2004 (12) TMI 63 - HC - Income Tax

Computing the deduction under section 80HHC - whether Tribunal was correct in directing the Assessing Officer to exclude the freight, insurance, etc., beyond the customs point from the amount of direct costs while computing the deduction under section 80HHC? Held that Assessing Officer shall assess in terms of the direction by the Income-tax Appellate Tribunal in the light of the observation made in this judgment by excluding the freight and insurance after the customs point in order to arrive at the export turnover and then for the purpose of arriving at the profit for export, the export turnover is to be reduced by the direct and indirect costs attributable to such export which do not include freight and insurance after the customs point once excluded for arriving at the export turnover - Question is answered in the affirmative in favour of the assessee.

Summary

Issues:
Interpretation of the provisions of section 80HHC for computing deduction under sub-section (3), clause (b) - whether freight and insurance beyond customs point should be excluded from 'direct costs'.

Analysis:
The main issue in this case revolved around the interpretation of section 80HHC for calculating the deduction under sub-section (3), clause (b) concerning whether the freight and insurance beyond the customs point should be excluded from the 'direct costs'. The appellant argued that the concept of 'total turnover' should not be applied while determining the profits derived from export under section 80HHC. They contended that the freight and insurance attributable to the transport of goods beyond the customs station should not be excluded from direct costs when calculating the profits derived from export under sub-section (3), clause (b) of section 80HHC.

On the other hand, the respondent argued that the concept of 'total turnover' is not relevant for clause (b) of sub-section (3) of section 80HHC. They asserted that the export turnover should be reduced by direct and indirect costs attributable to such export after excluding the freight and insurance beyond the customs station. The respondent relied on previous court decisions to support their contention.

The court analyzed the definitions of 'export turnover' and 'total turnover' as defined in the section to clarify the position in arriving at the profits derived from export. The court emphasized that the exclusion of freight and insurance beyond the customs point from the export turnover should not be included in the total turnover. It was clarified that for calculating the export turnover, the freight and insurance beyond the customs point should be excluded. The court highlighted that for sub-section (3), clause (b), the focus is on export turnover, and the freight and insurance beyond the customs point do not form part of the direct or indirect costs attributable to such export.

Ultimately, the court held that the freight and insurance beyond the customs point should be excluded from the export turnover and not from the direct costs. The Assessing Officer was directed to assess the matter in line with the Tribunal's direction, excluding the freight and insurance beyond the customs point to arrive at the export turnover. The court ruled in favor of the assessee, affirming that the exclusion of freight and insurance beyond the customs point was the correct approach for calculating the export turnover and subsequent profits derived from export.

In conclusion, the judgment provided clarity on the interpretation of section 80HHC regarding the treatment of freight and insurance beyond the customs point in computing deductions for profits derived from export, emphasizing the distinction between export turnover and total turnover in the calculation process.