CIT & Anr. v. Garniwal Exports (P.) Ltd.

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The Tax Publishers2013 TaxPub(DT) 2091 (Karn-HC) : (2013) 356 ITR 0432 Income Tax Act, 1961 --Deduction under section 80HHCAllowability Price for transfer of export licence--Assessee, an exporter, had been allotted what is known as quota rights for export to countries with which India had reciprocal or bilateral agreement. Assessee did not make use of the quota which had been allotted to it for effecting export but instead transferred these quotas to others who paid a price or a premium to the quota which had been allotted to the assessee. Assessee had claimed in his returns that the consideration received for transferring the quota was akin to earning from export activity and had claimed the benefit of deduction under section 80HHC. Assessing officer disallowed the deduction claimed in respect of price received by the assessee by way of transfer of quota opining that the amount represented business income of the assessee; that it could not be attributed to any export activity as the amount was not by export but received within the country and that section 80HHC benefit being available only to profits derived from an export activity and earning profits from it. *Held:* Was not justified, as the entitlement to a quota and a premium or price for the transfer of a quota might be incidental to the export activity carried on by the assessee earlier but had no direct nexus in the sense that no export was found in the hands of the assessee in respect of this amount. It was also to be seen that the assessee in, fact, had derived the benefit of section 80HHC already in respect of its exports and might be the transferee of the quota, as and when the exports were effected, could claim benefit under this section but not the assessee. Therefore, the assessee did not qualify for the benefit under section 80HHC(1). More so, the reference to provisions of section 28(iv) did not mean that any amount received by way of transfer of export quota was to be taken as a profit and gain of business and therefore, did not automatically qualify as profit earned during an export activity to gain the benefit under section 80HHC(1). Income Tax Act, 1961, Sections 80HHC Income Tax Act, 1961, Section 28(iv) In the Karnataka High Court D.V. Shylendra Kumar & B. S. Indrakala, J.J. CIT & Anr. v. Garniwal Exports (P.) Ltd. IT Appeal No. 100 of 2007 6 June, 2013 Revenue by : K.V. Aravind Assessee by : Mahesh Kiran Shetty JUDGMENT *D. V. Shylendra Kumar, J.* This appeal under section 260A of the Income Tax Act, 1961 is directed against the order dated 16-6-2006 passed by the Tribunal, Bangalore in ITA No. 2648/Bang/2004 is by the Revenue and being aggrieved by the order of the Tribunal allowing the appeal of the assessee and directing the Department to extend the benefit of section 80HHC to the assessee under the Income Tax Act. 2. The assessee is a private limited company and exporter. The assessment year is 2001-02. This appeal has been admitted to consider, 'whether under the facts and circumstances of the case and law, the finding of the Tribunal that the amount received towards premium by way of transfer of the export license is entitled for deduction will not fall within Explanation (baa) of section 80HHC of the Act is justified or perverse ?' 3. The brief facts relevant for the assessment year in question are that the assessee is an exporter of readymade garments. He had carried on export activities in the earlier years and for the accounting year corresponding to the assessment year and had been allotted what is known as quota rights issued in favour of the assessee for export to countries with which our country has reciprocal or bilateral agreement. The assessee did not make use of the quota which had been allotted to it for effecting export but instead transferred these quotas to others who paid a price or a premium to the quota which had been allotted to the assessee. In its return, the assessee had claimed in his returns that the consideration received for transferring the quota is akin to earning from export activity and had claimed the benefit of deduction as is provided under section 80HHC of the Act. The assessing officer disallowed the deduction claimed in respect of the price of Rs. 17,78,155 received by the assessee by way of transfer of quota opining that the amount represented business income of the assessee; that it cannot be attributed to any export activity as the amount is not by export but received within the country; that s. 80HHC benefit being available only to profits derived from an export activity and earning profits from it and following the ruling of the Supreme Court in the case of CIT v. Sterling Foods 1999 TaxPub(DT) 1271 (SC) : (1999) 237 ITR 579 (SC) wherein the Supreme Court had examined the expression 'derived from' and held in this case that there was no direct nexus between the activity of the export and the profits and amount received was not as a result of direct export but may be incidental to the export effected by the assessee in the earlier years, but that does not qualify for the deduction under section 80HHC as the amount is not derived from export. The assessing officer declined the deduction in terms of the assessment order against which the assessee appealed. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2091 (Karn-HC) : (2013) 356 ITR 0432

Income Tax Act, 1961

--Deduction under section 80HHCAllowability Price for transfer of export licence--Assessee, an exporter, had been allotted what is known as quota rights for export to countries with which India had reciprocal or bilateral agreement. Assessee did not make use of the quota which had been allotted to it for effecting export but instead transferred these quotas to others who paid a price or a premium to the quota which had been allotted to the assessee. Assessee had claimed in his returns that the consideration received for transferring the quota was akin to earning from export activity and had claimed the benefit of deduction under section 80HHC. Assessing officer disallowed the deduction claimed in respect of price received by the assessee by way of transfer of quota opining that the amount represented business income of the assessee; that it could not be attributed to any export activity as the amount was not by export but received within the country and that section 80HHC benefit being available only to profits derived from an export activity and earning profits from it. Held: Was not justified, as the entitlement to a quota and a premium or price for the transfer of a quota might be incidental to the export activity carried on by the assessee earlier but had no direct nexus in the sense that no export was found in the hands of the assessee in respect of this amount. It was also to be seen that the assessee in, fact, had derived the benefit of section 80HHC already in respect of its exports and might be the transferee of the quota, as and when the exports were effected, could claim benefit under this section but not the assessee. Therefore, the assessee did not qualify for the benefit under section 80HHC(1). More so, the reference to provisions of section 28(iv) did not mean that any amount received by way of transfer of export quota was to be taken as a profit and gain of business and therefore, did not automatically qualify as profit earned during an export activity to gain the benefit under section 80HHC(1).

Income Tax Act, 1961, Sections 80HHC

Income Tax Act, 1961, Section 28(iv)

In the Karnataka High Court

D.V. Shylendra Kumar & B. S. Indrakala, J.J.

CIT & Anr. v. Garniwal Exports (P.) Ltd.

IT Appeal No. 100 of 2007

6 June, 2013

Revenue by : K.V. Aravind

Assessee by : Mahesh Kiran Shetty

JUDGMENT

D. V. Shylendra Kumar, J.

This appeal under section 260A of the Income Tax Act, 1961 is directed against the order dated 16-6-2006 passed by the Tribunal, Bangalore in ITA No. 2648/Bang/2004 is by the Revenue and being aggrieved by the order of the Tribunal allowing the appeal of the assessee and directing the Department to extend the benefit of section 80HHC to the assessee under the Income Tax Act.

2. The assessee is a private limited company and exporter. The assessment year is 2001-02. This appeal has been admitted to consider, 'whether under the facts and circumstances of the case and law, the finding of the Tribunal that the amount received towards premium by way of transfer of the export license is entitled for deduction will not fall within Explanation (baa) of section 80HHC of the Act is justified or perverse ?'

3. The brief facts relevant for the assessment year in question are that the assessee is an exporter of readymade garments. He had carried on export activities in the earlier years and for the accounting year corresponding to the assessment year and had been allotted what is known as quota rights issued in favour of the assessee for export to countries with which our country has reciprocal or bilateral agreement. The assessee did not make use of the quota which had been allotted to it for effecting export but instead transferred these quotas to others who paid a price or a premium to the quota which had been allotted to the assessee. In its return, the assessee had claimed in his returns that the consideration received for transferring the quota is akin to earning from export activity and had claimed the benefit of deduction as is provided under section 80HHC of the Act. The assessing officer disallowed the deduction claimed in respect of the price of Rs. 17,78,155 received by the assessee by way of transfer of quota opining that the amount represented business income of the assessee; that it cannot be attributed to any export activity as the amount is not by export but received within the country; that s. 80HHC benefit being available only to profits derived from an export activity and earning profits from it and following the ruling of the Supreme Court in the case of CIT v. Sterling Foods 1999 TaxPub(DT) 1271 (SC) : (1999) 237 ITR 579 (SC) wherein the Supreme Court had examined the expression 'derived from' and held in this case that there was no direct nexus between the activity of the export and the profits and amount received was not as a result of direct export but may be incidental to the export effected by the assessee in the earlier years, but that does not qualify for the deduction under section 80HHC as the amount is not derived from export. The assessing officer declined the deduction in terms of the assessment order against which the assessee appealed.