Two judge Bench of the Kerala High Court in The Commissioner of Income Tax, Cochin vs. Parry Agro Industries Ltd. held that the commission deducted by the foreign agent from the sale consideration cannot enjoy the benefit of Section 80HHC.
The Section 80HHC of the Income Tax Act, 1961 can only be applied if the sale proceeds of goods or merchandise exported out of India are received in or brought into India, by the assessee in convertible foreign exchange, within a period of six months from the end of a previous year or within such further period as the competent authority may allow in this behalf. In this case, this condition was not complied by the assessee.
The assessee in its export turnover had included a commission on sales, coming to Rs.37,54,026/- paid to M/s. Parry Agro Industries Ltd., an agency outside India. The commission was deducted in the sale invoice itself and the balance consideration alone was brought into India as convertible foreign exchange. The Assessing Officer found that the commission cannot be included in the export turnover to compute the export profit and thereby deleted the same from the export turn over.
An appeal was made to the CIT (A) by the assessee. The CIT (A) agreed with the findings of the A.O and held that the export turnover is the sale proceeds brought into India by the assessee in convertible foreign exchange in accordance with the provisions of Section 80HHC(2)(a). On appeal made to the Income Tax Appellate Tribunal (ITAT), it reversed the concurrent decisions; on the reasoning that there were two options available for payment of agency commission and the assessee having taken the easier mode, cannot be disentitled from making the claim.
The CIT, appealed before the Hon’ble High Court of Kerala against the decision of the Tribunal. The hon’ble bench comprising of Justice K. Vinod Chandran & Justice Ashok Menon observed” There is also no difficulty in the assessee resorting to either of the two options, ie: paying commission directly in foreign exchange to the foreign agency or in bringing it back into the country and then paying it in foreign exchange. However, if the assessee takes the easier mode as found by the Tribunal, the assessee would be disentitled in including the said component in the export turnover.”
The order of the Tribunal was set aside. The question of law was answered in favor of the Revenue and against the assessee.
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