2006 (5) TMI 82 - HC - Income Tax

Interpretation of the statute - Export Business - Exclusion of sales tax and excise duty from the total turnover for the purpose of the computation of deduction u/s 80HHC - HELD THAT - The term total turnover used in section 80HHC of the Act needs to be interpreted vis-a-vis the definition of export turnover with reference to other definitions as given in various clauses of section 80HHC of the Act. The interpretation under the income-tax law needs to be contextual and should not be with reference to the interpretation given to it under the sales tax law. It is submitted by counsel for the assessee that the profits derived from such exports should be the amount, which has profit element in it. As already stated, while interpreting the word total turnover , u/s 80HHC of the Act, different High Courts have taken a view in favour of the assessee. Thus, the interpretation involved in the present case is of a statute having application throughout the country, we do not find any good reason to differ from the views taken by six different High Courts on the issue. Accordingly, the substantial question of law raised in the appeal is answered against the Revenue and in favour of the assessee.

Issues Involved:

1. Whether sales tax and excise duty should be excluded from the total turnover for the purpose of computing the deduction under section 80HHC of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Exclusion of Sales Tax and Excise Duty from Total Turnover:

The core issue in this case was whether the amount of sales tax and excise duty should be excluded from the total turnover when computing the deduction under section 80HHC of the Income-tax Act. The assessee had filed its return of income for the assessment year 1995-96, which was processed and assessed by including sales tax and excise duty in the total turnover. The assessee contested this inclusion, and the Commissioner of Income-tax (Appeals) ruled in favor of the assessee. The Revenue appealed this decision to the Tribunal, which upheld the Commissioner's decision, relying on a Special Bench decision of the Tribunal in the case of IFB Agro Industries Ltd. v. Deputy CIT.

The Tribunal's rationale was that the terms "export turnover" and "total turnover" should be given their natural and general meaning as understood in commercial laws. While "total turnover" may include receipts of excise duty and sales tax in general parlance, it should be given a restrictive meaning for computing "export profit" under section 80HHC. The receipt of excise duty and sales tax, which do not include an element of profit, should be excluded from "total turnover."

Arguments by Revenue:

The Revenue argued that removing excise duty and sales tax from the total turnover would increase the percentage of export profit vis-a-vis total profits. They contended that total turnover should include these elements as they are part of the sale proceeds. The Revenue also argued that excise duty and sales tax are trading receipts and should be included in the total turnover for calculating the deduction under section 80HHC.

Arguments by Assessee:

The assessee's counsel argued that statutory outgoings like excise duty and sales tax should not be included in the total turnover as they do not inflate the actual sale proceeds. The intention of the Legislature was to provide benefits to exporters, and including these elements would reduce the export profit proportion. The counsel cited several High Court judgments supporting this view, including those from Bombay, Calcutta, Kerala, Madras, Karnataka, and Madhya Pradesh High Courts.

Relevant Provisions and Interpretation:

Section 80HHC of the Income-tax Act provides for a deduction in respect of profits retained for export business. The "export turnover" and "total turnover" are defined in the Explanations to section 80HHC, with "total turnover" excluding freight or insurance attributable to the transport of goods beyond the customs station. The court noted that the interpretation of "total turnover" should be contextual and not based on definitions from other statutes like sales tax laws.

Judgments Cited:

The court referred to several judgments, including CIT v. Sudarshan Chemicals Industries Ltd., CIT v. Chloride India Ltd., and CIT v. Wheels India Ltd., which held that excise duty and sales tax should not form part of the total turnover for calculating deductions under section 80HHC. These judgments emphasized that only the actual sale price, which has an element of profit, should be included in the total turnover.

Conclusion:

The court concluded that the interpretation of "total turnover" under section 80HHC should exclude excise duty and sales tax as they do not have an element of profit and including them would artificially inflate the total turnover, reducing the export profit proportion. The court followed the principle that in tax matters governed by an all-India statute, it is prudent to follow the views of other High Courts unless there are compelling reasons to differ.

Final Judgment:

The court answered the substantial question of law in favor of the assessee and against the Revenue, affirming that sales tax and excise duty should be excluded from the total turnover for the purpose of computing the deduction under section 80HHC of the Income-tax Act.

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