Decided on March 31,1993



S. Kannan, Accountant Member - (1.) THIS appeal by the assessee is directed against the order dated 29-9-1992 of the CIT (Appeals)-VI, Madras relating to the assessment year 1989-90.
(2.) The appellant-company is engaged in the business of financial consultancy. It is also an exporter of marine foods. For the assessment year 1989-90 it filed its return of income on 23-11-1989 disclosing an income of Rs. 3,10,023. Such income came to be returned by the assessee on the footing that it was entitled to deduction of Rs. 4,96,718 under Section 80HHC of the Act in relation to the profits of its business. The aforesaid claim came to be made in the following circumstances. On 31-1-1989 the assessee entered into an agreement with one Devi Marine Food Products Ltd. - a company engaged in the business of processing frozen marine products (processors for short). The said agreement provided that the export orders secured by the assessee-company would be executed by the said processors, that is to say, the processors would ship the marine products covered by the export orders. After the products are shipped, the assessee-company would negotiate the relevant documents and would credit the proceeds to the account of the processors. The assessee-company also agreed to pass on to the processors REP licence, cash assistance and the like relating to the said exports. The assessee would further pay the processors incentive calculated at 3.75 per cent of the FOB value of the exports including service charge. On their part, the processors undertook not to claim any deduction under Section 80HHC of the Act in relation to the exports attributable to the export orders procured by the assessee-company. It was on the basis of the aforesaid agreement/arrangement that the assessee made a claim for deduction under the said section. The Assessing Officer negatived the assessee's claim observing: ... there is no supporting manufacturer or export house relationship between the assessee-company and the Processors. Further, when the export incentive of import replenishment licence and cash assistance are made available to exporters, the company has agreed to forfeit these benefits in favour of the Processor and they thereby excluded such value from its profits. In the event, the claim for deduction under Section 80HHC is not in order and is disallowed. In the process the Assessing Officer computed the total income of the assessee at Rs. 8,06,741.
(3.) PREDICTABLY, the assessee took up the matter in appeal before the CIT (Appeals), who declined to interfere in the matter observing : ...It is settled law that contract between two parties cannot affect the effect of the provisions of tax statutes. In this case the contracting parties were the assessee who had not known exports earlier. The party whose goods are exported cannot disclaim the benefit under statute by mere agreement unless permitted by law or rules thereunder. Since export houses and State Trading Corporation only have been made eligible for deduction, the supply of goods by processor to the assessee and the assessee's activity in respect of the matter is not entitled to any benefit under Section 80HHC.;

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