High Court Of Madras
CIT, Coimbatore Vs. Bannariamman Exports Ltd.
Section : 80HHC
Mrs.Chitra Venkataraman And T.S. Sivagnanam, Jj.
Tax Case (Appeal) No. 962 Of 2009
September 23, 2013
JUDGMENT
Mrs. Chitra Venkataraman, J. – The Revenue is on appeal as against the order passed by the Income Tax Appellate Tribunal, Chennai ‘D’ Bench dated 25.11.2005 in ITA.No.1270/Mds/99 relating to the assessment year 1996-97 raising the following questions of law:
” 1. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in holding that demurrage and dead freight are to be allowed while calculating the relief under Sec.80 HHC for the assessment year 1996-97?
2. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the explanation ‘b’ under Sec.80HHC wherein export turnover does not include freight or insurance attributable to the transport of goods or mercantile beyond the customs station?”.
2. The assessee is a trading concern exporting Molasses, granites, diamond and leather. It exported molasses worth Rs.6,14,87,164/-. As per the terms and conditions of the sale of molasses to M/s. United Molasses, London, demurrage and dead freight incurred by virtue of loading molasses at Kochin Port had to be borne by M/s. United Molasses, London and the same was to be paid to the Chartered Ship owners. M/s. United Molasses, London in turn, collected the demurrage and dead freight charges from the assessee on the ground that the delay in loading was attributable to the assessee. Thus the demurrage and dead freight incurred was Rs.31,44,590/- and Rs.3,33,405/- respectively. Instead of the assessee paying the amount towards demurrage and dead freight, the purchaser, M/s. United Molasses, London deducted the said amount from the sale consideration and remitted the balance sale proceeds to the assessee company. The assessee submitted that the deduction under Section 80 HHC has to be worked out on the sale consideration of Rs.6,14,87,164/-. However, the Assessing Officer rejected the said claim and restricted the deduction only to the net amount received by the assessee.
3. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals); having lost the same, the assessee filed an appeal before the Income Tax Appellate Tribunal, which allowed the assessee’s appeal. In considering the said claim, the Tribunal however, pointed out that the issue had to be seen in the context of the agreement between the assessee and the foreign company. Consequently, it remitted the matter back to the Assessing Officer to give a finding from the materials on record as to whether this sum were actually of such nature to be borne by the assessee.
4. Aggrieved by this, the Revenue is on appeal before this Court and the learned Standing Counsel appearing for the Revenue brought to our attention the definition to “Export Turnover” appearing in Explanation (b) to Section 80HHC of the Income Tax Act, 1961 which reads as follows:
“Export turnover” means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1961 (52 of 1962).”
5. In the background of this, learned Standing Counsel submitted that the amount being deducted represented dead freight, the net consideration alone would represent the export turnover and not the sum of Rs.6,14,87,164/-.
6. Learned Counsel for the respondent/assessee however pointed out that the agreement between the assessee and the Exporter on the export of Molasses was on the consideration of Rs.6,14,87,164/- only. As per the agreement any delay in shipment on account of the assessee would have to be borne by the assesseee only and as per the agreement between the parties, the liability was already charged against the assessee. Instead of the assessee paying the amount to the Chartered Ship Owners for the delay caused by them, the Foreign Company paid the same and after deducting the demurrage on the delay caused by the assessee, the Foreign Company remitted only the net amount pertaining to the sale proceeds.
7. Considering the agreement between the parties, the assessee thus rightly claimed that the Chapter VI deduction should be on the agreed amount on the sale of molasses and not what was received ultimately after deducting the demurrage charges, which is an issue totally deferred.
8. To that end, he placed reliance on the decision of the Apex Court in J.B. Boda and Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271/[1996] 89 Taxman 311. The said case related to an assessee who was the reinsurance broker for Oil and Natural Gas Commission which has insured all their off-shore oil and gas exploration and production operations with an Indian Insurance company. The assessee therein applied to the Reserve Bank of India for permission as regards the payment of total re-insurance premium payable to the foreign parties; after deducting the brokerage due to the assessee for technical services rendered, the balance was remitted to the London brokers, who were the brokers for placing all re-insurance business. The assessee sought for approval of the Central Board of Directed Taxes in terms of Section 80-O of the Income Tax Act, 1961 on the ground that the reinsurance brokerage retained in India under agreement with the London Brokers amounted to receipt of income in convertible foreign exchange. On the Board refusing to give the approval and after the dismissal of the writ petition filed, the assessee approached the Apex Court by way of an appeal. The Apex Court pointed out that the formal remittance to the foreign re-insurers first and thereafter receipt of the commission from the foreign re-insurer was unnecessary and that the entire transaction effected by the assessee showed a two-way traffic. Thus, on facts, to first insist on a formal remittance to the foreign insurer and then thereafter to receive the commission from the foreign insurer by the assessee would be an empty formality and a meaningless ritual. Thus on going through the nature of the transaction and the statement of remittance filed in the Reserve Bank of India regarding the transaction, the Apex Court held that the income received in India in convertible foreign exchange in a lawful and permissible manner through the premium institution concerning the subject matter was to be given its due credence and that the Board was not correct in declining the agreement of the assessee with the Foreign Reinsurance Company.
9. In the circumstances, the Apex Court held that the remittance to the foreign insurer after deducting the commission was to be given its proper recognition.
10. Applying the said decision, to the facts of this case, as rightly pointed out by the learned counsel for the asseseee, the Revenue does not dispute the fact that the assessee had exported molasses worth Rs.6,14,87,164/-. The Revenue also does not dispute the fact that there was an agreement between the assessee and the foreign buyer as regards the liability of either of the party on demurrage, as per which, the demurrage and dead freight was payable by the assessee on account of its delay in boarding of Molasses and consequently, the charges payable thereon were to be paid by the assessee. Accordingly, the foreign company deducted the amount towards demurrage and dead freight and remitted the balance amount to the assessee. This does not mean that the sale consideration was anything less than Rs.6,14,87,164/- for the purpose of claiming deduction under 80 HHC of the Act. There is nothing on material to show that the parties had agreed that the balance after adjusting demurrage and dead freight charges alone would be the safe consideration.
11. In the circumstances, we agree with the assessee that the assessee is entitled to the claim and we do not find there is any need for even a remand also in this case. Consequently, we have no hesitation in dismissing the Revenue’s appeal on the facts, thus referred to above.
12. In the result, the Tax Case (Appeal) is dismissed. No costs.
[Citation : 360 ITR 591]
