2013 (12) TMI 1483 - HC - Income Tax

Eligibility for deduction u/s 43B - payments of PF and ESIC paid beyond the due dates of the respective Acts including the grace period - Held that - Considering the fact that it was the case of employees contribution which was not deposited within the prescribed period under the PF Act and ESI Act the said question / issue is to be held in favour of revenue and against the assessee in view of the decision of this Court in COMMISSIONER OF INCOME TAX II Versus GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT wherein it has been held that if the assessee has not deposited employees contribution towards PF and ESIC Act the assessee shall not be entitled to the deductions in the same year. - Decided in favour of the revenue. Excise duty and sales - whether will not be included in the total turnover while calculating the deduction u/s. 80HHC of the even after insertion of Section 145A - Held that - The said question is squarely covered by the decision of the Hon ble Supreme Court in the case of Lakshmi Machine Works (2007 (4) TMI 202 - SUPREME Court) and in the case of Shiva Tex Yarn Limited (2012 (9) TMI 658 - SUPREME COURT) wherein held tax under the Act is upon income profits and gains. It is not a tax on gross receipts. Under Section 2(24) of the Act the word income includes profits and gains. The charge is not on gross receipts but on profits and gains. The charge is not on gross receipts but on profits and gains properly so-called.Income from rent commission etc. cannot be considered as part of business profits and therefore they cannot be held as part of the turnover also.Tribunal was right in holding that the excise duty and sales will not be included in the total turnover while calculating the deduction u/s. 80HHC of the even after insertion of Section 145 A - Decided against the revenue.

Summary

Issues Involved:
1. Eligibility for deduction under Section 43B of the Income Tax Act for payments of PF and ESIC made beyond due dates.
2. Inclusion of excise duty and sales tax in the total turnover while calculating deduction under Section 80HHC after the insertion of Section 145A.

Detailed Analysis:

Issue 1: Eligibility for Deduction under Section 43B for Late Payments of PF and ESIC

The first issue concerns whether the Appellate Tribunal was correct in holding that payments of Provident Fund (PF) and Employee State Insurance Corporation (ESIC) made beyond the due dates, including the grace period, are eligible for deduction under Section 43B of the Income Tax Act. The revenue argued that this issue is no longer res integra due to a previous decision by the Division Bench of the High Court in Tax Appeal No. 637 of 2013, which held that if the employee's contribution towards PF and ESIC is not deposited within the prescribed period under the respective Acts, the assessee is not entitled to deductions in the same year. The court, applying the ratio and law laid down in the aforementioned decision, ruled in favor of the revenue and against the assessee on this issue.

Issue 2: Inclusion of Excise Duty and Sales Tax in Total Turnover under Section 80HHC

The second issue pertains to whether excise duty and sales tax should be included in the total turnover while calculating the deduction under Section 80HHC, even after the insertion of Section 145A. The assessee's counsel argued that this issue is covered against the revenue by the Supreme Court's decisions in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Limited. These decisions, which have been followed by the Division Bench of the High Court in Tax Appeal No. 884 of 2006, hold that excise duty and sales tax do not form part of the total turnover for the purposes of Section 80HHC.

The Supreme Court in Lakshmi Machine Works emphasized that the term "total turnover" in Section 80HHC should be interpreted schematically, considering that receipts like brokerage, commission, interest, and rent do not form part of business profits as they lack a nexus with export activities. The court clarified that excise duty and sales tax, being indirect taxes recovered on behalf of the government, do not involve an element of turnover and should be excluded from the total turnover. This interpretation was reaffirmed in the case of Shiva Tex Yarn Limited, even for assessment orders post the insertion of Section 145A.

The High Court, applying the law and ratio laid down in these Supreme Court decisions and its own precedent in Tax Appeal No. 884 of 2006, ruled against the revenue on this issue.

Conclusion:

The appeals were partly allowed. The court ruled in favor of the revenue on the issue of deductions for late payments of PF and ESIC under Section 43B, and against the revenue on the inclusion of excise duty and sales tax in the total turnover for calculating deductions under Section 80HHC. No costs were awarded.