2014 (12) TMI 353 - HC - Income Tax

Exclusion of sales tax and excise duty for computation of total turnover u/s 80HHC - Whether the Tribunal was right in upholding the order of the CIT(A) directing to exclude sales-tax and excise duty while computing total turnover for the purpose of deduction u/s. 80HHC Held that - The Tribunal was rightly of the view that the sales tax and excise duty shall not form the part of total turnover - following the decision in Commissioner of Income-Tax Versus Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court wherein it has been held that while interpreting the words total turnover in the formula in Section 80HHC, one has to give a schematic interpretation and the various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc. do not form part of business profits, as they have no nexus with the activity of export, and therefore, excise duty and sales tax also cannot form part of the total turnover u/s 80HHC(3) thus, the amounts towards sales tax and the excise duty cannot be included in the total turnover thus, the Tribunal committed no error in directing the AO to exclude sales tax and excise duty from the total turnover Decided against revenue.

Summary

Issues:
1. Interpretation of Section 80HHC of the Income Tax Act regarding the exclusion of sales tax and excise duty from total turnover for deduction.
2. Applicability of previous judicial decisions in determining whether sales tax and excise duty should be included in total turnover.

Analysis:

Issue 1: Interpretation of Section 80HHC of the Income Tax Act
The judgment involved two appeals heard together concerning the exclusion of sales tax and excise duty from total turnover for the purpose of deduction under Section 80HHC of the Income Tax Act. In the first appeal (Tax Appeal No. 57 of 2006), the AO determined the deduction under Section 80HHC at 'Nil' due to the assessee ignoring negative business profits. The CIT(A) partly allowed the appeal, leading to a challenge by the revenue before the ITAT, which upheld the CIT(A)'s decision. The question raised was whether sales tax and excise duty should be excluded from total turnover for the purpose of deduction under Section 80HHC. In the second appeal (Tax Appeal No. 915 of 2006), the AO reduced the claim of the assessee for deduction under Section 80HHC by including sales tax and excise duty in total turnover. The ITAT allowed the appeal of the assessee, directing the AO to exclude excise duty and sales tax from total turnover. The revenue challenged this decision, questioning whether these amounts should be part of total turnover for computing profits derived from export under Section 80HHC.

Issue 2: Applicability of Previous Judicial Decisions
The appellant-revenue contended that sales tax and excise duty should be included in total turnover based on the decisions of the Apex Court in "CHOWRINGHEE SALES BUREAU P. LTD. VS. CIT" and "SINCLAIR MURRAY & CO. P. LTD. VS. CIT". However, the respondent assessee supported the ITAT's decision, citing the Apex Court's ruling in "COMMISSIONER OF INCOME TAX VS. LAKSHMI MACHINE WORKS" and this Court's decision in Tax Appeal No. 884 of 2006. The judgment highlighted that receipts like brokerage, commission, interest, rent, etc., do not form part of business profits under Section 80HHC, as they lack a nexus with export activity. Therefore, excise duty and sales tax were also deemed not to form part of "total turnover" under Section 80HHC(3) of the Act. The Court concluded that the Tribunal correctly directed the AO to exclude sales tax and excise duty from total turnover in line with the Apex Court's decision and previous rulings by the Court.

In conclusion, the Court dismissed both appeals, ruling in favor of the assessee and against the revenue. The judgment emphasized the consistent interpretation that sales tax and excise duty should not be included in total turnover for the purpose of calculating deductions under Section 80HHC, based on established legal principles and previous judicial decisions.