After what appears to be an eternity, there is some good news on the tax front for Indian exporters. In a judgment delivered on March 30, 2007 in the case of CIT v Baby Marine Exports [in Civil Appeals No 281-284 and 286 of 2006], the Supreme Court of India has held that "export house premium", received by a supporting manufacturer from a Trading House or an Export House which has exported goods manufactured by such supporting manufacturer, constitutes part of the profits derived by such supporting manufacturer from the sale of goods or merchandise to such Trading House or Export House, "..... 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.". Consequently, a supporting manufacturer is entitled to a deduction under Section 80-HHC in respect of such "export house premium".
Even more important are the following important determinations of the Court :
"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 IPCA Laboratory Ltd. v. Dy. Commissioner of Income Tax, Mumbai reported in (2004) 12 SCC 742 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 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. The legislative intention must be the foundation of the court's interpretation."
