SEA PEARL INDUSTRIES AND ORS., ETC versus COMMISSIONER OF INCOME TAX, COCHIN

Citation: [2001] 1 S.C.R. 184 · Decided: 09-01-2001 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Judgment (excerpt)

A 
iB 
SEA PEARL INDUSTRIES AND ORS., ETC .. 
v. 
COMMISSIONER OF INCOME TAX, COCHIN 
JANUARY 9, 2001 
[S.P. BHARUCHA, DORAISWAMY RAJU AND 
MRS. RUMA PAL, JJ:) 
Income Tax Act, 1961-Section 80HHC-Company exporting goods 
through export house- Deduction for exports- Entitlement to-- Held, deduction 
C is available to export house and not to company. 
D 
Words and Phrases: 
"Sale Proceeds .... receivable by assessee "- Meaning of in the context 
of Section 80HHC of the Income Tax Act, 1961. 
Appellant-assessee is a processor and exporter of sea foods. It is not 
an 'export house' under Import and Export Policy (Policy). The assessee 
entered into an agreement with an eligible Export house under the Policy for 
export of processed sea food on behalf of the export house in consideration 
E for a commission of2.25% of the FOB value of the goods exported. As per 
the agreement, a purchase order was placed on the export house by a foreign 
buyer. The buyer opened a Letter of Credit in favour of the export house. The 
goods were shipped to the destination of the foreign buyer by the assessee 
and the documents were given to the export house. The Letter of Credit, 
which was opened in the name of the export house, was endorsed in favour 
F of the assessee and the entire amount of foreign exchange was credited in 
the assessee's account by the export house. The assessee claimed deduction 
available for an exporter under Section SOHHC of the Income Tax Act, 1961 
in its income tax return. Revenue disallowed the deduction. Income Tax 
Tribunal allowed the appeal of the assessee However, High Court answered 
the reference in favour of the Revenue. 
G 
In appeal, the assessee contended that it was entitled to the benefit of 
deduction under Section SOHHC of the Act as the export was done by selling 
them to the export house after the goods had crossed the customs barrier; 
that all the export formalities were done in the name of the assessee; that 
H the GR-1 form was issued in the name of the assessee by the Reserve Bank 
184 
f 
SEA PEARL INDUSTRIES v. C.l.T. 
185 
• 
oflndia under the Provisions of the Foreign Exchange Regulation Act, 1973; A 
that Customs authorities recognised the assessee as an exporter under the 
provisions of the Customs Act, 1962; that bill of Lading indicated the assessee 
and the export house as the shipper; that for the purposes of the Policy, the 
export house is the exporter to avail the benefit for getting Import 
Replenishment (REP) licences; that the foreign exchange realised by the B 
export house for the export had been credited to the assessee's account. 
Revenue contended that the documents relating to export disclosed that 
the assessee was acting as an agent of the export house; that there was no 
contract between the foreign buyer and the assessee; that the Letter of Credit 
was opened in the name of the export house even though foreign exchange C 
was ultimately received by the assessee; that the assessee received a 
commission of2.25% of the Fob value of the goods exported by the export 
house; that the question of title was irrelevant for claiming deduction under 
Section 80HHC of the Income Tax Act; that no certificate has been given by 
the export house to the assessee as per Circular No. 446 dated 14.8.86 issued 
by the Central Board of Direct Taxes; that the export house had claimed D 
deductions under Section 80HHC of the Act for the same export in its income 
tax returns. 
Dismissing the appeals, the Court 
HELD: 1.1. The question of title or property in the goods exported is E 
not relevant to Section 80HHC of the Income Tax Act, 1961. The Section 
does not require the exporter to be the owner of the goods. Section 2(18) of 
the Customs Act, 1962 also does not include the idea of ownership within 
the definition of the word 'export'. This is contrasted with Section 5(3) of the 
Central Sales tax Act, 1956 where the emphasis is on the transfer of title F 
by a last sale or purchase.1190-H; 191-AI 
1.2. The object of Section 80HHC of the Income Tax Act is to grant an 
incentive to earners of foreign exchange. The transaction commenced with 
the agreement between the foreign buyer and the export house. But for this 
contract, there would be no export and no receipt of foreign exchange at all. G 
In fulfilment of its obligation under the contract, the export house entered 
into an independent contract with the assessee, who was not a party to the 
first contract. If the first contract

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