2006 (9) TMI 176 - HC - Income Tax

Whether the excise duty and sales tax is not includible in the turnover while calculating the deduction u/s 80HHC - held that it is highly impossible to accept the contention that the term turnover would include the excise duty & sales tax components which are all indirect taxes and which the assessee has to collect and pay over to the Govt. and such statutory dues will not have any element of profit of business and, therefore, the sales tax and excise duty are not to be included

Summary

Issues:
- Disallowance of deduction under section 80HHC by not considering excise duty and sales tax receipts as part of turnover.

Analysis:
The High Court of Madras heard an appeal against the order of the Income-tax Appellate Tribunal regarding the disallowance of a deduction under section 80HHC due to the exclusion of excise duty and sales tax receipts from turnover. The Commissioner of Income-tax (Appeals) had allowed the appeal, directing the exclusion of these receipts from the total turnover. However, the Income-tax Appellate Tribunal, upon the Revenue's appeal, upheld the Commissioner's decision. The Revenue then raised the question of law on whether excise duty and sales tax receipts should be considered part of turnover for calculating the deduction under section 80HHC.

The court referred to previous judgments, including CIT v. Wheels India Ltd., CIT v. Sundaram Fasteners Ltd., and CIT v. India Pistons Ltd., which established that excise duty and sales tax should not be included in turnover for section 80HHC deduction calculation. The court emphasized that these components are indirect taxes collected by the assessee for the government, devoid of any profit element. Therefore, sales tax and excise duty are not to be factored into the total turnover when computing the deduction under section 80HHC.

Based on the precedents and legal reasoning provided, the court concluded that sales tax collections should not be part of the turnover for section 80HHC deduction calculation. As no substantial question of law was found to merit consideration, the appeal was dismissed by the court.