C I T vs. M/S MANGLAM ARTS

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ITA/37/2008HC RajasthanRJHC02004767200810 February 2015Bench: SUNIL AMBWANI,PRAKASH GUPTA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the counter sale of goods to foreign tourists against convertible foreign exchange in India is eligible for deduction under Section 80HHC. The Court referred to the Supreme Court's decision in CIT vs. Silver & Arts Palace and various Rajasthan High Court judgments which consistently took the same view. Regarding Explanation (aa) to Section 80HHC(4C), the Court clarified that it is a rule of exclusion, not a rule of evidence, and does not require the assessee to produce specific documents of customs clearance. The declaration in the Sale To Foreign Tourist Voucher, along with the undertaking that goods would not be gifted or sold in India, was considered sufficient proof for export. The Court found no reason to distinguish the present case from the cited precedents. Therefore, the question of law was decided in favour of the assessee. The appeals were dismissed.

What were the facts?

The assessee, M/s. Mangalam Arts, a dealer of jewellery and handicrafts, sold goods to foreign tourists at their showroom in Jaipur for convertible foreign exchange. The Assessing Officer denied deduction under Section 80HHC as the assessee failed to produce proof of customs clearance for the goods. The assessee had provided sale vouchers with passport numbers and declarations that the goods would not be gifted or sold in India. The appeals were filed by the Commissioner of Income Tax, Jaipur-II, against the orders of the ITAT allowing the deduction. The assessment years are not explicitly stated but are implied to be the subject of the appeals.

What were the issues?

1. Whether, in the facts and circumstances, the ITAT was justified in allowing deductions under Section 80HHC to the assessee on counter sales to foreign tourists when the assessee failed to prove that the goods underwent customs clearance? (Question of law) 2. Whether such deduction can be allowed under Section 80HHC in light of Explanation (aa) added to sub-section (4C) with retrospective effect? (Question of law) Assessee's Contention: The assessee argued that the sale vouchers, which included the tourist's passport number and a declaration that the goods would not be gifted or sold in India, were sufficient proof for export. They contended that Explanation (aa) to Section 80HHC(4C) is a rule of exclusion and does not mandate specific proof of customs clearance by the assessee, especially when the department did not allege or prove otherwise. The assessee relied on Supreme Court and various High Court judgments. Revenue's Contention: The Revenue argued that deduction under Section 80HHC was not allowable unless the assessee produced proof of clearance at any Customs Station, as defined under Section 2(13) of the Customs Act, 1962. They contended that the burden of proof lay on the assessee and since no such documents were produced, the exemption was denied.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 2(13)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR :: JUDGMENT :: D.B. INCOME TAX APPEAL NO.37/2008 Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s.Mangalam Arts, Govind Nagar, Amber Palace Road, Jaipur D.B. INCOME TAX APPEAL NO.442/2008 Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s.Mangalam Arts, Govind Nagar, Amber Palace Road, Jaipur D.B. INCOME TAX APPEAL NO.475/2008 Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s.Mangalam Arts, Govind Nagar, Amber Palace Road, Jaipur D.B. INCOME TAX APPEAL NO.531/2008 Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s.Mangalam Arts, Govind Nagar, Amber Palace Road, Jaipur 10.02.2015 HON'BLE THE ACTING CHIEF JUSTICE MR. SUNIL AMBWANI HON'BLE MR. JUSTICE PRAKASH GUPTA Mr.R.B.Mathur, for the appellant. Mr.Sanjay Jhanwar, for the respondent. ******** Reportable 1. In these Income Tax Appeals filed by the Commissioner of Income Tax under Section 260A of the Income Tax Act, one of the common questions of law involved, is as follows:- “Whether in the facts and circumstances of the case, the ITAT was justified in law in allowing the deductions u/s.80 HHC to

2 the assessee on the counter sales to foreign tourists when the assessee has failed to prove that the goods have undergone custom clearance and whether such deduction can be allowed u/s.80HHC in the light of explanation (aa) added with regard to counter sales with retrospective effect?” 2. The facts, given rise to the present appeals, are that the respondent-assessee is a dealer of jewellery and handicrafts from shops/emporium at Jaipur. The assessee sold the goods by counter sale to foreign tourists in the showroom against the convertible foreign exchange in India. The deduction under section 80HHC of the Income Tax Act, 1961 was not allowed by the Assessing Officer, on the ground that though the goods were sold at the counter of the shop/emporium, for which the sale voucher was signed by the tourists which provided their passport number and declaration to the effect that the goods will not be gifted or sold in India, the exemption cannot be allowed until the proof of clearance of the goods at the Customs Station was produced. 3. We have heard learned counsel appearing for the parties. 4. We find that the Apex Court in CIT vs. Silver & Arts Palace [(2003) 259 ITR 684 (SC)] has held that the counter sale to the foreign tourists against convertible foreign exchange in India, is eligible for deduction under section 80HHC of the Income Tax Act. The Apex Court has also approved the decision of the Allahabad High Court in the case of Ram Babu & sons vs. Union of India [(1996) 222 ITR 606 (All.)]. 5. The Rajasthan High Court in several decisions, has consistently taken the same view, in Jewels Emporium & Ors. vs. Union of India & Ors. [(2003) 262 ITR 304 (Raj.)], Commissioner of

3 Income Tax vs. Jewels Emporium [(2003) 131 TAXMAN 266 (Raj.)], Commissioner of Income Tax vs. Rajendra Kasliwal [(2004) 271 ITR 448 (Raj.)], Commissioner of Income Tax vs. Motilal R. Minda [(2001) 250 ITR 831 (Raj.)] and Income Tax Officer vs. Vaibhav Textiles [(2002) 258 ITR 346 (Raj.)]. The Allahabad High Court has also taken the same view in Marble Men vs. Commissioner of Income Tax & Ors. [(2005) 272 ITR 81 (All.)] following its earlier judgments. 6. Learned counsel appearing for the Income Tax Department- appellant tried to distinguish the decisions, on the ground of the language used in the Explanation (aa) of sub-section (4C) of section 80HHC of the Income Tax Act, is that unless there is proof of the clearance at any Customs Station, as defined under section 2(13) of the Customs Act, 1962, the exemption was not allowable by the assessing authority. He submits that the burden of proof of clearance at any Customs Station was on the assessee, and that since there no documents were produced recording any clearance at any Customs Station, the exemption was denied under section 80HHC of the Income Tax Act. 7. The explanation (aa) of sub-section (4C) of section 80 HHC of the Income Tax Act reads as follows: “(aa) “export out of India” shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962).” 8. In the present cases, the assessee had produced the Sale To Foreign Tourists Voucher, which not only recorded the name and address of the customer (tourist), but also his/her passport number

4 and the declaration given by him that the goods will not be gifted or sold in India. The goods sold at counter at the shop/emporium were sold to be taken out of the country, which necessarily involved clearance of baggage, by the customs authorites. There was no further proof, nor any document in proof of clearance of the goods at the Customs Station by the assessee is required. The declaration in the form of Sale To Foreign Tourist Voucher, for sale made against the convertible foreign exchange with the undertaking that the goods will not be gifted or sold in India, was sufficient proof for export out of India. Unless anything contrary was alleged and proved by the department, it was not necessary for the assessee to have produced the documents of clearance of goods sold by him to the foreign tourists at any Customs Station. The Explanation (aa) is not a rule of evidence, nor raises any presumption. It also does not require any proof of clearance at any Customs Station. The explanation is couched in double negative. It is a rule of exclusion and excludes only those transactions, which do not involve clearance at any Customs Station. It cannot be read in a manner, as suggested by learned counsel appearing for the department that a proof of customs clearance of baggage must be provided to establish the export of goods out of India for the purpose of deduction of profits on such sales under section 80HHC of the Income Tax Act. 9. The question of law is even otherwise covered by judgment of the Supreme Court in Commissioner of Income Tax vs. Silver & Arts Palace (supra), which has been followed by the Rajasthan High Court consistently. The facts and circumstances of the case are not distinguishable to take a different view in the matter. The

5 question is, thus, decided in favour of the assessee and against the Department. 10. The common question of law in all the appeals, is thus, decided in favour of the assessee, and against the Revenue. The additional question of law framed in D.B.Income Tax Appeal Nos.442/2008, 475/2008 & 531/2008, is also decided in favour of the assessee, and against the Revenue. 11. The Income Tax Appeals are dismissed. 12. A copy of this judgment be placed in all the connected files. (PRAKASH GUPTA),J. (SUNIL AMBWANI),ACTG.CJ. Skant/-, Proof Reader All the corrections made in the judgment/order have been incorporated in the judgment/order being emailed. Shashi Kant Gaur, Proof Reader

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