2004 (9) TMI 52 - HC - Income Tax

Computation of deduction under section 80HHC - sales tax and excise duty - total turnover - Whether Tribunal was right in holding that sales tax and excise duty not to be included in the total turnover while computing the deduction under section 80HHC of the Income-tax Act, 1961? - the question of law as formulated above is answered in the affirmative, in favour of the assessee and against the Revenue

Summary

Issues Involved:
1. Inclusion of sales tax and excise duty in the total turnover for computing deduction under section 80HHC of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Inclusion of Sales Tax and Excise Duty in Total Turnover:

The central issue in these appeals is whether sales tax and excise duty should be included in the total turnover while computing the deduction under section 80HHC of the Income-tax Act, 1961. The assessment years involved are 1990-91 and 1992-93. The Assessing Officer included the excise duty and sales tax collection in the total turnover of the assessee for computing the deduction under section 80HHC. The Commissioner of Income-tax (Appeals) upheld this action. However, on further appeal, the Tribunal, following the Bombay High Court's decision in CIT v. Sudarshan Chemicals Industries Limited [2000] 245 ITR 769, accepted the assessee's contention and allowed the appeals.

The Department contended that removing excise duty and sales tax from the total turnover would disproportionately increase the percentage of export profit compared to business profit. It argued that for calculating the deduction under section 80HHC, the total turnover must include excise duty and sales tax, as these are trading receipts and part of the sale proceeds. However, it was acknowledged that several High Courts, including Bombay, Calcutta, and Kerala, have ruled that excise duty and sales tax should not be part of the total turnover for section 80HHC purposes.

The assessee's counsel argued that statutory out-goings like excise duty and sales tax should not inflate the total turnover, as the legislative intent was to benefit exporters. The authorities erred in reducing export profit proportion by adding excise duty and sales tax to the total turnover. The counsel relied on judgments supporting this view.

Section 80HHC aims to provide deductions for profits derived from exports. Sub-section (3) specifies that profits derived from exports are proportionate to the export turnover relative to the total turnover. The Explanation to section 80HHC clarifies that "total turnover" excludes freight and insurance beyond the customs station and certain sums referred to in section 28.

The term "turnover" implies consideration received for the sale of goods, available with the assessee for being turned over. It must relate to the purchase or sale of goods by the assessee. Incidental expenses like freight and insurance, which are excluded from total turnover, are borne by the assessee for safe transportation of goods. Thus, excise duty and sales tax, being indirect taxes collected and paid to the government without any profit element, cannot be included in the total turnover.

The definition of "export turnover" and "total turnover" indicates they include only receipts with a profit element. Section 80HHC, being a self-contained code, explains various expressions for its working. The object of section 80HHC is to encourage exports, and the language emphasizes profits derived from exports. Therefore, turnover should include only actual sale price, excluding excise duty and sales tax, to avoid artificially inflating total turnover and reducing the benefit to the assessee.

The court drew support from the Bombay High Court's decision in CIT v. Sudarshan Chemicals Industries Limited [2000] 245 ITR 769, which held that statutory levies like excise duty and sales tax should not be included in total turnover as they do not have any profit element. This view was also supported by the Calcutta and Kerala High Courts.

The court rejected the Department's contention that total turnover under sales tax laws includes excise duty and sales tax, as section 80HHC is a separate code with its own definitions and explanations.

Conclusion:

In conclusion, the court held that excise duty and sales tax should not be included in the total turnover for computing the deduction under section 80HHC. The question of law was answered in the affirmative, in favor of the assessee, and against the Revenue. The appeals were dismissed with no costs.