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2) The above batch of appeals is related to the interpretation of the provisions contained in Section 80HHC of the Income Tax Act, 1961 (in short ‘the IT Act’).
3) SLP (C) 8368 of 2009
(a) M/s. Carpet India (P) Ltd.-the assessee is a partnership firm deriving income from the manufacturing and sale of supporting manufacturer.
(b) The assessee filed a ‘Nil’ return for the Assessment Year (AY) 2001-2002 on 30.10.2001, inter alia, stating the total sales amounting to Rs. 6,49,83,432/- with total export incentives of Rs. 68,82,801/- as Duty Draw Back (DDB) and claimed deduction under Section 80HHC amounting to Rs. 1,57,68,742/- out of the total profits of Rs. 1,97,10,927/- at par with the direct exporter.
(c) On scrutiny, the Assessing Officer, vide order dated 25.02.2004, allowed the deduction under Section 80HHC to the tune of Rs. 1,08,96,505/- instead of 1,57,68,742/- as claimed by the assessee while arriving at the total income of Rs. 57,18,040/.
(d) Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) which was allowed vide order dated 12.08.2004 while holding that the assessee is entitled to the deduction of export incentives under Section 80HHC at par with the exporter.
(e) The Revenue went in appeal before the Income Tax Appellate Tribunal (in short ‘the Tribunal’) as well as before the High Court but the same got dismissed vide orders dated 23.02.2007 and 13.05.2008 respectively leaving it to take recourse of this Court by way of special leave.
(f) Since a common question of law has arisen in these appeals, it will be disposed of by this common order.
4) Heard learned counsel for the parties and perused the records.
Point(s) for consideration:-
5) The short but important question of law that arises before this court is whether in the facts and circumstances of the present case, supporting manufacturer who receives export incentives in the form of duty draw back (DDB), Duty Entitlement Pass Book (DEPB) etc., is entitled for deduction under Section 80HHC of the IT Act at par with the direct exporter? Rival contentions:-
6) At the outset, learned counsel for the Revenue submitted that the assessee deals in the manufacturing of the carpets which it usually sells to various entities including M/s IKEA Trading (India) Ltd. (Export House/Trading House) which, in turn, further exports the goods manufactured by the assessee. While filing the return, the assessee claimed deduction at par with the direct exporter under Section 80HHC of the IT Act since it receives export incentives in the form of duty draw back (DDB) etc. It was further contended that in view of the fact that the assessee is working as a supporting manufacturer and also there is no direct export of the goods to the foreign constituents by the assessee firm, hence, it is not entitled to claim the deduction at par with the directexporter.
However, the High Court erroneously relied on the judgment of this Court, namely, Commissioner of Income Tax, Thiruvantanpuram vs. Baby Marine Exports (2007) 290 ITR 323 (SC) and held that the assessee is entitled to claim deduction at par with the direct exporter which is not sustainable in the eyes of law since the issues and facts are distinguishable from the facts and the circumstances of the instant case.
7) At this juncture, it was also pointed out that the High Court as well as the Tribunal erred in law while deciding the issue as they treated the export incentive at par with the premium paid by the export houses or trading houses to supporting manufacturer and not appreciated the fact that the ratio of the facts and issues involved in the case of the assessee-firm are totally different from the case of Baby Marine Exports (supra). It was pointed out that the said case dealt with the issue of eligibility of export house premium for inclusion in the business profit and the turnover of the assessee firm. Hence, in no circumstances, it could be relied upon by the High Court.
8) Per contra, the stand of leaned counsel for the assessee was that the assessee is working as supporting manufacturer, exporting the goods to the foreign constituents through export houses, therefore, it is legitimately entitled for the deduction of export incentives in terms of the Section 80HHC of the IT Act in a similar way to the benefits available to the direct exporter. It was submitted that the High Court rightly relied on the judgment of this court in Baby Marine Exports (supra). Hence, this special leave to appeal deserves to be dismissed. Discussion:-
9) Before examining the matter, we deem it apposite to refer to the relevant provisions of Section 80HHC of the IT Act: “80HHC. Deduction in respect of profits retained for export business:- (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there