1996 (11) TMI 462 - AT - Income Tax

Summary

Issues Involved:

1. Computation of deduction u/s 80HHC.
2. Treatment of compensation received as short-term capital gains.

Summary:

Issue 1: Computation of Deduction u/s 80HHC

Ground No. 6 pertains to the computation of deduction claimed u/s 80HHC. The revenue authorities included excise duty (Rs. 5,80,11,331) and sales tax (Rs. 96,79,522) in the 'total turnover' for the purpose of this computation. The assessee contended that these additions were not warranted as per the scheme of section 80HHC, pointing out that 'export turnover' and 'total turnover' are defined differently in the Act. The Tribunal in Chloride India Ltd. v. Dy. CIT [1995] 53 ITD 180 (Cal.) had observed that including excise duty and sales tax in 'total turnover' would result in disharmony as 'export turnover' did not include these items. The revenue, however, argued that the definition of 'total turnover' in the Act is clear and includes these amounts. The Tribunal agreed with the revenue, holding that the amounts of excise duty and sales tax were rightly included in the 'total turnover'.

Issue 2: Treatment of Compensation Received as Short-Term Capital Gains

The last ground relates to the receipt of Rs. 1,70,50,000 treated as short-term capital gains. The assessee had an agreement to purchase property dated 18th April 1981, and another agreement dated 30th March 1991 to relinquish its rights for a consideration of Rs. 1,70,50,000. The Assessing Officer treated this as short-term capital gain, arguing that the agreement dated 30th March 1991 was independent of the earlier agreement and the asset was held for less than 36 months. The CIT(Appeals) upheld this view. The assessee argued that the right to purchase the property was a long-term capital asset held since 1981, and the compensation received should be treated as long-term capital gains. The Tribunal agreed with the assessee, citing decisions such as Tata Services Ltd. [1980] 122 ITR 594 (Bom.) and Vijay Flexible Containers [1990] 186 ITR 693 (Bom.), and held that the compensation received was for relinquishing a long-term capital asset. Consequently, the Tribunal directed the Assessing Officer to examine the assessee's claim for exemption u/s 54E and grant it if the conditions were satisfied.

Conclusion:

The appeal was partly allowed, with the Tribunal upholding the inclusion of excise duty and sales tax in 'total turnover' for deduction u/s 80HHC, and treating the compensation received as long-term capital gains, directing the Assessing Officer to consider the exemption claim u/s 54E.