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2004 DIGILAW 767 (CAL)

COMMISSIONER OF INCOME TAX v. H. M. EXPORTS LTD.

2004-12-14

D.K.SETH, SANKAR PRASAD MITRA

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D. K. SETH, J. ( 1 ) THIS appeal was admitted on the ground "whether, on the facts and circumstances of the case, the Tribunal was correct in upholding the order of the CIT (A) directing the AO to exclude the freight, insurance, etc. beyond the customs point from the amount of "direct costs" while computing the deduction under Section 80hhc ?" ( 2 ) IN relation to this question, Mr. Agarwal pointed out to the definition of 'export turnover' and 'total turnover' in Clauses (b) and (ba) of the Explanation at the end of Section 80hhc and submitted that the concept of 'total turnover' cannot be applied while finding out the profits derived from export under Sub-section (3), Clause (b) of Section 80hhc. The concept of total turnover is applicable only to Clause (a) of Sub-section (3) of Section 80hhc. Therefore, the freight and insurance attributable to the transport of the goods or merchandise beyond the customs station cannot be excluded from the direct costs, while arriving at the figure of profits derived from export under Sub-section (3), Clause (b) of Section 80hhc. ( 3 ) ON the other hand, Mr. Bajoria ably assisted by Mr. Khaitan, submitted that the concept of 'total turnover' is not relevant for the purpose of Clause (b) of Sub-section (3) of Section 80hhc. The concept of 'export turnover' as defined in Clause (b) of the Explanation at the end of the section would be relevant for the purpose. Therefore, according to them, the export turnover is to be reduced by direct and indirect costs attributable to such export after arriving at the figure of the export turnover. In order to arrive at the export turnover, the freight and insurance attributable to the transport of the goods or merchandise beyond the customs stations is to be excluded, Once it is excluded, it cannot be excluded once again or twice over from direct cost since it does not form part of the direct cost. Mr. Khaitan had relied upon the decisions in CIT v. Sudarshan Chemicals Industries Ltd. (2000) 245 ITR 769 (Bom) and CIT v. Chloride India Ltd. in support of the contention. ( 4 ) IN reply, Mr. Agarwal pointed out that Section 80hhc has undergone certain changes after 1991, which are relevant for the purpose of interpreting the amended provisions incorporating the definitions relied upon by Mr. Bajoria. ( 4 ) IN reply, Mr. Agarwal pointed out that Section 80hhc has undergone certain changes after 1991, which are relevant for the purpose of interpreting the amended provisions incorporating the definitions relied upon by Mr. Bajoria. ( 5 ) AFTER having heard the learned counsel for the parties, in our view, the question which was not directly involved either in the Bombay decision or the Calcutta decision, cited above, can be answered on the same analogy or reasoning given in the said two decisions. That apart, the provisions of Section 80hhc as was applicable for the asst. yr. 1993-94 are clear and unambiguous and needs no assistance of any decision. The concept of 'total turnover', as rightly contended by Mr. Agarwal, cannot be brought about for the purpose of arriving at the export turnover in terms of Sub-section (3), Clause (b) of Section 80hhc. ( 6 ) THE two definitions--'export turnover' and 'total turnover' have been defined to clarify the position in arriving at the profits derived from export in relation to the export turnover and the total turnover, as the case may be, on the explicit purpose and intention so as to remove the confusion. If freight and insurance attributable to the transport of goods or merchandise beyond the custom point is excludible, it cannot be included in the total turnover. In any case when total turnover is calculated, freight and insurance attributable after the customs point is to be excluded. Similarly, when export turnover is calculated, the freight and insurance attributable after the customs point are to be excluded. In relation to Sub-section (3), Clause (b), we are not concerned with total turnover. We are concerned with the export turnover, in order to arrive at the figure whereof the freight and insurance attributable after the customs point are excludible and do not form part of the direct costs or indirect costs attributable to such export. ( 7 ) THE provision is clear if read together. In order to arrive at the profit out of the export, the export turnover is to be reduced by direct costs and indirect costs. Since freight and insurance are not part of the direct and indirect costs, the same cannot be excluded for arriving at the export profit, as was rightly done by the learned Tribunal though the expression might be slightly ambiguous. Since freight and insurance are not part of the direct and indirect costs, the same cannot be excluded for arriving at the export profit, as was rightly done by the learned Tribunal though the expression might be slightly ambiguous. ( 8 ) THE AO shall assess in terms of the direction by the Tribunal in the light of the observation made in this judgment by excluding the freight and insurance after the customs point in order to arrive at the export turnover and then for the purpose of arriving at the profit from export, the export turnover is to be reduced by direct and indirect costs attributable to such export which does not include freight and insurance after customs point once excluded for arriving at export turnover. ( 9 ) WITH these observations, the point raised is answered in the affirmative in favour of the assessee.