By TIOL News Service

CHENNAI, NOV 08, 2013: THE issue before the Bench is - Whether in case assessee has to bear loss on account of demurrage and dead freight, turnover for the purpose of section 80HHC would be considered net of the loss amount. And the ruling goes in favour of the assessee.

Facts of the case

Assessee is a trading concern exporting Molasses, granites, diamond and leather. It exported molasses worth Rs.6,14,87,164/- from M/s.United Molasses, London. A per the terms, demurrage and dead freight incurred by virtue of loading molasses at Kochin Port had to be borne by M/s.United Molasses, London and the same was to be paid to the Chartered Ship owners. M/s.United Molasses, London in turn, collected the demurrage and dead freight charges from the assessee on the ground that the delay in loading was attributable to the assessee. Thus the demurrage and dead freight incurred was Rs.31,44,590/- and Rs.3,33,405/- respectively. Instead of the assessee paying the amount towards demurrage and dead freight, the purchaser deducted the said amount from the sale consideration and remitted the balance sale proceeds to the assessee company. The assessee submitted that the deduction u/s 80 HHC had to be worked out on the sale consideration of Rs.6,14,87,164/-. However, AO rejected the said claim and restricted the deduction only to the net amount received by the assessee. On appeal, CIT(A) dismissed the assessee's contentions. On further appeal, Tribunal had allowed the assessee's appeal and pointed out that the issue had to be seen in the context of the agreement between assessee and the foreign company. Consequently, it remitted the matter back to AO to give a finding from the materials on record as to whether this sum were actually of such nature to be borne by the assessee.

Before HC, the Revenue's counsel had submitted that the amount being deducted represented dead freight, the net consideration alone would represent the export turnover. The assessee's counsel had pointed out that the agreement between the assessee and the Exporter on the export of Molasses was on the consideration of Rs.6,14,87,164/- only. As per the agreement any delay in shipment on account of the assessee would have to be borne by the assesseee only and as per the agreement between the parties, the liability was already charged against the assessee. Instead of the assessee paying the amount to the Chartered Ship Owners for the delay caused by them, the Foreign Company paid the same and after deducting the demurrage on the delay caused by the assessee, the Foreign Company remitted only the net amount pertaining to the sale proceeds. Considering the agreement assessee thus rightly claimed that the Chapter VI deduction should be on the agreed amount on the sale of molasses and not what was received ultimately after deducting the demurrage charges.

Held that,

++ in the case of J.B.Boda and Co.Pvt.Ltd. vs. CBDT (2002-TII-10-SC-INTL), assessee was the reinsurance broker for ONGC which has insured all their off-shore oil and gas exploration and production operations with an Indian Insurance company. The assessee therein applied to RBI for permission as regards the payment of total re-insurance premium payable to the foreign parties; after deducting the brokerage due to the assessee for technical services rendered, the balance was remitted to the London brokers, who were the brokers for placing all re-insurance business. The assessee sought for approval of the CBDT in terms of Section 80-O on the ground that the reinsurance brokerage retained in India under agreement with the London Brokers amounted to receipt of income in convertible foreign exchange. On the Board refusing to give the approval and after the dismissal of the writ petition filed, the assessee approached the Apex Court by way of an appeal. The Apex Court pointed out that the formal remittance to the foreign re-insurers first and thereafter receipt of the commission from the foreign re-insurer was unnecessary and that the entire transaction effected by the assessee showed a two-way traffic. Thus, on facts, to first insist on a formal remittance to the foreign insurer and then thereafter to receive the commission from the foreign insurer by the assessee would be an empty formality and a meaningless ritual. Thus on going through the nature of the transaction and the statement of remittance filed in the RBI regarding the transaction, the Apex Court held that the income received in India in convertible foreign exchange in a lawful and permissible manner through the premium institution concerning the subject matter was to be given its due credence and that the Board was not correct in declining the agreement of the assessee with the Foreign Reinsurance Company. Thus, the Apex Court held that the remittance to the foreign insurer after deducting the commission was to be given its proper recognition.

++ applying the said decision, to the facts of this case, as rightly pointed out by the counsel for the asseseee, the Revenue does not dispute the fact that the assessee had exported molasses worth Rs.6,14,87,164/-. The Revenue also does not dispute the fact that there was an agreement between the assessee and the foreign buyer as regards the liability of either of the party on demurrage, as per which, the demurrage and dead freight was payable by the assessee on account of its delay in boarding of Molasses and consequently, the charges payable thereon were to be paid by the assessee. Accordingly, the foreign company deducted the amount towards demurrage and dead freight and remitted the balance amount to the assessee. This does not mean that the sale consideration was anything less than Rs.6,14,87,164/- for the purpose of claiming deduction u/s 80HHC. There is nothing on material to show that the parties had agreed that the balance after adjusting demurrage and dead freight charges alone would be the safe consideration. In the circumstances, we agree with the assessee that the assessee is entitled to the claim and we do not find there is any need for even a remand also in this case. Consequently, we have no hesitation in dismissing the Revenue's appeal on the facts, thus referred to above.

(See 2013-TIOL-870-HC-MAD-IT)