Case: Sea Pearl Industries and Ors. etc Vs. Commissioner of Income Tax, Cochin

exporter. It may be that this was for the purpose of enabling the export house to reap the benefit of the Policy but it was also for the added advantage of the commission earned by the appellant from the export house. The export house had also claimed and been allowed deduction in respect of the amount realised by the export under Section 80 HHC. The appellant having allowed the authorities to act on that basis, did so at its peril. It cannot now disclaim the position. 13. A somewhat similar situation was considered by this Court in Mineral and Metal Trading Corporation v. R.C. Mishra and others, 1993(201) ITR 851. In order to avail of the benefits of the barter system which entitled imports to be made against the goods exported, inter alia through Mineral and Metal Trading Corporation (MMTC), Ferro-Alloys Corporation Ltd. had exported goods to foreign buyers through MMTC. The purchase order which was initially placed on Ferro-Alloys by the foreign buyer was split into two contracts, one between the local supplier and the MMTC and the second between MMTC and Ferro-Alloys. Letters of Credit were opened by the foreign buyer in the name of MMTC and were endorsed by MMTC in favour Farro-Alloys. As in the case before us both Farro-Alloys and MMTC claimed Tax Credit Certificate under Section 280 ZC of the Income Tax Act, 1961. The High Court held that the Farro Alloys was the real exporter. This Court reversed the decision of the High Court and held that MMTC was the exporter for the purposes of Section 280 ZC : "All this was done as required by the system of barter. Farro-Alloys availed of this system presumable because it was to its advantage. In fact, it appears that it was not able to sell the said goods otherwise. Be that as it may, whether by choice or by lack of alternative, it chose to route its goods through MMTC. It open to the Farro-Alloys now to say that all this must be ignored in the name of "external appearances" and it must be treated as the real exporter for the purpose of Section 290 ZC. It wants to be the gainer in both the events. A case of "heads I win, tails you lose".......Farro-Alloys cannot come to the MMTC when it is profitable to it and disavow it when it is not profitable to it. It cannot have it both ways." 14. Secondly, the phrase "sale proceeds......receivable by the assessee" in Section 80 HHC sub-section (2), cannot be construed to mean `sale proceeds ultimately received. Payment for the export was by the Letter of Credit. The Letter of Credit being in favour of the export house, the foreign exchange was "receivable" by it. That the export house may have chosen to transfer the foreign exchange to a third party under some independent arrangement would not make the third party the exporter. Whatever the internal arrangement between the export house and the appellant, as far as the Income Tax authorities were concerned, the export house would clearly be the exporter. 15. Finally, different statutes, have conferred benefits and cast obligations on an exporter but none of the statutory provisions allows more than one person either to claim the benefit given or be subject to the obligation cast. For example, Paragraph 165 of the Import and Export Policy for the year 1982-83 states : "In respect of `third party exports, i.e. where all or any of the export documents contained the names of two parties, the import replenishment licence as admissible under the import policy for Registered Exporters may be claimed by any of these two parties provided (i) the claimant is a Registered Exporter and is otherwise eligible under the Policy, (ii) the claimant produces a certificate of "disclaimer" from the other party in his favour, and (iii) the party granting the disclaimed is not itself debarred from receiving licences etc. under the Import (Control) Order, 1955." 16. The paragraph recognises that there may be a situation where the export documents contain more than one name but the privilege of obtaining a REP licence can be claimed by only one. Similarly, the Circular No. 446 dated 14.8.1986 issued by the Central Board of Direct Taxes as well as the amendment in 1989 to Section 80 HHC, allow a supporting manufacturer to claim deductions in respect of profits of the export provided the supporting manufacturer furnishes a certificate from the export house, inter-alia, stating that the export house had not claimed deductions under the Section. Both the Circular as well as the amendment indicate that were it not for the clarification /amendment, it would be the export house alone which could have claimed deductions under the Section : a right which could be waived in favour of the supporting manufacturer. It was for this reason that the agreement between the appellant and the export house had divided the benefits and obligations obtainable by an exporter between them. Under clauses 7 and 8 of the agreement, the export house was alone entitled to claim the REP import licence benefits and all the accruing to an eligible merchant exporter under the terms of the Import Trade Control Policy. On the other hand, in clause 10 the export house confirmed that it would not claim "benefits available from the Customs and Central Excise authorities and or any other Government Department in respect of the export of ships. " It may be that in claiming the deduction under Section 80 HHC, the export house has violated this term of the agreement but that cannot make the appellant the exporter.17. The logical consequence of the Tribunals view would be that both the export house and the original manufacturer could claim to have exported the goods and be entitled to receive the foreign exchange, and both could consequently claim at different stages deduction under Section 80 HHC in respect of the same amount-an outcome contrary to the language of the Section itself.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]16. The paragraph recognises that there may be a situation where the export documents contain more than one name but the privilege of obtaining a REP licence can be claimed by only one. Similarly, the Circular No. 446 dated 14.8.1986 issued by the Central Board of Direct Taxes as well as the amendment in 1989 to Section 80 HHC, allow a supporting manufacturer to claim deductions in respect of profits of the export provided the supporting manufacturer furnishes a certificate from the export house,stating that the export house had not claimed deductions under the Section. Both the Circular as well as the amendment indicate that were it not for the clarification /amendment, it would be the export house alone which could have claimed deductions under the Section : a right which could be waived in favour of the supporting manufacturer. It was for this reason that the agreement between the appellant and the export house had divided the benefits and obligations obtainable by an exporter between them. Under clauses 7 and 8 of the agreement, the export house was alone entitled to claim the REP import licence benefits and all the accruing to an eligible merchant exporter under the terms of the Import Trade Control Policy. On the other hand, in clause 10 the export house confirmed that it would not claim "benefits available from the Customs and Central Excise authorities and or any other Government Department in respect of the export ofIt may be that in claiming the deduction under Section 80 HHC, the export house has violated this term of the agreement but that cannot make the appellant the exporter.17. The logical consequence of the Tribunals view would be that both the export house and the original manufacturer could claim to have exported the goods and be entitled to receive the foreign exchange, and both could consequently claim at different stages deduction under Section 80 HHC in respect of the sameoutcome contrary to the language of the Section itself.