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

2. The appellant processes sea foods. It exported some of its products directly to foreign buyers but it was not an eligible export house under the Import and Export PoliceThe appellants claim for deduction was rejected by the respondent. The appellant preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal relying on the definition of the word `export in Section 2(18) of the Customs Act which says that "`export means taking out of India to a place outside India." According to the Tribunal, when the goods cleared the customs barrier, the export house was nowhere on the scene and that the export process having been actually done by the appellant/assessee and not the export house, the appellant was the exporter within the meaning of Section 80 HHC.6. In the context of these facts, the following question came to be referred to the High Court at the instance of the respondenton the facts and in the circumstances of the case, the assessee is entitled to deduction under Section 80 HHC of the Income Tax Act, 1961 in respect of exports (not done directly by the assessee) done through export houseThe High Court answered the reference against the assessee and in favour of the Revenue. The decision of the High Court is now impugned before us.

Reasoning: 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.