COMMISSIONER OF INCOME TAX, KARNAL (HARYANA) versus M/S CARPET INDIA, PANIPAT (HARYANA)

Citation: [2018] 7 S.C.R. 1092 · Decided: 27-04-2018 · Supreme Court of India · Bench: R.K. AGRAWAL · Disposal: Directions issued

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 7 S.C.R.
COMMISSIONER OF INCOME TAX, KARNAL (HARYANA)
v.
M/S CARPET INDIA, PANIPAT (HARYANA)
(Civil Appeal No. 4590 of 2018)
APRIL 27, 2018
[R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]
Income Tax Act, 1961 – ss.80HHC (1A) & (3A) a/w
Explanation (baa) to s.80HHC and s.28(iiia) to (iiie) – Manner of
computation of deduction under s.80HHC, in case of supporting
manufacturer selling goods to an Export House – Interpretation of
– Assessee, supporting manufacturer, dealt in manufacture of
carpets which it sold to an Export House, which, in turn, directly
exported the goods manufactured by the assessee – Assessee claimed
deduction of export incentives at par with the direct exporter
u/s.80HHC since it received export incentives in the form of Duty
Draw Back (DDB), Duty Entitlement Pass Book (DEPB) etc. –
Assessing Officer partly disallowed the deduction – High Court
relying on Baby Marine Exports case held that assessee is entitled
to claim deduction at par with the direct exporter – Decision in
Baby Marine Exports was subsequently followed in Sushil Kumar
Gupta case – Held: Decisions in the said two cases cannot be agreed
upon – They require re-consideration by a larger Bench since the
issue in question has large implication in terms of monetary benefits
for both the parties – Matters be placed before Hon’ble the Chief
Justice of India for appropriate orders.
 Income Tax Act, 1961 – s.80HHC – Purpose of – Discussed.
Directing the matters to be placed before Hon’ble the Chief
Justice of India for appropriate orders, the Court
HELD: 1.1  The very purpose of Section 80HHC of the
Income Tax Act, 1961 is to promote the export business as well
as in order to keep the domestic products competitive in the
global market by allowing tax deduction on export profits. Since
the inception of Section 80HHC of the IT Act, these benefits
were available only to the direct exporter which later on extended
to the supporting manufacturer who is selling goods or
  [2018] 7 S.C.R. 1092
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merchandise to an Export House/Trading House by inserting sub-
Section (1A) and (3A) in Section 80HHC of the IT Act. The
legislature divided Section 80HHC of the IT Act in two parts for
the purpose of deduction, namely, direct exporter and supporting
manufacturer. Direct exporter, being an Indian company or a
person (other than company) resident in India, who directly
exports the goods to some other country whereas supporting
manufacturer, being an Indian company or a person (other than
company) resident in India, who instead of direct export, supply
the goods to the Export Houses who eventually export these
goods. However, clauses (ba) and (baa) of the Explanation to
Section 80HHC  defines “total turnover” and what items are not
included therein and “profits of the business” to be reduced by
ninety percent of any sum referred to in clauses (iiia) to (iiie) of
Section 28 of the IT Act. Clauses (iiia) to (iiie) of Section 28
specifically refers to profits on sale of import license, cash
assistance received or receivable against exports, duty drawback
against export (Customs & Central Excise Duty Drawback Rules),
any profit on the transfer of Duty Entitlement Pass Book (Duty
Remission Scheme) and any profit on the transfer of Duty Free
Replenishment Certificate. [Para 10] [1100-H; 1101-A-D]
1.2 On perusal of various provisions of the IT Act, it is
clear that Section 80HHC of the IT Act provides for deduction in
respect of profits retained from export business and, in particular,
sub-Section (1A) and sub-Section (3A), provides for deduction in
the case of supporting manufacturer. The “total turnover” has to
be determined as per clause (ba) of the Explanation whereas
“Profits of the business” has to be determined as per clause (baa)
of the Explanation.  Both these clauses provide for exclusion
and reduction of 90% of certain receipts mentioned therein
respectively. The computation of deduction in respect of
supporting manufacturer, is contemplated by Section 80HHC
(3A), whereas the effect to be given to such computed deduction
is contemplated under Section 80HHC (1A) of the IT Act. In
other words, the machinery to compute the deduction is provided
in Section 80HHC (3A) of the IT Act and after computing such
deduction, such amount of deduction is required to be deducted
from the gross total income of the assessee in order to arrive at
C.I.T. KARNAL (HARYANA) v. M/S CARPET INDIA, PANIPAT
(HARYAN

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