2010 (8) TMI 647 - HC - Income Tax

Deduction - Export profit - Tribunal was holding that sales tax and excise duty have to be excluded from the total turnover for the purpose of computing the deduction u/s.80HHC in relation to export profits - As per the decision of the Hon ble Supreme Court (CIT vs. Lakshmi Machine Works),the question is answered against the appellant-revenue - The appeals fail and the same are dismissed.

Summary

Issues:
1. Whether sales tax and excise duty should be excluded from total turnover for computing deduction u/s.80HHC in relation to export profits.

Analysis:
The High Court of Madras, in a common judgment delivered by MR. JUSTICE F.M.IBRAHIM KALIFULLA and MR. JUSTICE M.M.SUNDRESH, addressed the substantial question of law raised by the Revenue. The question pertained to the exclusion of sales tax and excise duty from the total turnover for the purpose of computing the deduction under section 80HHC concerning export profits. The Court noted that the issue had been settled by the Hon'ble Supreme Court in a previous decision, where it was emphasized that the objective of section 80HHC was to provide benefits on profits related to export turnover. The Supreme Court clarified that items like commission, rent, and interest, which do not involve turnover, should be excluded from the formula under section 80HHC(3). The Court further explained that excise duty and sales tax, being indirect taxes, do not have any element of turnover and should also be excluded from the total turnover. The Court highlighted that including such taxes in the turnover calculation would render the formula unworkable. Consequently, the Court held that sales tax and excise duty should not be considered part of the total turnover for the purpose of section 80HHC.

In light of the legal principles established by the Supreme Court, the High Court ruled against the appellant-revenue. The Court concluded that sales tax and excise duty are not to be included in the total turnover calculation for determining the deduction under section 80HHC in relation to export profits. As a result, the appeals filed by the Revenue were dismissed, and the related petitions were also rejected. The judgment reaffirmed the importance of adhering to the statutory provisions and established legal interpretations in matters concerning tax deductions and export turnover calculations.