Export profit: Deduction u/s.80HHC: A.Y. 2001-02: Assessee purchasing goods from one foreign country and transporting it to another foreign country: No condition that exports must be from India: Receipt on sale proceeds in convertible foreign exchange: Assessee entitled to deduction u/s.80HHC.

The assessee was engaged in purchase and sale of non-ferrous metals, etc. The purchases were made from one country and exported to another country at a margin of profit by arranging direct shipment from the selling country to the purchasing country. The bills were settled through Bank of Baroda in India. The proceeds were through convertible foreign currency and payments were made on convertible foreign currency. For the A.Y. 2001-02, the assessee claimed deduction u/s.80HHC of the Income-tax Act, 1961 in respect of such exports. The Assessing Officer and the Tribunal held that the assessee was not entitled to the deduction. The Tribunal held that to be eligible for the benefit of section 80HHC, foreign exchange is to be earned by exporting goods from India.

On appeal by the assessee, the Karnataka High Court reversed the decision of the Tribunal and held as under: “

(i) Section 80HHC is an incentive to an assessee to carry on export business so that in turn, the country earns foreign exchange. While interpreting this provision, if two views are possible, it is settled law that the view which is favourable to the assessee is to be preferred by the courts.

(ii) Now section 80HHC provides that to an assessee who is engaged in the business of export out of India of any goods or merchandise, to which the section applies deduction to the extent of profits referred to in s.s (1)(b) is allowed. In the entire provision, there are no express words which provide that the export of such goods is to be from India.

(iii) The Explanation read with the main section does not in any way indicate that, to be eligible for the benefit of deduction u/s.80HHC, the goods or merchandise has to emanate from India. In section 80HHE the words used are ‘export out of India’. But to be eligible for deduction under the aforesaid provision mere export out of India is not sufficient. What is to be exported out of India should be from India to a place outside India by any means. Such a wording is conspicuously missing in section 80HHC.

(iv) The stress in section 80HHC is only on earning of foreign exchange, not the goods and merchandise to be exported out of India. They do not necessarily have to be from India. Therefore, the law does not require the goods to be physically exported out of India. There need not be a two-way traffic of bringing the goods from a foreign country into the Indian shores and thereafter exporting those goods from Indian shores.”