2009 (3) TMI 585 - HC - Income Tax

Conversion charges - only job work receipts which could not be considered as turnover - Assessing Officer held that the receipts had the character of turnover and, therefore, included the conversion charges in the total turnover - in the case of CIT v. Metal Powder Co. Ltd. 2007 -TMI - 4036 - MADRAS HIGH COURT , it was held that conversion charges have to be excluded from the turnover for the purpose of calculation of deduction under section 80HHC of the Act.

Summary

Issues: Appeal by Revenue against order of Income-tax Appellate Tribunal regarding inclusion of conversion charges in total turnover for assessment year 1991-92 under sections 80-I and 80HHC of the Act.

Analysis:
1. The assessee contended that conversion charges were job work receipts and should not be considered as turnover. However, the Assessing Officer included conversion charges in total turnover based on the order of the Commissioner of Income-tax (Appeals) for the earlier assessment year. Subsequently, a notice under section 154 was issued to rectify the assessment, including conversion charges for twisting, weaving, doubling, and reeling charges totaling Rs. 5,34,54,058 in the total turnover.

2. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal by deleting the inclusion of conversion charges in the total turnover. The Revenue then appealed to the Tribunal, which dismissed the appeal citing a Division Bench judgment in the case of CIT v. Madras Motors Ltd./M. M. Forgings Ltd. [2002] 257 ITR 60 (Mad). The Revenue, aggrieved by the Tribunal's decision, appealed to the High Court.

3. The High Court admitted the appeal on the substantial question of law whether conversion charges received by the assessee from textile mills could be included in the total turnover for deduction under section 80HHC of the Act. The Revenue argued that a Division Bench judgment in the case of CIT v. Metal Powder Co. Ltd. [2008] 300 ITR 48 held that conversion charges should be excluded from turnover for the purpose of calculating deductions under section 80HHC.

4. After hearing both sides, the High Court upheld the Tribunal's decision, following the precedent set by the Division Bench judgment in CIT v. Metal Powder Co. Ltd. The High Court ruled in favor of the assessee, dismissing the appeal by the Revenue without costs.