Commissioner of Income-tax v. Shamanur Kallappa and Sons
[Citation -2015-LL-0112-5]

Citation 2015-LL-0112-5
Appellant Name Commissioner of Income-tax
Respondent Name Shamanur Kallappa and Sons
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 12/01/2015
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags substantial question of law • supporting manufacturer • foreign currency • foreign exchange • export turnover • export house
Bot Summary: The assessee produced a letter dated November 28, 2003, from the STC to the effect that the STC had not claimed any export benefit on the said exports and that the said exports are under protocol exports, i.e., Government of India to Government Aid Programme and that the export consideration was received in Indian rupees from the Ministry of External Affairs. The Tribunal on consideration of various provisions of law as well as circulars held that under the scheme, the supporting manufacturer gets an independent right to claim the deduction once he gets a declaration certificate in his favour from the Export House. If the export house is not claiming the benefit and the issue of certificate of disclaimer is in respect of export turnover, then the supporting manufacturer is entitled to the benefit. The learned counsel appearing for the Revenue assailing the impugned order contended that when the export house has not earned any profit, the question of passing on the said benefit to the supporting manufacturer does not arise. To attract the said provision, the supporting manufacturer who sells the goods or merchandise to the export house or trading house, the export house and trading house has to issue a certificate under the proviso to subsection of section 80HHC of the Act. In order to attract section 80HHC(1A) of the Act after purchase of goods or merchandise from the supporting manufacturer, the said goods has to be exported out of India. Once such export is established, a certificate under the proviso to sub-section is issued by the export house or trading house and when they are not claiming the benefit under section 80HHC, the assessee would be entitled to the benefit of deduction as prescribed under section 80HHC(1A) of the Act.


JUDGMENT judgment of court was delivered by N. Kumar J.-The assessee is partnership firm carrying on business of trading in sugar, pulses and export of rice. For assessment year 2003-04, assessee filed return of income declaring total income of Rs. 2,20,55,450 after claiming deduction of Rs. 80,95,064 under section 80HHC of Income-tax Act, 1961 (for short hereinafter referred to as "the Act"). It is not in dispute that assessee exported rice to Pnomphenh, Cambodia through State Trading Corporation of India Ltd. (for short hereinafter referred to "the "STC"), Jalandhar, as supporting manufacturer and, therefore, they claimed deduction under section 80HHC of Act. assessee produced letter dated November 28, 2003, from STC to effect that STC had not claimed any export benefit on said exports and that said exports are under protocol exports, i.e., Government of India to Government Aid Programme and that export consideration was received in Indian rupees from Ministry of External Affairs. certificate of disclaimer from STC in prescribed Form 10CCAB and bill of lading were also filed before Assessing Officer. Assessing Officer disallowed said claim on ground that STC had declared loss. In other words, they had not earned any profit out of such exports. Secondly, on ground that deduction under section 80HHC of Act is permissible only when realisation is in foreign exchange. Aggrieved by said order, assessee preferred appeal to Commissioner of Income-tax (Appeals), who confirmed order of assessing authority against which assessee preferred appeal to Tribunal. Tribunal on consideration of various provisions of law as well as circulars held that under scheme, supporting manufacturer gets independent right to claim deduction once he gets declaration certificate in his favour from Export House. What is to be seen is whether benefit is claimed by both Export House and supporting manufacturer. If export house is not claiming benefit and issue of certificate of disclaimer is in respect of export turnover, then supporting manufacturer is entitled to benefit. After referring to circulars issued by Central Board of Direct Taxes dealing with protocol exports, it was held that supporting manufacturer has realised consideration in Indian currency. Whether Government of India has realised some foreign currency is not criteria. In view of specific provision as contained in section 80HHC(1A) of Act supporting manufacturer is entitled to said benefit. Aggrieved by said order, Revenue is in appeal. learned counsel appearing for Revenue assailing impugned order contended that when export house has not earned any profit, question of passing on said benefit to supporting manufacturer does not arise. Secondly, Government of India gifted rice to Cambodia and it is not sale and no foreign exchange is realised and, therefore, he submits section 80HHC of Act has no application to facts of this case. Per contra, learned counsel for assessee submitted that present case falls under section 80HHC(1A) of Act and all conditions prescribed therein are fulfilled as held by Tribunal and, therefore, no case for interference is made out in impugned order. appeal was admitted to consider following substantial question of law: "Whether Tribunal was right in holding that respondentassessee was entitled to benefit of provisions of section 80HHC(1A) of Income-tax Act, 1961, even without actually exporting any food grains to foreign country?" Section 80HHC of Act provides for deduction in respect of profits return from export business. In instant case, role of assessee is that of supporting manufacturer and, therefore, it is section 80HHC(1A) of Act that is attracted which reads as under: "80HHC. (1A) Where assessee, being supporting manufacturer, has during previous year, sold goods or merchandise to any Export House or Trading House in respect of which Export House or Trading House has issued certificate under proviso to subsection (1), there shall, in accordance with and subject to provisions of this section, be allowed in computing total income of assessee, deduction to extent of profits, referred to in sub-section (1B), derived by assessee from sale of goods or merchandise to Export House or Trading House in respect of which certificate has been issued by Export House or Trading House." To attract said provision, supporting manufacturer who sells goods or merchandise to export house or trading house, export house and trading house has to issue certificate under proviso to subsection (1) of section 80HHC of Act. If these two conditions are fulfilled, then supporting manufacturer is entitled to deduction as contemplated under section 80HHC of Act to extent as mentioned in section 80HHC(1B) of Act. It is immaterial whether in process, export house or trading house sells goods to any foreign country or earns profit or realises any foreign exchange. In order to attract section 80HHC(1A) of Act after purchase of goods or merchandise from supporting manufacturer, said goods has to be exported out of India. Once such export is established, certificate under proviso to sub-section (1) is issued by export house or trading house and when they are not claiming benefit under section 80HHC, assessee would be entitled to benefit of deduction as prescribed under section 80HHC(1A) of Act. Even circulars relied on do support case of assessee. In that view of matter, we do not see any merit in this appeal. substantial question of law is answered in favour of assessee and against Revenue. Yet another substantial question of law which arises for consideration in this appeal is as under: "Whether, on facts and in circumstances of case, Tribunal was right in law and on facts in coming to conclusion that assessee has apparently complied with statutory requirements provided in section 80HHC(1A) for claiming deduction, even though requisite certificate duly signed by accountant as defined in Explanation below sub- section (2) of section 288 of Income-tax Act, 1961, has not been filed along with R/I?" This court had occasion to consider this question in case of ITO v. Mandira D. Vakharia [2001] 250 ITR 432 (Karn) where it has been held that even though requisite certificate duly signed by accountant as defined in sub-section (2) of section 88 of Act is not produced along with return, if it is produced even in course of proceedings, it has to be taken note of and given benefit. Therefore, Tribunal was justified in granting relief to assessee relying upon certificate produced in course of proceedings. Therefore, we do not see any merit in this contention also and substantial question of law is answered in favour of assessee and against Revenue. No merit. appeal is dismissed. *** Commissioner of Income-tax v. Shamanur Kallappa and Son
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