Export house premium can be clubbed with profit: SC
April, 04th 2007
In a relief to export firms, the Supreme Court on Friday ruled that export house premium can be included in their business profit. Such income is part of the income derived from business operations and they are entitled to claim benefits on such income under the Income Tax Act, the apex court has ruled.
The issue under discussion was an important question of law whether export house premium could be included in the profits of the business of the assessee while computing the deduction under Section 80HHC of the Income Tax Act, 1961.
The SC dismissed the plea of revenue department that such earnings is commission or service charge as it involved routing of exports through export houses. A bench comprising Justice Ashok Bhan and Justice Dalveer Bhandari said: The export house premium can be included in the business profit because it is an integral part of business operation which consists of sale of goods to the export house.
Under Section 80HHC (1A) of Income Tax Act, 1961, export firms are entitled to claim deduction of premium amount received from the export house in computing the total income, the court felt.
The plea of the revenue department was that the premium earned by the assessee is unrelated to export and was devoid of any merit, said the court. We find no merit in the submission of the appellant (revenue) that Indian currency could not be subject matter of deduction under Section 80HHC of the Act, said the court.
The verdict came in an appeal of Income Tax Department which has sought categorisation of such premium as commission or service charges to the assessee Baby Marine Exports from Kollam in Kerala. The assessee was engaged in the business of selling marine products both in domestic market, besides exporting it. The assessee exported directly to and also through export houses.
The assessee had entered into contracts with export houses, whereby, as and when the assessee sells goods or merchandise to an export house, as consideration for the sale, receives the entire FOB value of the exports plus the export house premium of 2.25% of the FOB value. The assessee had shown the export premium as part of sale consideration, having an element of turnover and not commission or service charges as categorised by the revenue department.