The Commissioner of Income Tax vs Glamour Saree Musuem

Chitra Venkataraman, J.—The tax case appeals are filed by the revenue against the order of the Income Tax Appellate Tribunal Madras

''B'' Bench confirming the order of the Commissioner of Income Tax Appeals granting the relief u/s 80HHC. The assessee herein is a shop located

inside Madras Harbour, Chennai. In respect of sales effected by the assessee, the assessee claimed deduction u/s 80HHC. The assessing officer,

however, rejected the plea of the assessee on the ground that the assessee had not exported the goods or merchandise and that as the assessee

was trading the goods from his shop in India and held that the deduction u/s 80HHC was not available. Aggrieved by the assessment orders, the

assessee preferred appeals to the Commissioner of Income Tax (Appeals), who allowed the appeals and granted the relief. As against this order,

the Revenue preferred appeals before the Tribunal, which confirmed the decision of the Commissioner of Income Tax (Appeals) by following the

decisions of the Apex Court and other High Courts, wherein it was held that when the assessee had sold the goods in foreign exchange and the

goods were taken outside India, the assessee was entitled for deduction u/s 80HHC. Aggrieved by the said order, the Revenue has preferred the

present tax case appeals by raising the following substantial questions of law:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled for the deduction u/s 80HHC ?

Whether in the facts and circumstances of the case, the explanation (aa) to Section 80HHC(4C) which states that export outside India shall not

include any transaction by way of sale or otherwise in a shop situated in India not involving clearance at any customs station is applicable to the

assessee effecting sale through a shop in India ?

Learned Counsel appearing for the Revenue submitted that the assessee has not proved that the sale had involved clearance at any customs

station as defined in Explanation (aa) to Section 80HHC(4A) and hence, the assessee is not entitled to the relief of deduction u/s 80HHC.

A perusal of the order of the assessing authority shows that the assessee had, in fact, produced before the assessing authority at the time of

assessment, the orders of the Income Tax Appellate Tribunal relating to the sister concern made in ITA No. 1618/Mds/93 dated 28.11.2000 and

the copies of the agreement dated 14.2.1983 between the Trustees of Port Trust and the assessee; the copies of purchase and sales Invoices. In

the course of the proceedings before the Commissioner of Income Tax (Appeals), the assessee produced copies of invoices and clearances that

the customs authorities had to give and take the goods inside the customs notified area. The Commissioner of Income Tax Appeals wrote a letter

to the Additional Commissioner of Income Tax (Appeals) to enquire into whether the shop is located in the customs notified area and the mode of

sales and other relevant information for deciding the case. The Assistant Commissioner (Customs), vide his letter dated 20.5.2004, has made his

clarification giving the following clarification. The same, extracted in the order of the Commissioner of Income Tax (Appeals), is as follows:

(i) M/s. Glamour Saree Museum is having shop inside the Chennai Harbour which is Custom''s Station.

(ii) On verification of their cash bill books it is found that the goods are sold only on payment of foreign currency and the same are encashed

through authorised dealers. However, in the absence of any previous records, the Department is unable to confirm as to whether they could sell

only against foreign currency and whether sale against Indian currency will violate any conditions prescribed while issuing licence.

(iii) Customs clearance is not required at the time of sales, whereas the customs clearance is required when the goods are brought inside the

harbour for sales.

(iv) The goods are being purchased from M/s. Glamour Saree Museum by tourite arriving by chartered ships and members of crew of various

vessels touching Chennai Harbour. Since the goods are of Indian origin, the crew members who purchase the goods by paying foreign exchange

can take it out at the time of signing off. No customs clearance is required as the goods are of Indian origin.

(v) With regard to ""customs notified area"" there is no ''Customs notified area'' whereas as per Chapter 12(11) and (13) of the Customs Act, 1962

''Customs Area'' means the area of Customs station and includes any area in which imported goods or export goods are ordinarily kept before

clearance by Customs authorities: and ''Customs Station'' means any Customs port, Customs airport or land customs station.

Going by all these clarifications, the first appellate authority applied the decisions of the Supreme court reported in Commissioner of Income Tax

Vs. Silver and Arts Palace, ; Income Tax Officer Vs. Vaibhav Textiles, ; Ram Babu and Sons and Another Vs. Union of India (UOI) and

Another, and held that the assessee had satisfied the two conditions (i) the goods were sold in foreign exchange and (ii) that the goods were

exported out of India and found that the shop was also located in customs notified area and the same could not come back into India. Considering

these aspects, the Commissioner of Income Tax (Appeals) rightly granted the relief u/s 80HHC. On further appeal, before the Tribunal, it was

pointed out that the conditions set forth in the decision of the Supreme Court were fully satisfied. Consequently, the Tribunal held that assessee was

entitled to the relief u/s 80HHC.

Learned Counsel appearing for the Revenue submitted that the assessee had sold the goods from the shop situated near the Harbour and hence,

the sale could not amount to an export to entitle to the deduction u/s 80HHC. He further pointed out to the Explanation (aa) to Section

80HHC(4C) that the sale would not fall under the category of ''export'' to qualify for the deduction u/s 80HHC. Learned Counsel also referred to

the decision of the Allahabad High Court reported in Ram Babu and Sons and Another Vs. Union of India (UOI) and Another, as approved by

the Apex Court in the decision reported in Commissioner of Income Tax Vs. Silver and Arts Palace, when Explanation (aa) to Section

80HHC(4A) has been considered.

Section 80HHC(4A) Explanation (aa) reads as follows:

Section 80HHC(4A) Explanation (aa):

export out of India"" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India,

not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962)

As per the above explanation, a sale is not considered as an export sale (i) if it is a ''transaction by way of sale or otherwise in a shop, emporium

or establishment in India and (ii) it does not include customs clearance.

Learned Counsel appearing for the Revenue brought to our attention the decision of the Apex Court in reported in Commissioner of Income

Tax Vs. Silver and Arts Palace, , wherein, under similar circumstances, the Apex Court had considered the introduction of explanation (aa) to

Section 80HHC(4A). In the said judgment, the Apex Court affirmed the judgment of the Allahabad High Court in the decision reported in Ram

Babu and Sons and Another Vs. Union of India (UOI) and Another, , wherein it has been held that as per Explanation (aa) to Section

80HHC(4A) of the Income Tax Act 1961, for the purpose of this Section, there will be no export out of India, if two conditions are cumulatively

fulfilled, viz., (a) it is a transaction by way of sale or otherwise in a shop, emporium or establishment situated in India, and (b) that it does not

involve clearance in any customs station as defined in the Customs Act. The Apex Court further held that there was no dispute between the parties;

that the transactions of counter sales effected by the respondent involved customs clearance within the meaning of Explanation (aa) to Section

80HHC(4A) of the Act and further that the sales were in convertible foreign exchange and in those circumstances, the Apex Court dismissed the

appeal preferred by the Revenue.

Interpreting Explanation (aa) of Section 80HHC(4A), the Apex Court referred to the decision of the Allahabad High Court reported in Ram

Babu and Sons and Another Vs. Union of India (UOI) and Another, and pointed out that the said decision has been consistently followed by

several High Courts. The Apex Court also pointed out that the SLP filed against the decision of the Allahabad High Court reported in Ram Babu

and Sons and Another Vs. Union of India (UOI) and Another, was dismissed summarily. Going by the meaning of Explanation (aa) to Section

80HHC(4A) that the sales were in convertible foreign exchange, the Apex Court held that the assessee was entitled to the special deduction u/s

80HHC in respect of the counter sales. A reading of the decision of the Allahabad High Court reported in Ram Babu and Sons and Another Vs.

Union of India (UOI) and Another, shows that even if either of the two conditions is not satisfied, it would be an export out of India. It held that

Explanation (aa) has nothing to do with the seller or purchaser. It is the transaction which would involve clearance of customs if it is to be an export

out of India within the meaning of Explanation (aa). The Allahabad High Court pointed out that the transaction would not be an export out of India,

if two conditions are satisfied, namely, (i) it should be a transaction by way of sale in a shop, emporium or an establishment situate in India; (ii) it

should not involve clearance in the customs as defined in the Customs Act.

In the background of the above-said exposition of law, a look at the facts in the case on hand would show that admittedly, the shop run by the

assessee is situated in the customs notified area, as the assessee had also produced a copy the agreement dated 14.2.1983 between the Trustees

of Port Trust and the assessee. It is not denied by the counsel for the Revenue that the goods were sold in foreign exchange and after the goods

were sold, the same cannot come back to India. Hence, the conditions required for granting the relief u/s 80HHC are fully satisfied.

Learned Counsel for the Revenue submitted that the assessee had not produced any evidence as against its claim to have the benefit of

deduction. However, going by the letter addressed by the Assistant Commissioner (Customs) dated 20.5.2004, which clearly shows that the

assessee''s shop is situated inside the Chennai Harbour which is Custom''s station and the goods so purchased from there cannot come back into

country for open market dealing, we are of the view there is no force in the contention of the counsel for the revenue. For the foregoing reasons,

we are of the opinion that there is no question of law much less substantial question of law arises in these appeals so as to entertain the same. The

tax case appeals are dismissed. Consequently, the connected M.Ps are closed.