ORDER
P.K. Ammini, Judicial Member
1. These two departmental appeals relate to the assessment years 1985-86 and 1986-87. The previous years relevant to the assessment years under consideration ended on 31-3-1985 and 31-3-1986 respectively. For the sake of convenience, we would first take up the appeal for the assessment year 1985-86.
ITA No. 689/Coch./89
2. The first point in this case is whether the CIT (Appeals) was justified in holding that the assessee is entitled to a deduction of Rs. 3,00,78,852 under Section 80HHC which represents the FOB value of the goods exported through the Export Houses. The assessee, a registered firm, is engaged in the manufacture/production/processing and export of marine products.
In the assessment for the assessment year 1985-86, the assessee claimed deduction Under Section 80HHC amounting to Rs. 3,55,51,041. Admittedly, the assessee is a sea-food exporter and also exports frozen shrimps directly and through Export Houses. The Assessing Officer was of the view that the export routed by the assessee through various Export Houses were not eligible for deduction under Section 80HHC and in such cases the Export Houses were the exporters and were entitled to foreign exchange. Hence, he allowed deduction only in respect of the value of Rs. 17,02,904 representing the direct exports of the assessee. Though the assessee drew the attention of the Assessing Officer to the fact that this issue has been examined in detail by this Bench in its own case for assessment year 1983-84 wherein the Tribunal had held that the assessee is entitled to deduction Under Section 80HHC not only in regard to its direct exports but also in regard to the export through export houses, he rejected this contention stating that the said decision was not accepted by the department. But, on appeal, the CIT (Appeals) allowed the claim of the assessee under Section 80HHC relying on the Tribunal’s decision for the assessment year 1983-84. Hence, the revenue is aggrieved.
3. Mr. C. Abraham, learned departmental representative, contended as follows :
(a) The agreement entered into between the export house and the assessee is only to carry out the directions of the export house.
(b) As per clause 3 of the agreement, the export orders are to be procured by the export house.
(c) As per the agreement and on fact, convertible foreign exchange is receivable by the export house and it is only at the instructions of the export house that the amount is transferred to the assessee. Therefore, it cannot be said that the convertible foreign exchange was receivable by the assessee.
(d) The decision of the Delhi High Court in the case of Ferro Alloys Corporation Ltd. v. R.C. Mishra, Director [1978] 114 ITR 753 on which reliance was placed by the Tribunal has since been overruled by the Supreme Court in the case of Mineral & Metal Trading Corporation v. R.C. Mishra[1993] 201 ITR 851.
(e) The Circular No. 466 dated 14-8-1986 of Board of Direct Taxes reported in 161 ITR (Statute) 68 though in connection with amended Section 80HHC with effect from 1-4-1986 has only reinstated the view that the benefit should accrue to the export house rather than the manufacturer/exporter and such benefit is passed on by the export house to the manufacturer. The export house can, thus, claim deduction of such payments in its income and the corresponding receipts cannot be taxable in the hands of the manufacturer. Thus, the Circular, though in connection with amended section really supports the case of the revenue that it. is the export house which is entitled to the deduction under Section 80HHC and not the manufacturer. The Tribunal in its earlier order erred in holding that both the exporter and the manufacturer are entitled to the benefit in respect of the same transactions.
4. The contentions of the assessee’s counsel ran as follows :
(a) Section 80HHC does not define the term ‘exporter’ or ‘export turnover’. So, the definition given in other allied Acts can be utilised to understand its meaning. The term ‘exporter’ has been defined in Section 2(18) of the Customs Act. It means in substance ‘taking out of India to place outside India’.
(b) For the purchase of raw materials for exports banks advance at low interest known as packing credit. The assessee was the recipient of this interest.
(c) The goods are purchased by the assessee, graded and packed by them. They get the orders directly from the non-residents. The export house come to know about the actual exports long after the exports are made. All communications are between the importer and the assessee only.
(d) The assessee undertakes the storage, export clearance pre-shipment inspection, inspection by export inspection agency, etc. These authorities treat the assessee as the exporter.
(e) The assessee has applied for the export, has made claims for draw back before the Customs and Central Excise Department and dealt with the clearing agent and the Customs.
(f) The Marine Products Development Authority has considered the assessee as the exporter.
(g) Bankers have shown that the credits for export proceeds in the assessee’s name are included in their accounts and this includes exports through export houses.
(h) Full freight is paid by the assessee till the goods reach its destination and the insurance cover is also taken by the assessee.
(i) There is no definition of export house in the Income-tax Act. One has necessarily to refer to paragraph 165 of Chapter 17 in Volume I of the Import & Export Policy Book of 1983 to understand what is an export house. A registered exporter who had shown a minimum amount of turnover can be an export house. For this purpose, exports through third parties are also considered as exporters. The allowance of the export house considering third parties’ exports as their exports for this purpose is only to facilitate the export house to claim the benefits under the Import Policy and it is for declaring or holding them to be the real exporter. In any case, they cannot be exporter for the purpose of Section 80HHC. There is a decided authority on this point. The Delhi High Court in the case of Ferro Alloys Corporation Ltd. (supra) had considered a similar situation and had accepted the plea that the actual exporter should be considered as the exporter for the purpose of Section 280ZC of the IT Act. Turning to the Circular of the Board cited supra, it is contended that the said circular was in connection with the amended provisions of Section 80HHC with effect from 1-4-1986 and the same is not relevant for the assessment year 1985-86 nor a circular can be retrospective in operation.
5. The learned counsel for the assessee took us through the paper book consisting of the following :
(1) Order of ITAT in the assessee’s case for 1983-84 (ITA 1220/Coch./ 86) dated 3-11-1984.
(2) Notes dated 5-5-1987 submitted by the assessee before ITAT for the appeal for 1983-84.
(3) Details of exports done through Export Houses for the assessment year 1985-86.
(4) Details of own export for the assessment year 1985-86.
(5) Copy of agreement dated 18-12-1984 with M/s. Shaw Wallace & Co. Ltd., Calcutta.
(6) Copy of export order dated 29-1-1985 addressed to M/s. Shaw Wallace & Co. Ltd. from foreign buyer.
(7) Copy of export order dated 20-4-1984.
(8) Letter of credit dated 23-9-1983 on UCO Bank, Cochin in favour of Shri Thomas Kurishingal.
(9) Letter dated 16-4-1984 on UCO Bank, Cochin addressed to M/s. Jagatgit Industries, New Delhi.
(10) Bill of Lading dated 11-5-1984 issued by American President Lines.
(11) Shipping bill dated 10-5-1984 by Overseas Shipping Agencies, Cochin.
(12) Statement of bills purchased dated 11-5-1984 issued by UCO Bank, Cochin.
(13) Bank Certificate of exports dated 11-5-1984 issued by UCO Bank, Cochin.
(14) Copy of Invoice dated 20-4-1984 issued by M/s. Jagatgit Industries Ltd., New Delhi to the foreign buyer.
(15) Copy of letter dated 21-3-1988 issued by the ITO to various export houses.
(16) Copy of letter dated 28-3-1988 of Hyderabad Distilleries & Wineries Ltd. with its enclosures (copy of accounts).
(17) Copy of letter dated 28-3-1988 of M/s. Jagatgit Industries Ltd., New Delhi with its enclosures (copy of accounts).
(18) Copy of letter dated 20-4-1988 and its enclosures from M/s. Shaw Wallace & Co. Ltd., Calcutta.
(19) Copy of letter dated 25-2-1988 addressed to the Joint Controller, RBI, Cochin.
(20) Copy of reply dated 28;3-1988 from RBI, Cochin.
The counsel for the assessee vehemently contended that the decision in Mineral & Metal Trading Corporation’s case (supra) went on different facts. It was a case under barter system where the manufacturer cannot himself export the goods but had to sell the same to a Government Corporation. It was on those facts the decision was rendered. Such a barter system was not prevailing in the assessment year under consideration and the assessee was free to contract with the foreign buyer unlike in the barter system. Therefore, he pleaded that the ratio laid down by the Supreme Court should be confined to the facts of that case and should not be extended to the case of the assessee. l
6. We have heard rival submissions. It is admitted by both sides that the modus operandi concerning the transaction by which the export orders were obtained, processed, shipped and the transfer of all documents by the assessee on board ship in the highseas and the transfer of the foreign exchange to the credit of the assessee at the instance of export house was the same as for assessment year 1983-84. The only difference is that for the assessment year 1983-84 the department had adduced evidence to show that the export house had also derived benefits Under Section 80HHC in respect of the same transactions whereas for the year under appeal no such evidence has been adduced before us. Thus, the facts are almost similar to those in the assessee’s own case for the assessment year 1983-84. However, Shri Abraham, the learned departmental representative, urges that the Tribunal has placed reliance in that case on the decision of the Delhi High Court in the case of Ferro Alloys Corporation Ltd. (supra) but that decision was reversed by the Supreme Court in Mineral & Metal Trading Corporation’s case (supra). Shri Narayanan, the learned representative for the assessee vehemently contended that the Tribunal had only cited the Delhi High Court decision in support of its conclusion but the decision of the Tribunal did not rest solely on the decision of the Delhi High Court. Further he contended that in the case of Ferro Alloys Corporation Ltd. (supra) the facts were totally different in that there was prohibition for any person other than a State-owned Corporation to enter into contract with the foreign buyer as barter system was then prevailing. Such an eventuality did not arise in the case of the assessee. We have carefully considered the decision of the Tribunal for the assessment year 1983-84 and the decision of the Delhi High Court referred to in para 25 of its order. The Tribunal applied the ratio of the decision of the Delhi High Court to the assessee’s case since in its view there were a large number of similarities on facts. However, one important dis-similarity – a very crucial thing for that matter as found by the Supreme Court later- is the presence of barter system in the case of Ferro Alloys Corporation Ltd. (supra) and the absence of the barter system in the case of the assessee. A careful reading of the decision of the Supreme Court reversing the decision of the Delhi High Court would show that the decision was rendered in the context of barter system. Further, the Apex Court found that there was one contract of sale between the local supplier and MMTC and another contract of sale by MMTC and the foreign buyer on principal to principal basis. These features were not considered by the Delhi High Court as relevant for conferring the benefit of tax credit certificate on the Government Corporation. The assessee before the Supreme Court suffered from the incapacity to enter into a contract with foreign buyer on account of the barter system. The assessee before us does not suffer from any incapacity to contract in view of the scrapping of the barter system; the Government Corporation in the case before the Apex Court entered into contract with a foreign buyer and then only entered into contract with Ferro Alloys Corporation on principal to principal basis; in the case before us, the exporter entered into contract with the assessee for the export of goods; then only it entered into contract with the foreign buyer. Thus, the contract with the assessee preceded the contract with the foreign buyer. It is not as if the contract by the export house with the foreign buyer was in absolute terms as ultimately the price at which the goods are to be invoiced to the foreign buyer was made the subject-matter of approval by the assessee. On account of all these factors, we hold that the facts of the case before us are not similar. Hence, the ratio of the decision of the Supreme Court cannot be applied to the case of the assessee as facts are not similar-. The Tribunal while deciding the case of the assessee for the assessment year 1983-84 did not have the benefit of the decision of the Supreme Court and therefore, it assumed that the facts were similar. Further, there is force in the contention of the learned counsel for the assessee that the decision of the Tribunal for the assessment year 1983-84 did not rest solely, wholly and exclusively on the decision of the Delhi High Court, because the Tribunal had given several other reasons for the conclusions reached by it in favour of the assessee in the case cited supra.
7. Shri Abraham, the learned departmental representative, next submitted that the Tribunal in its order (para 24), cited supra, had adverted to the amendment to Section 80HHC which came into force on 1 -4-1986 and the circular of the CBDT and had held that in order to be eligible for exemption under Section 80HHC, the assessee must be exclusively engaged in export business. In our considered opinion, this view of the Tribunal which was rendered in passing cannot be pressed against the assessee because for deciding the issue in relation to the claim for the assessment year 1983-84, it was not necessary for the Tribunal to have expressed any opinion on the amendment which came into force much later with effect from 1 -4-1986. Even if such an opinion is expressed, it can be considered only as a passing remark. It has no binding force on the assessment of later years. Barring these two features, the case of the assessee for the years under appeal and the case of the assessee before the Tribunal for the assessment year 1983-84 are near similar. However, we notice a few salient features in the case before us. Though the letters from the foreign buyers are addressed to the export house, name of the assessee also figures in such correspondence and also in purchase contract. In fact, there is a direction to the assessee by the foreign buyer in the following terms :
(a) Invoice must indicate the processor’s name and complete address.
(b) All other terms as usual.
Thus, the foreign buyer is also aware of the contract between the assessee and the export house. Therefore, it is reasonable to presume that the assessee has been impliedly admitted as party to the contract entered into between the export house and the foreign buyer. The conduct of the parties as revealed in the correspondence and the condition that the price of the goods exported should be approved by the assessee would show that there are three parties to the contract resulting in the export of goods namely (1) the assessee, (2) the export house and (3) the foreign buyer. It cannot be considered as a contract on principal to principal basis. This tripartite nature of the contract was not either noticed or given due weightage in the earlier order of the Tribunal. In such a situation, it has to be seen as to whom the deduction under Section 80HHC should be given, whether to the assessee or to the export house. It all depends upon the terms of contract as between the assessee and the export house. We have seen some samples of such contracts. In some cases the benefit of RLP licence is reserved for the export house while the assessee is permitted to have the benefit of import licence, duty draw-back and cash assistance. The contract in some cases is silent on the question whether the tax benefits should be enjoyed by the assessee or by the export house. Shri Narayanan, the learned counsel for the assessee, vehemently contends that when the contract is silent on whom the tax benefit should fall, it is the assessee who is entitled to claim it because he is the person who had physically exported the goods under an agreement. The export is complete as against the assessee the moment the ship crossed the Indian Customs Territory. We are not inclined to accept this proposition as the parties to the agreement have reserved for themselves certain benefits; the benefits not reserved for any of the parties cannot be conferred on one as against the other party unless the other party files disclaimer certificate. If the terms of the contract confer the tax benefit or tax burden on the assessee (so far as income-tax is concerned), certainly the assessee would be entitled to the benefit of Section 80HHC. We have seen sample agreements, as stated above, from which we cannot come to a definite conclusion. We, therefore, set aside the order of the CIT (Appeals) and restore the issue to the file of the Assessing Officer in the following terms :
(a) In a case where the tax burden or tax exemption is reserved for the assessee under the contract, it is the assessee who is entitled to claim deduction Under Section 80HHC with reference to the value of export covered by such contract.
(b) In a case where the contract is silent on whom the benefit should fall if the export house files disclaimer certificate, the benefit should go to the assessee.
We would now consider ITA No. 45/Coch./90 for the assessment year 1986-87.
8. The facts in this case are similar to the those in the year 1985-86. The only difference is that with effect from 1-4-1986 the provisions of Section 80HHC have been amended and the section stood as under:
Section 80HHC(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 shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction equal to the aggregate of –
(a) four per cent of the net foreign exchange realisation; and
(b) fifty per cent of so much of the profits derived by the assessee from the export of such goods or merchandise :
Provided that the deduction under this sub-section shall not exceed the profits derived by the assessee from the export of such goods or merchandise :
Provided further that an. amount equal to the amount of the deduction claimed under this sub-section is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee.
(2)(a) This section applies to all goods or merchandise, other than those specified in Clause (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange.
(b) This section does not apply to the following goods or merchandise, namely :-
(i) mineral oil; and
(ii) minerals and ores.
(3) For the purpose of Sub-section (1), profits derived from the export of goods or merchandise out of India shall be,-
(a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head “Profits and gains of business or profession”;
(b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head “Profits and gains of business or profession”) the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
(4) The deduction under Sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below Sub-section (2) of Section 288, certifying that the deduction has been correctly claimed on the basis of the amount of net foreign exchange realisation as determined in accordance with the Import and Export Policy of the Government of India for the relevant period.
Explanation : For the purposes of this section,-
(a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;
(b) “export turnover” means the sale proceeds receivable by the assessee in convertible foreign exchange 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, 1962 (52 of 1962);
(c) “net foreign exchange realisation” means the total free on board value of exports out of India of goods and merchandise to which this section applies as reduced by the aggregate of the cost, insurance and freight value of all categories of import licences, to be issued by the Chief Controller of Imports and Exports, Government of India, to which the assessee is entitled during the previous year, either against export obligation or against exports as replenishments.
The material changes are-
(i) The assessee being an Indian Company or a person resident in India is engaged in the business of export out of India.
(ii) Deduction not exceeding 50% of profits and gains of export business.
(iii) An amount equal to the amount of deduction is debited to the profit & loss account and credited to the reserves.
(iv) For the purposes of Sub-section (1), profit derived from export of goods out of India has been defined in the case of the assessee exclusively in the business of exports and in the case of the assessee not exclusively in the business of exports.
The issue before us is similar to that in the preceding year. Shri Abraham, learned departmental representative, contends that the Tribunal in its order for the assessment year 1983-84 had held that in view of the amendment to Section 80HHC with effect from 1 -4-1986, only the assessees who are exclusively engaged in the export business are entitled to the benefit of Section 80HHC. The assessee in the case before us was having both export sales and domestic sales and therefore in terms of the decision of the Tribunal cited supra, no benefit can be given to the assessee. We have already indicated in para 7 above that it was not necessary for the Tribunal, in dealing with a case for the assessment year 1982-83, to have expressed any opinion on an amendment that was brought into statute much later with effect from 1-4-1986 and at any rate the opinion expressed by the Tribunal can at best be taken only as a passing remark and such remark cannot have the force of a binding precedent for subsequent years. On going through the provisions of Section 80HHC, relevant for the assessment year 1986-87, we notice that the benefit is available to both types of assessees – assessees who are engaged exclusively in export business and assessees whose business consisted of both export sales and domestic sales. This is very much evident from the definition of “profits derived from export” as in Clauses (a) and (b) of Sub-section (3) of Section 80HHC which reads as follows :
(3) for the purposes of Sub-section (1), profits derived from the export of goods or merchandise out of India shall be, –
(a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head “Profits and gains of business or profession”;
(b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head “Profits and gains of business or profession”) the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
This particular sub-section was, perhaps, not noticed by the Tribunal when the case was decided for the assessment year 1983-84. In this view of the matter, we are not persuaded by the contentions of Shri Abraham. Since the facts in the present case are similar to those obtaining for the assessment year 1985-86, we give similar directions with the further proviso that in case the assessee is found eligible to have Section 80HHC benefit in respect of some of its exports or all of its exports, the amount of deduction must be computed on the basis of the profits as defined in Sub-section (3) of Section 80HHC. Thus, the revenue’s appeals for the assessment years 1985-86 and 1986-87 are treated as allowed for statistical purposes.