2000 (3) TMI 1086 - AT - Income Tax

Summary

Issues:
Whether insurance claim should be included in 'total turnover' for computing deduction under section 80HHC.

Analysis:
The appeal questioned the exclusion of an insurance claim from 'total turnover' while computing deduction under section 80HHC. The Assessing Officer added the insurance claim amount to the 'total turnover,' resulting in a reduced deduction. The CIT(A) directed the re-computation of deduction, holding that while the amount was includible in income, it should not be part of 'total turnover.' The dispute centered around the interpretation of 'total turnover' as per the provisions of section 80HHC.

The definition of 'total turnover' under section 80HHC excludes freight or insurance attributable to the transport of goods beyond the customs station. The Tribunal emphasized that the negative definition does not explicitly address the inclusion of insurance claims in 'total turnover.' The concept of 'turnover' in business involves exchanging goods or services for money, based on quid pro quo. In cases like insurance claims for goods destroyed by fire, there is no actual sale or consideration involved, as the compensation received is under a contract of indemnity, not a business transaction.

The Tribunal further analyzed the relationship between insurance claims and export profits, emphasizing that insurance claims for goods destroyed by fire have a remote connection to export activities. The purpose of the section is to exempt export profits, and not all receipts can be considered 'total turnover.' Referring to section 41(2), the Tribunal noted that insurance monies received were deemed as profits and gains of business, indicating that such receipts were not meant to be part of 'total turnover' as traditionally understood.

Ultimately, the Tribunal upheld the decision of the CIT(A), affirming that the insurance claim should not be included in 'total turnover' for computing the deduction under section 80HHC. The appeal by the department was dismissed, emphasizing the need to interpret the provisions in line with the legislative intent and the nature of business transactions.