1. The Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1961, has referred the following question of law for the opinion of this court:
'Whether the profits earned by the assessee in the export of hides and skins for the assessment years 1963-64 to 1966-67 are export profits entitled for the rebate under the relevant provisions of the Finance Act '
2. As the question itself implies, the reference relates to the assessmentyears 1963-64 to 1966-67 and the question raised is a common one. The assessee is a reputed exporter of tanned hides and skins for nearly 100 years.As far as the present reference is concerned the question involved relates tocertain amounts earned by the assessee differently called as ' selling commission ' or ' discount ' in respect of the transactions carried out in thefollowing manner as found by the Tribunal. .To represent the assessee inforeign markets, the assessee enters into agency agreements with foreignfirms by which the foreign firms represent the assessee in foreign marketsas its agents. Selling commission of 2 per cent. on all sales of tanned hidesand skins is payable by the assessee to the foreign representatives. As perthe terms and conditions of the agency agreements, sight drafts are to bedrawn on the foreign agents or their buyers for 100 per cent. value andshipments are to be effected within two months from the date of bookingof the order of the foreign agents. The assessee then registers with theReserve Bank of India the agency agreement with their selling agents tofacilitate remittance o| commission amount of 2 per cent. on all the exportsof tanned hides and skins. The foreign representatives of the assessee-firmplaces an order for the supply of hides and skins specifying the trade markand also quoting the rate. On receipt of the order, the assessee approachesthe local dealers, negotiates the price and then sends a confirmatory letterto its foreign representatives giving the details of the prices, trade marksof the commodity exported, date of shipment and mode of payment. Theassessee then issues a letter of authority to the local dealers authorising them to directly ship the goods to the assessee's agent abroad. The local dealer then ships the goods to the foreign representatives of the assessee. In the invoice prepared by the local dealer, the discount of 1 per cent. payable to the assessee, commission of 2 per cent. payable to the foreign representatives, cost of insurance, etc., are all deducted. The invoice is countersigned by the assessee. The assessee then issues a letter of authority to its bankers on the basis of which the dealer receives payment for the goods shipped on the presentation of the shipping documents.
3. The discount of 1 per cent. received by the assessee on all the hides and skins exported to its foreign representative for the assessment years 1963-64 to 1966-67 was claimed by the assessee as export profits entitled for the rebate under Section 2(5)(i) of the Finance Act, 1963, and Section 2(5)(a)(i) of the subsequent Finance Acts. The Income-tax Officer, while accepting the explanation of the assessee that the commission on sales was received from the foreign customers, disallowed the claim on the ground that the exports were not made on its own account and the assessee had not directly shipped the goods. On appeal, the Appellate Assistant Commissioner held that the relevant provisions of the Finance Act did not require the assessee to export goods in its own name to earn the benefit and since the assessee played a substantial role in bringing about the export of hides and skins, the commission earnings arising from the part played by the assessee in the export of hides and skins should be treated as profits arising from the export of hides and skins and consequently the assessee is entitled to the benefit of the rebate under Section 2(5)(i) of the Finance Act, 1963. Against the order of the Appellate Assistant Commissioner, the department took up the matter in appeal to the Tribunal. On behalf of the revenue it was contended before the Tribunal that-
(i) the export of goods were directly made by the local dealers themselves under instructions from the assessee and, therefore, the income derived therefrom only indirectly was connected with the export of goods;
(ii) the earnings were directly attributable to the services rendered to the foreign principal and not to the export of any goods' and hence the assessee was not entitled to any rebate. The Tribunal held that-
(i) the assessee was a seller of hides and skins to its agents abroad;
(ii) the assessee had purchased the tanned hides and skins from the local dealers and they have been shipped to the assessee's foreign agent at the risk and on account of the assessee;
(iii) there is no privity of contract between the foreign representatives and the local dealers;
(iv) instead of the assessee physically shipping the goods to its foreign representative, the goods have been shipped by the local dealers on behalf of the assessee;
(v) the assessee, in short, is the buyer and seller of the hides and skins in the foreign market through its representative and this surely constitutes export and any income derived from this transaction had to bear the label of export profit. It is, in this view, the Tribunal dismissed the appeals preferred by the department. It is the correctness of this conclusion of the Tribunal that is challenged in the form of the question extracted already.
4. It is necessary to refer to the relevant statutory provisions. Section 2(5)(i) of the Finance Act, 1963, which is the same in respect of the subsequent years also, is as follows :
'(5) In respect of any assessment for the assessment year commencing on the 1st day of April, 1963- (i) an assessee being an Indian company or any other company which has made the prescribed arrangements for the declaration and payment of dividends within India or an assessee (other than a company) whose total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction, from the amount of income-tax and super-tax with which he is chargeable of an amount equal to the income-tax and super-tax calculated respectively at one-tenth of the average rate of income-tax and of the average rate of super-tax on the amount of such profits and gains included in the total income.'
5. The question for consideration is whether the 1 per cent. which the assessee received on the export of hides and skins can be said to be profits and gains derived from the export of the hides and skins. We are of the opinion that having regard to the facts found by the Tribunal, there can be no dispute that the said amount constitutes profits derived from the export of hides and skins. We have already referred to the findings of the Tribunal and for the purpose of clarity, we repeat that the Tribunal found, (1) the various local dealers shipped the hides and skins on account of and at the risk of the assessee ; (2) the invoice prepared by the dealers containing the prices less, commission and discount was countersigned by the assessee ; (3) there was no privity of contract between the foreign representative and the local dealer; (4) any difference in prices was invariably debited against the assessee by the foreign representative. In addition to that, there was also the finding by the Appellate Assistant Commissioner which was not disturbed by the Tribunal to the effect that the assessee is responsible for ensuring the quality of the goods and their proper shipment. Having regard to these and also the further finding that the assessee is thebuyer of the hides and skins from the local dealers, it is clear that the assessee first purchases the goods from the local dealers and thereby becomes the owner thereof and subsequently exports the goods; but it exports the goods in the names of the various persons from whom it purchases the goods, on account of and at the risk of the assessee itself. Consequently, it is clear that though the exports are made by the dealers from whom the assessee purchases the goods in India, those dealers acted merely as agents of the assessee for the exports in question and it was the assessee which was really the exporter in respect of the goods. Consequently, the 1 per cent., whether it is called by the name of commission or discount, the assessee earned on the export of the goods in question will certainly constitute profits derived from the export of hides and skins. As a matter of fact the very question referred to the High Court assumes this. Under these circumstances, we answer the question referred to this court in the affirmative and in favour of the assessee.
6. There will be no order as to costs.