stand that deduction under Section 80HHC is allowable only on exports made by the assessee out of India since in respect of such exports, the assessee earns convertible foreign exchange. He, therefore, allowed deduction under Section 80HHC on the FOB value of direct export sales during the year of Rs. 16,13,473. Against this finding, the assessee went in appeal. The CIT (Appeals) disposed of this issue very briefly in para 5 of his order which reads as follows:--
5. The next ground in appeal is that the ITO was not justified in not allowing 80HHC with reference to cash exports sales made in India to the foreign buyers from whom money was received by foreign exchange. Section 80HHC comes into place only when there is export of goods from India by the seller and not by the purchaser and therefore the action of the ITO is perfectly in order and there is no interference called for.
It is against this finding of the CIT (Appeals) that the assessee is in appeal before us.
6. Mrs. Aarti Vissanji, appearing for the appellant, argued that the issue for consideration was whether sales to foreign tourists effected in the shop situated in the Taj Mahal Hotel could be treated as export sales for the purpose of deduction under Section 80HHC. She pointed out that the goods sold to foreign tourists in the shop situated in Taj Mahal Hotel were paid for in foreign currency for which the appellant had maintained a separate account. It was an admitted fact that the appellant was engaged in export of readymade garments and in respect of the direct exports, the ITO had himself allowed deduction under Section 80HHC. She argued that the appellant was eligible for grant of import licence even in respect of sales effected in the shop for which payment was made in foreign exchange. Hence, she argued that the CIT (Appeals) was not justified in not allowing deduction under Section 80HHC on the indirect cash and credit exports claimed as exports by the appellant on account of sales effected by the firm to the foreigners in the shop situated in the Taj Mahal Hotel, since such sales were effected in foreign currency of foreigners who, after purchase of the goods, took them outside India. The argument was that such sales were therefore in the nature of exports made by the appellant-firm outside India through foreign buyers. Mrs. Vissanji has given details (at p. 13 of the compilation) of such sales and has argued that as a result of such sales, the appellant had obtained import licence of Rs. 9,700 on 19-8-1983 (p. 23 of the compilation) and of Rs. 6,800 on 21-1-1983 [copy filed]. It would appear that the assessee had made a claim for import entitlement of Rs. 9,750 on the FOB value of sales effected locally amounting to Rs. 62,667.84, the details of which in the quarterly returns of tourists sales effected during the period July-September 1987 have been given at p. 37 to 39 of the compilation. Against this claim of import entitlement, the Joint Chief Controller of Imports & Exports (JCCI) in their letter dated 19-8-1983 had issued a licence for Rs. 9,700. This was cited as an illustration in support of the argument, that even the Commerce Ministry of the Government of India had treated such sales as exports and had considered the claim of the appellant for import entitlement in view of such exports. Mrs. Vissanji then referred to the Import & Export policy of the Government of India, which was relevant for the accounting period 1983-84, extracts of which have been filed at pages 95&96 of the compilation. Paragraph 131 of the Policy clearly states that the following types of 'deemed exports' will qualify and Clause (a) of this paragraph relates to sales to foreign tourists of the items specified in para 157 of the Policy, with the relevant clause (p. 96 of the compilation) reads as follows:--
(a)....
(b). ...
(c). ...
(d). ...
(e). ...
(f) Ready-made garments;
(g). ...
(h). ...
(i). ...
Therefore, argued the learned counsel, even the import & export policy had treated sales of readymade garments to foreign tourists as qualifying for import replenishment under the Import policy for the registered exporters. The appellant-firm was a registered exporter and therefore such sales, it was argued, should be treated as exports for the purpose of Section 80HHC. Finally, Mrs. Vissanji argued that the retrospective amendment in Finance Bill, 1991, to Section 80HHC, by negative implication directly supported the stand of the assessee [190 ITR para-6 p. 300 (Statutes)]. She also relied on a decision of the Delhi Bench in the case of Indian Handicrafts Emporium v. ITO [IT Appeal No. 1354 (Delhi) 1980] for the assessment year 1976-77 where the Tribunal held that sales to the extent of Rs.21 lakhs against foreign currency received in India represented foreign sales. Although this decision was given in the context of Section 35C,the main finding given by the Tribunal, argued Mrs. Vissanji, supported the appellant's case. The learned Departmental Representative pointed out that the language of Section 80HHC, as it stood before its amendment by the Finance Act, 1985, with effect from 1-4-1986, was slightly different. Clause (1) of Section 80HHC which was first inserted by the Finance Act, 1983, w.e.f. 1-4-1983, spoke of 'exports out of India', whereas Clause (1) of the amended section, as it stood from 1-4-1986, spoke of an assessee who is engaged 'in the business of export out of India'. The learned Departmental Representative, then referred to a decision of the Cochin Bench of the Tribunal in the case of Sea Pearl Industries v. ITO [1988] 26 ITD 380 where the same issue was considered by the Tribunal. The Tribunal was interpreting the expression 'export out of India' which expression is not defined in the Act. The Tribunal referred to the decision of the Supreme Court in the case of Coffee Board Bangalore v. Joint CTO AIR 1971 SC 870, where it was held that the only sale which can be said to cause the export is the sale which results in the movement of the goods from the exporter to the importer. Thus, the necessary ingredients for the export sale is purchase of the goods and processing it for export and selling it to an importer and the goods moving out of India to the importer. If these conditions are satisfied, the asssssee could be said to be an exporter. After relying on these decisions, the learned Departmental Representative also relied on a decision of the Delhi High Court in the case of Ferro Alloys Corpn. Lid. v. R.C. Mishra [1978] 114 ITR 753 where the Delhi High Court held that the incentive provided by Section 280-ZC of the Income-tax Act, 1961, to the person who exports goods during the material period was intended to be given to the real exporter and not merely to the ostensible exporter.
7. In reply, Mrs. Vissanji pointed out that virtually there was no difference in the new section and the old Section 80HHC. The sale proceeds were received in convertible foreign currency, a separate account was maintained in respect of such sale proceeds, the appellant's claim for import entitlements was considered in respect of such sale proceeds and in terms of the import & export policy that was prevalent at the relevant time, such sales to foreign tourists had to be treated as deemed exports and they qualified for import replenishment. Further she argued that the appellant was even otherwise engaged in the business of export of goods and therefore miscellaneous sales which were effected to foreign tourists in the Taj Mahal Hotel for which payment was received in convertible in foreign currency should have been treated as export sales for the purpose of relief under Section 80HHC.
8. We have considered the submissions made on either side. After a careful scrutiny of the relevant provisions and the papers filed on record, we are of the view that the appellant is entitled to succeed in its claim for Section 80HHC, relief in respect of local sales effected to foreign tourists for which money is received in foreign currency. The main purpose of Section 80HHC is to encourage exports, with the main intention of earning foreign exchange. No doubt Sub-section (1) of Section 80HHC speaks of an assessee being an Indian company or a person (other than a company) who is resident in India, who exports out of India any goods or merchandise to which this section applies. Whereas the amended section speaks of an assessee being an Indian company or a person (other than a company) resident in India, which is engaged in the business of exports out of India of any goods or merchandise. In real terms, we do not find any material difference in the language of the two sections. The expression "exports out of India" cannot be narrowly construed only to mean export earnings out of goods which are literally exported out of India, particularly, when in the Import & Export Policy which was prevalent at the relevant time, the sales made locally to foreign tourists have been treated as deemed exports. Further, as we have seen in para 157 of the said Policy reproduced above this policy specifically provides that sales to foreign tourists of readymade garments inter alia qualify for import replenishment. We have also seen that the assessee has applied for and has obtained from the Commerce Ministry, import entitlement to the extent of Rs. 9,700 in respect of such sales on one occasion and Rs. 6,800 on an other. The assessee is a recognised exporter which is engaged in the business of exporting readymade garments and in respect of direct exports, it has already been allowed relief under Section 80HHC. The decision of the Delhi Bench of the Tribunal in the case of Indian Handicrafts Emporium (supra) though relating to Section 35C, has discussed this issue at some considerable length. In that case, the Tribunal, even for an earlier year had held that sales against one currency in India should be considered as export sales. Following the order of the Tribunal for the assessment year 1975-76, the Tribunal for the assessment year 1976-77 also held that sales to the extent of Rs. 21,00,000 against foreign currency received in India represents export sales. The appellant in their letter dated 4th May, 1983Addressed to the Office of JCCI had applied for grant of Replenishment licence against tourists sales made during July-September quarter. Details of such sales are furnished at pgs. 37 to 39 of the compilation. The F.O.B. value of the sales so effected during this quarter was Rs.62,667.84 on which import entitlement of Rs. 9,750.51 was made. In this letter, it was clarified that the licence had been claimed on the value indicated on the bank certificate and for on the Cash Memo whichever is low. While processing this application, the office of the JCCI in their letter dated 13-4-1983 had asked for some clarification which were furnished and the appellant got import entitlement of Rs. 9,700 (vide pg. 23 of the paperbook) from the JCCI in their letter dated 18-8-1983. These facts would indicate that even the relevant authority, viz. the Jt. Chief Controller of Imports & Exports, had while issuing such import licences, what are called Replenishment licences, had accepted that the sales effected to tourists in foreign currency constituted exports which qualify for issue of import entitlements.
9. There is one more aspect of the matter which requires consideration while deciding this issue. Mrs. Vissanji pointed out that the provisions of Section 80HHC were proposed to be amended from 1st of April 1992 and the amended provisions were to become effective in relation to the assessment year 1992-93And subsequent years. In this context, she relied on the 'Memorandum explaining provisions in Finance (No. 2) Bill, 1991', and the explanatory notes in respect of the proposed amendment and in particular, the following extract of such notes appearing in 190 ITR - p. 300 (Statutes): --
the issue, whether sale of goods to foreigners in shops or other establishments situated in India is export, has been a subject-matter of litigation. The Department's view, all along, has been that such counter sales within India do not constitute export and, therefore, are not eligible for the tax concession under Section 80HHC. To give finality to this view and to end all judicial controversies, it is proposed to clarify that 'export out of India' shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment in India, not involving clearance at any customs station.
This amendment will take effect retrospectively from the 1st April 1986, the day on which the substituted Section 80HHC took effect. It will, accordingly, apply in relation to assessment year 1986-87 and subsequent years.
She argued that the Government had taken note of the fact that there was litigation on the issue whether sale of goods to foreigners in shops or other establishments situated in India is export. The Department's view, as was canvassed in the present appeal, has been that such counter-sales within India do not constitute export and, therefore, are not eligible for tax concession under Section 80HHC. It is with the intention of setting this controversy to rest, that it was proposed to clarify by the latest amendment that export out of India shall not include any transaction by way of sale or otherwise. Mrs. Vissanji was at pains to point out that this amendment will take effect retrospectively from 1-4-1986, i.e., the day on which the substituted Section 80HHC took effect. We are, in the present appeal, concerned with the assessment year 1984-85 when Section 80HHC as it stood before its amendment by the Finance Act, 1985 which became effective from 1-4-1986, was applicable. Therefore, we are of the considered view that as the section stood at the relevant time, the benefit of the provisions of Section 80HHC has to be given in respect of sales effected to foreigners across the counter in foreign exchange currency.
Having considered all these facts and the legal position as discussed above, we are of the view that the assessee is entitled to get deduction under Section 80HHC even in respect of such sales. We direct accordingly.
10. It may incidentally be stated that this stand of the assessee has been accepted by the CIT (Appeals) for the assessment year 1983-84 in her order dated 23-8-1988 and another CIT (Appeals) in her order dated 10-8-1988 for the assessment year 1987-88. Both these authorities have directed the Assessing Officer to treat the sales in foreign currency in India as exports for the purpose of deduction under Section 80HHC. Having regard to these facts, we would allow the appeal of the assessee.
11. and 12. [These paras are not reproduced here as they involve minor issues.]