Non-renewal of THC cannot deprive supporting manufacturer of deduction u/s 80HHC(1A)

Non-renewal of THC cannot deprive supporting manufacturer of deduction u/s 80HHC(1A). Lgislative intent is to extend benefit either to exporter or to supporting manufacturer and not to both – High Court

Non-renewal of THC

ABCAUS Case Law Citation:
ABCAUS 2033 (2017) (08) HC

Assessment Year :  1996-97

Important Case Laws Cited/relied upon by the parties:
IPCA Laboratory Ltd. v. Deputy Commissioner of Income Tax, Mumbai (2004) 12 SCC 742
Shrikar Hotels Pvt. Ltd. v. Commissioner of Income Tax (2017) 394 ITR 657 (All.)
Lachman Chaturbhuj Java v. R.G. Nitsure (1981) 132 ITR 631 (Bom.);

Brief Facts of the Case:
The respondent assessee had claimed deduction in respect of profits from export business in terms of the provisions of section 80HHA (1A). Along with the return the Assessee had duly filed the balance sheet, manufacturing trading and Profit & Loss (‘P&L’) Account, the Auditor’s Report under Section 80 HHC (4A) of the Income Tax Act, 1961 (the Act) and the certificate in Form No. 10 CCAB.

The sales had been made to a Export Trading House (‘ETH’) which had further exported the goods received from the Assessee to foreign buyers. The ETH had issued to the assessee a disclaimer certificate in Form 10CCAB confirming that no deduction under Section 80HHC (1) had been claimed by it in respect of the said export turnover.

The AO noted that in terms of Section 80 HHC of the Act it was obligatory on the part of the ETH  to obtain a certificate from the concerned Government authorities.  The application for renewal of THC, which had to be made within six months from the date of expiry of the earlier THC. It was, however, filed beyond the period of six months. Accordingly, the AO held that the ETH had not fulfilled the conditions for filing the application for renewal.

The Assessee pointed out that under the Export Import Policy (Exim Policy) of the Government of India, the THC was valid for three years and upon expiry of which, the ETH was allowed a further period of six months to apply and to obtain a fresh certificate. During this period, the ETH would be eligible to claim all the “usual facilities and benefits except the benefit of a Special Import Licence.” The Assessee explained to the AO that the ETH had in the instant case filed an application for renewal of its THC. The DGFT wrote a letter stating that the case of renewal was under active consideration. Thereafter, the ETH in question, did not receive any communication from the DGFT to indicate that its application for renewal of the THC was rejected.

Aggrieved by the above assessment order, the Assessee went in appeal before the Commissioner of Income Tax (Appeals) who allowed the appeal. The ITAT upheld the order of the CIT(A).

Contention of the Appellant Revenue:
The Revenue contended that unless the exporter is eligible to claim a deduction under Section 80HHC, the supporting manufacturer cannot, on the strength of a certificate issued by the trading house as referred in clause (b) of sub-section (4A) of Section 80HHC, claim such a deduction.

Observations made by the High Court:
The Hon’ble High Court noted that the legislative intent appears to be to treat the deductions to the aforementioned two types of Assessees, viz., the exporter and the supporting manufacturer, in mutually exclusive compartments. Therefore, the legislative intent is not to conflate the deduction that is allowable to an exporter with that allowable to a supporting manufacturer.

The Hon’ble High Court observed that there is a discernible distinction in the legislative scheme of Section 80 HHC between, the deduction that can be claimed by an exporter and the deduction that can be claimed by a supporting manufacturer. It appears to this Court that while the supporting manufacturer certainly has to fulfil the condition of a certificate having been issued by the exporter/export trading house to avail the benefit of a deduction from the turnover that has been made available to the supporting manufacturer, expressly in terms of Section 80 HHC (1A) of the Act, the said deduction does not hinge upon the eligibility of the exporter for the deduction under sub-section (1) of Section 80 HHC of the Act.

Distinguishing the judgment of the Hon’ble Supreme Court the Hon’ble High Court explained that all the observations of the Hon’ble Supreme Court relied by the Revenue were only in the context of an assessee which was claiming the deduction as an exporter and not in the context of an assessee which was a supporting manufacturer.

The Hon’ble High Court noted that , the legislative scheme which emanates from sub-section (1A) of Section 80 HHC is to treat the supporting manufacturer and its entitlement to deduction separately from that of the exporter. The word ‘Assessee’ used throughout sub-section (1) refers only to the exporter whereas the same word used throughout sub-section (1A) refers to the supporting manufacturer. This distinction, as already noted, is maintained throughout, and particularly in sub-sections (3A) and (4A), of Section 80 HHC.

Further it observed that a perusal of Form 10 CCAB clearly shows that there is a separate certificate to be issued in favour of the supporting manufacturer where the exporter makes a declaration that it has not claimed a deduction under Section 80 HHC (1). There is a counter verification by the Chartered Accountant of such a certificate. It is, therefore, clear that there is no double deduction claimed in respect of the export and this is consistent with the legislative intent of extending the benefit under Section 80HHC either to the exporter or to the supporting manufacturer and not to both. Even after the period for which the renewal of the THC was sought, ETH continued to be treated as an export house and that is plain from the facts that emerged before the CIT(A) as well as the ITAT.

Further On the question of ETH not having a valid THC and, therefore, not being in a position, at the relevant time, to issue any certificate to the assessee in terms of the proviso to Section 80 HHC(1) of the Act, the Hon’ble High Court concurred with the ITAT that ETH did file an application for renewal of its THC, which was pending before the relevant authorities for four long years and was pending even on the date of the assessment order.  Therefore,  the extant Exim Policy for the relevant period, which expressly states that during the interim period the trading house would be eligible to claim all the facilities and benefits, would come to rescue of the Exporter/ETH and therefore, to the further benefit of the supporting manufacturer/Assessee as well.

The Hon’ble High Court opined that mere non-grant of the renewal of the THC by the DGFT cannot deprive the Assessee as a supporting manufacturer for the deduction it is entitled to in terms of Section 80 HHC (1A) of the Act.

In fact the Hon’ble High Court mentioned number of decisions of various High Courts including Bombay High Court, Allahabad High Court etc.) in support of the contention of the assessee that when no response is received to an application seeking renewal within a reasonable time, after the filing of such application it should be deemed to have been allowed and the powers with the holders of public office have to be exercised within a reasonable time.

Held:
It was held that the Assessee was entitled to deduction under Section 80 HHC (1A) of the Act;

Non-renewal of THC

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