2008 (7) TMI 952 - HC - Income Tax

Summary

Issues involved: Interpretation of section 80HHC of the Income Tax Act, 1961 regarding exclusion of sums relatable to Sales Tax and Excise Duty from total turnover for claiming benefit under section 80HHC.

Summary:
The Revenue filed a Tax Appeal for the Assessment Year 1993-94, questioning the direction given by ITAT to exclude sums related to Sales Tax and Excise Duty from total turnover for claiming benefits under section 80HHC. The issue was whether such sums should be included in the turnover for computing profits derived from export. The Supreme Court's decision in Commissioner of Income Tax vs. Lakshmi Machine Works, [2007] 290 ITR 667 (SC) was cited, which clarified that Section 80HHC is a beneficial section intended to promote exports by exempting profits related to exports. The Court emphasized that excise duty and sales tax, like commission and interest, do not form part of turnover for the purpose of section 80HHC. The formula in section 80HHC aims to disallow concessions not directly linked to exports, necessitating a semantic interpretation of "total turnover." The amendments made over time indicate that items like brokerage, commission, interest, and rent are not considered business profits if they lack a nexus with export activities. Therefore, excise duty and sales tax should also be excluded from the total turnover under section 80HHC(3) to ensure the formula's workability. As the issue was settled by the Supreme Court's decision, the Court ruled in favor of the assessee and dismissed the appeal without costs.