Holding

The export‑house premium is an integral part of the sale price realized by the assessee and is includable in the profits of the business for deduction under Section 80HHC(IA).

Summary

Mis Baby Marine Exports, a supporting manufacturer, sold marine products to export houses and received, in addition to the FOB value, a 2.25% export‑house premium. The assessee claimed the premium as part of its export turnover and sought a deduction under Section 80HHC(IA) of the Income‑Tax Act. The Assessing Officer treated the premium as a commission and denied the deduction; the Commissioner (Appeals) and the Income‑Tax Appellate Tribunal allowed the deduction, holding the premium to be part of the business profit. The Kerala High Court affirmed this view, and the Supreme Court upheld the Tribunal’s order, holding that the export‑house premium is an integral part of the sale price and therefore includable in the "profits of the business" for deduction under Section 80HHC(IA). The appeal by the Revenue was dismissed.

Issues considered

Whether the export‑house premium received by a supporting manufacturer is includable in the "profits of the business" under Explanation (baa) to Section 80HHC(IA).
Whether the premium constitutes a commission or service charge or is part of the sale consideration.
Whether receipt of the premium in Indian currency precludes deduction under Section 80HHC(IA) which is intended for foreign‑exchange earnings.
Whether the premium is derived from the export business for purposes of Section 80HHC.

Legislation cited

Income Tax Act, 1961s. 80HHC(1), s. 80HHC(4A), s. 80HHC(IA), s. 80HHC(IB)

Subjects

export house premiumSection 80HHCprofits of businessdeductionsupporting manufacturerexport incentiveincome taxIndian tax law

Judgment

,,_ ..-
A COMMISSIONER OF INCOME-TAX THIRUVANANTHAPURAM
v.
MIS BABY MARINE EXPORTS, KOLLAM

MARCH 30, 2007

B [ASHOK BHAN AND DAL VEER BHANDARI, JJ.]

Income Tax Act, 1961:
...-
, Section BOHHC (JA)-Export house premium:_beduction while
c computing total income-Held, permissible.

The short question oflaw involved in the instant appeals was-whether
the export house premium received by the assessee is includible in the "profits
of the ~usiness" of the assessee while computing tlie deduction under Section
80HHC of the. Income '.fax Act, 1961.
D
Answering the question in the affirmative and disposing of the appeals, ....
the Court
't·

HELD 1.1 The Export House premium is an integral part of the sale
E price realized by the assessee from the a;xport house and can be included in
the business profit. The assessee thus is entitled to claim deduction of the
premium amount in computing the total income.
[Paras 26 and 29) (639-A-B, F)

CST v. Bangalore Clothing Company, 260 ITR 371; KRN Marine
F Exports Ltd. ACIT, (2006) 153 Taxman 437; Sea Pearl Industries v. CIT
Cochin, (2001) 2 SCC 33; IPCA Laboratory Ltd v. Dy. Commissioner of "'
Income Tax, Mumbai, (2004) 12 SCC 742 and Bajaj Tempo Ltd. v.
Commissioner ofIncome Tax, Bombay, [1992) 3 SCC 78, referred to.

Berger Paints India Ltd v. Commissioner ofIncome Tax, Calcutta, [2004)
G 12 sec 42, relied upon.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6146 of2005.

From the Final Judgment and Order dated 22.08.2003 of the High Court
of Kerala at Ernakularn in ITA No. 45 of2003.
H . 628
\

t
COMMNR. OF INCOME-TAXTHIRUVANANTHAPURAM v. BABY MARINE EXPORTS, KOLLAM (DALVEER BHANDARI. J.J 629

~
~
WITH A
C.A. Nos. 281-284, 286 of2006.

Vikas Singh. ASG., T. L. V. Iyer., Ranvir Chandra, Gaurav Dhingra (for
B. V. Balaram Das), Gopalakrishnan, R. and Jai Kishore Singh (for Subramonium
Prasad) for the Appellant. B
S. Ganesh, C. N. Sree Kumar, Anil B. Nair and K. Gireesh Kumar for the
Respondent.

.. The Judgment of the Court was delivered by

DALVEER BHANDARI, J. The controversy involved in these appeals
c
revolves around a short but important question of law - whether the export
house premium received by the assessee is includible in the "profits of the
business" of the assessee while computing the deduction under Section
80HHC of the Income Tax Act, 1961?
D
Since a common question of law arises for consideration in these appeals,
therefore, they are being disposed of by this common judgment. However, for
the sake ofreference, the essential facts of Civil Appeal No. 6146 of2005 are
reproduced as under.

:. The respondent-assessee, Mis Baby Marine Exports, Kollam is engaged E
in the business of selling marine products both in domestic market and also
exporting it. The assessee is exporting directly to the buyers and also through
export houses.

The assessee in the instant case has entered into contracts with the
export houses, whereby, as and when the assessee sells the goods or F
merchandise to an export house, as consideration for the sale, receives the
entire F.O.B. value of the exports plus the export house premium of2.25% of
the F.O.B. value. The relevant clause dealing with F.O.B. value and incentive
commission of the contract entered into between the assessee and the export
house in this case is reproduced as under: G
"Clause (12): The Export House agrees to pay the manufacturer/
shipper an incentive of 2.25% on the F.O.B. value (net of overseas
__. commission) of the said Frozen Marine products shipped by the
manufacturer/shipper."
H
/

+- \

630 SUPREME COURT REPORTS [2007] 4 S.C.R.

A The assessee has been filing its income tax returns showing the export ..._
"--
house premium as part of its total turnover and, thereby seeking deductions
available to an exporter and/or a supporting manufacturer under Section 80-
HHC (IA) of the Income Tax Act.

The assessee has shown the export premium as part of sale consideration
B having an element of turnover and not commission or service charges.
The Income-tax Officer, Ward-I, Quilon rejected the claim of the assessee
by his order dated 30.3 .1995. In this connection; the assessing officer referred
to the relevant clause 12 of the agreement entered into between the assessee ,.
·,
and the export house and observed that the narration of the clause shows
c the nature of the payment. According to the assessing officer, this is clearly
a "commission or service charge" for routing the exports through the export
houses who receive import licenses required by them. The assessing officer
in support of his findings referred to and relied upon the decision ofITAT,
Cochin Bench in ITA No.610 (Coch)/1994) dated 21.12.1994 in G. Gangadharan
D Nair v. ITO Ward-1, Mattanchery.
The respondent assessee aggrieved by the said order filed an appeal
before the Commissioner (Appeals). :;.

The Commissioner (Appeals) also examined the main question being
E whether the export house premium will form part of the export turnover for
the purpose of computing the amount of deduction under the proviso to sub-
.
section (3) to Section SOHHC?

The Commissioner (Appeals) relying upon the decision of the ITAT
dated 28.3.1995 in Income Tax Officer v. Sea Pearl Industries Ltd directed the
F assessing officer to include the value of export through export houses also
in the export turnover for the purpose of computing_ deduction under Section
X,
SOHHC. The Commissioner (Appeals) held that "what the appellant has
received is only a reimbursement of certain expenses or payments towards
commission or br.okerage. That being the case; the export premium receipts
will fall within the ambit of clause 1 of Explanation (baa) to Section SOHHC
G
and, therefore, the Assessing Officer was justified in excluding 90% of such
receipts to arrive at the profit of the business as defined in Explanation (baa)".
The Commissioner (Appeals) further held !hat "the Assessing Officer was not
justified in excluding the indirect export from the export turnover. He is
directed to include the indirect export also in the export turnover for the
'(
----
H purpose of Section 80HHC".
t
COMMNR. OF INCOME-TAX THIRUVANANTHAPURAM •·BABY MARINE EXPORTS. KOU.AM (DALVEER BHANDARI. J.) 631

..... ,.,;_ The respondent aggrieved by the order of the Commissioner (Appeals) A
.\.. .~
'approached the Income Tax Appellate Tribunal.

The Tribunal extracted the findings of the Commissioner (Appeals) in
its order in extenso and relied on the decision of the Tribunal.

The Tribunal allowed the appeal of the assessee and upheld the stand B
of the assessee that the export house premium received by the assessee is
includible in the "profits of the business" of the assessee while computing
the deduction under Section 80HHC of the Income Tax Act, 1961.

Being aggrieved by the decision of the Tribunal, the Revenue went in
appeal before the High Court. The High Court vide order dated 22.8.2003 c
dismissed the appeal of the Revenue by observing that the questions involved
in the appeal were squarely covered by its decision in ITA Nos.251/2002 and
166/2002 dated 01. 7.2003, which were decided in favour of the assessee and
against the Revenue. In those cases, the High Court had meticulously examined
the issues involved in these appeals. While answering the questions involved, D
the High Court had observed as under:
• ~ "In the present case the assessee is getting the deduction not by
virtue of the provision of S. 80-HHC (1) but only by virtue of the
provision of S. 80-HHC(lA). The said sub-section provides that the
assessee, being a supporting manufacturer, has during the previous E
year, sold goods or merchandise to any export house or Trading
House in respect of which the export house or trading house has
issued a certificate under the provision to sub-section (1), there shall
in accordance with and subject to the provisions of Section 80-HHC
be allowed in computing the total income of the assessee, a deduction
of the profits derived by the assessee from the sale of goods or F
~ merchandise to the export house or trading house in respect of which
certificate has been issued. From the above, it would appear that it is
the sale of goods or merchandise to the export house which entitles
the assessee to get the deduction under the sub-section and it is the
profits derived by the assessee from the sale of goods or merchandise G
to the export house that is liable to be deducted in the computation
of the total income. It is only by virtue of the agreements between the
assessee and the export houses the assesses got the FOB value of
-;
the goods exported and a percentage of the FOB value as export
premium. Thus, both the amounts constituted the consideration
received by the assessee for the sale of goods or merchandise to the H
..-+--
\
632 SUPREME COURT REPORTS [2007] 4 S.C.R.

A export house. Thus, even applying the principles laid down by the -,.._
._
Supreme Court and of this Court in the decisions relied on by the
senior counsel for the Revenue, it has to be held that the assesses
·are' entitled to the benefits of section 80HHC on the export premium
received from the export houses."

B Being aggrieved by the decision of the High Court, the Revenue has
come to this Court by way of filing the instant appeal.

The Revenue has ra.ised many questions of la'Y in this appeal, but we
are only concerned with the following question:

c ,, "Whether, on the facts and in the circumstances of the case, the
. assessee is entitled to any benefit on the export house premium?"

In appeal, it has been stated by the Revenue that the High Court has
erred in law in· holding that the premium received by the assessee from the
export house, which has exported the goods on behalf of the assessee, being
D the ·supporting manufacturer, was profit ort which the assessee was e;'ltitled
to a benefit of deduction under Section 80-HHC of the Act inasmuch as it did
not -form part of the sale proceeds of the goods exported by the assessee -I..
•
through the e~port house but it was merely a receipt. from the Export House
in con_sideration of the permits/service rendered to them for facilitating the
export of goods.
E
Acc.ording to the Revenue, the High Court has erred in interpreting the
term "profits of the business" contained in clause (baa) of Explanation to
Section 80-HHC by holding that the premium received by the assessee from
the export house was profits of bu~ines~ ·and not any suin referred to in
F clauses (iiia), (iiib) and (iiic) of Section 28 or any receipt by way' of brokerage,
commission, interest, rent, charges or any other receipt of similar nature
included in such profits. It has been further stated that'on a proper construction
of provisions of sub-section (IA) and (4A) of Section 80-HHC, the assessee
being a supporting manufacturer is entitled to deduction under this Section
only on the sale price of the assessee's goods export:ed through the export
G house inasmuch as the premium received by the assessee from the export
house cannot be held to have been "deriver! from" the export business of the
assessee.
'( 'I-"
It was asserted by th-e appellant that the High Court erred in holding
that the assessee was entitled to deduction under this Section by ignoring
H
COMMNR. OF INCOME-TAX THIRUVANANTHAPURAM v. BABY MARINE EXPORTS. KOLLAM IDALVEER BHANDARI, J.] 633

'
.... the provisions of sub-~ection (4A) of Section 80-HHC according to which the A
assessee being the supporting manufacturer was required to furnish a certificate
from the Chartered Accountant that the deduction has been correctly claimed
by him on the basis of the profits in respect of the sale of goods to the export
house and also a certificate from the export house about disclaimer of deduction
in respect of export turnover mentioned in the certificate which could not in
any way be construed as including the premium paid by the export house to B
the assessee.

Shri Vikas Singh, learned Additional Solicitor General appearing on
behalf of the Revenue contended that to properly comprehend the issues
involved in this case, it is necessary to state in brief the object and the source
of money which is passed on by the export house to the supporting
c
manufacturer. The assessment years involved in the present case are 1992-
93 to 1994-95. During the relevant years, the EXIM Policy of 1st April, 1992
to 31st March, 1997 was applicable. According to the said policy, export
houses were given various benefits both tangible and intangible under the
EXIM Policy, some part of the said policy is reproduced as under: D
"Under Chapter 12 of the EXIM Policy of 1992-97 vide para 137,
·" the exporting organizations were given recognition as export house/
trading house or star trading house on the basis of average FOB value
of physical exports done by them during the three preceding licensing
years. In the original EXIM policy, an export organization was declared E
an export house if it did 6 crores of annual net foreign exchange export
in the three preceding years and it was declared a trading house if it
did 30 crores of the same and star trading house if it did 125 crores
of the same.

In the year 1993, the status determined was done on the basis of F
average FOB value. of physical exports done during the preceding
three licensing years. For export houses, it was l 0 crores, for trading
houses it was 50 crores and for star trading houses it was 250 crores.

In the next year i.e. in 1994, the policy provided both options i.e.
of average net foreign exchange export/average FOB value as the G
basis for declaration of export house, trading houses etc. and in the
year 1994 a new category was added which was super star trading
...
/
houses .

Consequent to the recognition as an export house/trading house/
H
t
634 SUPREME COURT REPORTS [2007] 4 S.C.R.

A star trading house/super star trading house, the export house was ;_
eligible to become a member of the elite Indian Organization namely
Federation of Indian Export Organization (FIEO) which further entitled ,
the export houses to attend the various buyers/seller meet all over the
world, to participate in the international exhibitions and as members
of delegation with the goverr.rnent and also to attend international
B conferences etc. The benefits were many, only some illustrations have
been given above."

Thus, in effect the money which was paid by the export houses to the
,.
supporting manufacturers in the form of premium/incentive is nothing but the
c money which was received by the export houses in the form of one incentive
or the other, some of which is cash in the sense that the same can be freely
sold in the market at a premium and the others. are long term benefit which
accrue to the export houses over the years.

The source of the money accordingly is within India and the money
D paid by the export houses to the supporting manufacturer has no nexus or
link to the foreign buyers who paid the value of the goods on being sold to
the supporting manufacturer through the export houses. The assessee, i.e.,
the supporting manufacturer would be entitled to claim the incentive/premium
as part of its export turnover if the origin of the money had been the foreign
buyer even ifthe said money were to be routed to the supporting manufacturer
E through the export house. Since the admitted case of the parties is that the
source of money is within India i.e. out of the incentives being offered by the
Government of India under the EXIM Policy 1992-97, the turnover of the
assessee/supporting manufacturer is merely a domestic turnover and not the
export turnover as claimed by them.
F The appellant submitted that under Section 80-HHC, the assessee
supporting manufacturer is entitled to claim deduction only out of the profits
earned by it from the export turnover and not from the domestic turnover
which the assessee may have over and above the export earnings.

G Learned Additional Solidtor General also made the following
submissions.

(a) The fact that the foreign buyer pays the value of the goods in
convertible foreign exchange whereas, the money which is being
paid by the export house as premium to the supporting "' -
H manufacturer is in Indian currency and the said Indian currency
-f
COMMNR. Of INCOME-TAX THIRUVANANTHAPURAM v. BABY MARINE EXFORTS, KOLLAM !DALVEER BHANDARI, J.) 63 5
......
has no link or nexus whatsoever with any foreign exchange A
earning.
(b) The export premium being earned by the assessee is not part of
the sale price or the invoice price of the goods being sold by the
assessee to the foreign buyer but is in effect something over and
above the same. B
(c) The amount which is being claimed by the assessee as incentive/
premium to be included in his export profit under Section SOHHC
is not included in the certificate issued by the export house or
trade house under sub-section (IA) of Section 80HHC and hence
the assessee cannot claim any benefit for the said amount being c
outside the scope of deduction under Section 80HHC (lA).

The assessee cannot get the premium/incentive included as his profits
under Section 80-HHC because even the export house that is passing on this
premium to the assessee/supporting manufacturer is not permitted to claim
such deduction as profit from export earning under Section 80-HHC. In terms D
of Explanation (baa) to Section 80HHC sub-clause 4(A), even the export
~
house can only claim I 0% of such or similar earnings towards deduction and
hence it is inconceivable that the supporting manufacturer could be permitted
to claim 100% deduction of the same money when it comes into his hands.
Finally, learned Additional Solicitor General argued that the premium earned
by the assessee is the domestic earning of the assessee totally unrelated to E
the export of goods and hence the assessee cannot claim any deduction
whatsoever in respect of such earning under Section 80-HHC (IA).

Shri S. Ganesh, learned senior Advocate appearing for the respondent
- assessee contended that the claim of the assessee for deduction under
Section 80-HHC is by virtue of the provision of Section 80-HHC (IA). He also
F
jl
submitted that as far as the assessee is concerned, the export premium forms
part of the export transaction between the assessee and the export houses
and, therefore, it forms part of the export transaction and consequently, the
income by way of export premium is profit derived by the assessee from the
export of such goods or merchandise. G

-
The export premium received by the assessee from the export house
forms part of the price settled between the parties for sale of the goods and
'(
that it is neither brokerage nor commission nor interest nor rent nor charges
etc.
H
~-
\
636 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Mr. Ganesh, referred to the decision of Bombay High Court in CST v.
Bangalore Clothing Company, reported in 260 ITR 371 wherein the Bombay
High Court has referred to and followed the Circular No.621 issued by the
CBDT dated 19th December, 1991. The High Court has explained that the
object of the Explanation (baa) to Section 80-HHC is to exclude profit receipts
from the business whkh do not have an element of turnover and which are
B not connected with the assessee's business operations. If a particular receipt
is in the nature of the operational income then it must be included in business
profit and consequently benefits of Section 80-HHC must be granted in
respect thereof. Mr. Ganesh also urged that applying the test enunciated by ...
the judgment of the Born bay High Court in Bangalore Clothing Company's
C case (supra) would lead t-0 irresistible conclusion that the export house
premium must necessarily be included in the business profit because it is part
of the assessee's turnover and has an integral connection with the business
operations of the supporting manufacturer, which consist of sale of goods of
the export house.

D Mr. Ganesh submitted that the judgment delivered by the Madras High
Court in KRN Marine Exports Ltd v. ACIT, reported in (2006) 153 Taxman
p.437 is not good law as the said decision did not consider the Board Circular
No. 621 which explained the clarification of the provision of the Explanation :,
(baa) to Section 80HHC (IA) of the Act.Jn that case, the High Court completely
E failed to appreciate the crucial distinction between Section 80HHC (1) and
Section 80HHC (IA) and also the fact that the supporting manufacturer's
claim for the deduction was under Section 80HHC (IA) which has nothing
whatsoever to do with export profit, with which only the export house is
concerned. Mr. Ganesh also contended that the said decision is required to
be overruled by this Court in view of the decision of this court in Berger
F Paints India Ltd v. Commissioner ofIncome Tax, Calcutta reported in (2004]
12 SCC42.

We have heard the learned counsel for the parties at length. Before
critically examining the rival contentions of the learned counsel for the
appellants and the respondents, we deem it appropriate to refer to the provisions
G. of Section 80-HHC of the Act:
"80HHC. Deduction in respect ofprofits retained for export business.
(1) Where an assessee, being an Indian company or a person (other
than a company) resident in India, is engaged in the business of
export out of India of any goods or merchandise to which this section
H
COMMNR. OF INCOME-TAX THJRUV ANANTHAPURAM v. BABY MARINE EXP0:>.TS, KOLLAM !DAL VEER BHANDARI. I.] 63 7

applies, there shall, in accordance with and subject to the provisions A
of this section, be allowed, in computing the total income of the
assessee, a deduction to the extent of profits, referred to in sub-
section (lB), derived by the assessee from the export of such goods
or merchandise:

Provided that i.f the assessee, being a holder of an Export House B
Certificate or a Trading House Certificate (hereafter in this section
referred to as an Export House or a Trading House, as the case may
be,) issues a certificate referred to in Clause (b) of Sub-section (4A),
that in respect of the amount of the export turnover specified therein,
the deduction under this sub-section is to be allowed to a supporting C
manufacturer, then the amount of deduction in the case of the assessee
shall be reduced by such amount which bears to the total profits
derived by the assessee from the export of trading goods. the same
proportion as the amount of export turnover specified in the said
certificate bears to the total export turnover of the assessee in respect
of such trading goods. D
(lA) Where the assessee, being a supporting manufacturer, has during
the previous year, sold goods or merchandise to any Export House
or Trading House in respect of which the Export House or trading
House has issued a certificate under the proviso to sub-section (1),
there shall, in accordance with and subject to the provisions of this E
section, be allowed in computing the total income of the assessee,
[a deduction to the extent ofprofits, referred to in Sub-section (JB)J,
derived by the assessee from the sale of goods or merchandise to the
Export House or Trading House in respect of which the certificate
has been issued by the Export House or Trading House.
F
Section 80HHC was incorporated with the object of granting incentive
to earners of foreign exchange. This Court in Sea Pearl Industries v. CIT
Cochin, [2001] 2 SCC 33 also observed that the object of Section 80HHC is
to grant incentive to earners of foreign exchange. In JPCA Laboratory Ltd.
v. Dy. Commissioner a/Income Tax, Mumbai reported in [2004] 12 sec 742 G
this Court has taken the same view. This Court in the said judgment observed
that Section 80HHC has been incorporated with a view to provide incentive
to export houses and this Section must receive liberal interpretation.

In Bajaj Tempo Ltd v. Commissioner of Income Tax, Bombay, reported
in [1992] 3 SCC 78, this Court while interpreting Section 15-C of the Income H
4--
\

638 SUPREME COURT REPORTS [2007) 4 S.C.R. ,,
'-
)..

A Tax Act, 1922 observed that the Section, read as a whole, was a provision,
directed towards .encouraging industrialization by permitting an assessee
setting up a new undertaking to claim benefit of not paying tax to certain
extent on the capital employed. Similarly, Section 80 HHC has also been
incorporated to give incentive for the earners of the foreign exchange. We
must always keep the object of the Act in view while interpreting the Section.
B The legislative intention must be the foundation of the court's interpretation.

According to Section 80HHC (I), the Export House in computing its
·'"-
total income is entitled to deduction to the extent of the profit derived
by the assessee from the export of the goods or merchandise. Whereas,
according to Section 80 HHC(IA), the supporting manufacturer shall
c be entitled to a deduction of profit derived by the assessee from the
sale of goods or merchandise. The term "supporting manufacturer"
has been defined in this section and it reads as under:-"supporting
manufacturer" means a person being an Indian company or a person
(other than a company) resident in India, manufacturing including
D processing, goods or merchandise and selling such goods or
merchandise to an Export House or a Trading House for the purposes
,..,
of export; According to the said definition, the respondent clearly ·' '

comes within the purview of supporting manufacturer. On plain
construction of Section 80HHC(IA) the assessee being supporting as
manufacturer shall be entitled to a deduction of the profit derived by
E the assessee from the sale of goods or merchandise."

The respondent a supporting manufacturer sold the goods or
merchandise to the export house and received the entire FOB value of the
goods plus the export house premium of 2.25% of the FOB value. The relevant
Clause 12 of the agreement has already been extracted in the earlier part of
F
the judgment and according to the said clause, the export house is under ....
obligation to pay to the supporting manufacturer an incentive of 2.25% on
the F.O.B. value according to the terms of the agreement.

The respondent, a supporting manufacturer, admittedly sold the goods
G to the export house in respect of which the export house has issued a
certificate under proviso to sub-section (I). According to the section, the
respondent - assessee, in computing the total income be allowed a deduction
to the extent of profits referred to in sub-section (IB) derived by the assessee ... ...
'

from the sale of goods to the export house.

H The Appellate Tribunal has arrived at defmite conclusion that the Export
COMMNR. OF INCOME-TAX ntlRUVANANTHAPURAM v. BABY MARINE EXPORTS. KOLLAM IDAL VEER BHANDARI, I.I 639

House Premium is nothing but an integral part of sale price realized by the A
assessee a supporting manufacturer from the Export House. The Tribunal
further· held that the Export House Premium cannot possibly be considered
to be either commission or brokerage, as a person cannot earn commission
or brokerage for himself.

The High Court has upheld the findings of the Tribunal. In our B
considered view, the order of the Appellate Tribunal is based on proper
construction of Section SOHHC (lA) of the Income Tax Act that the Export
House premium is an integral part of the sale price realized by the assessee
from the export house.

We find no merit in the submission of the appellant that Indian currency C
could not be subject matter of deduction under Section SOHHC. The requirement
of realizing the sale proceeds of the goods or merchandise in convertible
merchandise is applicable only to the Export House and a claim for deduction
under ·section SOHHC ( l ). The requirement of realization of sale proceeds in
foreign exchange expressly made inapplicable to the supporting manufacturer D
by Section 80HHC(2A) and further the supporting manufacturer's claim of
deduction is only under Section SOHHC(lA) and not under Section SOHHC(l)
which applies to export houses only.

The submission of the appellant that the premium earned by the
respondent assessee is totally unrelated to export is fallacious and devoid of E
any merit. This submission of the appellant is also contrary to the specific
terms of the agreement between the appellant and the respondent.

On plain construction of Section SOHHC (lA), the respondent is clearly
entitled to claim deduction of the premium amount received from the export
house in computing the total income. The export house premium can be F
included in the business profit because it is an integral part of business
operation of the respondent which consists of sale of goods by the respondent
to the export house.

The order of the Tribunal, which has been upheld by the High Court G
in the impugned judgment, is based on proper construction of Section SOHHC
of the Income Tax Act, 1961. The appeal filed by the appellant being devoid
of any merit is accordingly dismissed.

H
t
640 SUPREME COURT REPORTS [2007] 4 S.C.R.

A CIVIL APPEAL NOS.281-284 & 286 OF 2006

These appeals stand disposed of in terms of our judgment in Civil
Appeal No. 6146of2005.

In the peculiar facts and circumstances of the case, we direct the parties
B to all the appeals to meet their respective costs.

BK Appeals dismissed.

'.