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2016 (8) TMI 157 - HC - Income TaxDeduction under section 80HHC - exclusion of Sales Tax and Excise duty from the total turnover for computing deduction under section 80HHC even after insertion of section 145A - Held that - The question posed for our consideration in this appeal is answered in favour of the assessee and against the revenue and it is held that the Tribunal was justified in law and on facts in confirming the order passed by Commissioner (Appeals) directing to exclude Sales Tax and Excise duty from the total turnover for computing deduction under section 80HHC even after insertion of section 145A of the Act. See Commissioner of Income Tax v. Meghmani Industries Ltd. 2014 (1) TMI 808 - GUJARAT HIGH COURT - Decided against Revenue.
Issues Involved:
1. Whether the Appellate Tribunal was justified in law and on facts in confirming the order passed by Commissioner (Appeals) directing to exclude Sales Tax and Excise duty from the total turnover for computing deduction under section 80HHC even after insertion of section 145A of the Act. Issue-wise Analysis: 1. Justification of Excluding Sales Tax and Excise Duty from Total Turnover for Section 80HHC Deduction: The appellant challenged the order of the Income Tax Appellate Tribunal, which confirmed the Commissioner (Appeals)'s decision to exclude Sales Tax and Excise Duty from the total turnover for computing deduction under section 80HHC, despite the insertion of section 145A of the Act. The appellant argued that the Tribunal committed an error by allowing the exclusion of these components from the total turnover. The respondent's counsel submitted that the issue was covered by various decisions, particularly citing the case of Commissioner of Income Tax v. Meghmani Industries Ltd., where it was held that the Tribunal did not err in excluding Sales Tax and Excise Duty from the total turnover. The judgment referenced the Supreme Court's decisions in Lakshmi Machine Works and Shiva Tex Yarn Ltd., which clarified that receipts like brokerage, commission, interest, and rent do not form part of business profits as they have no nexus with the export activity. The Court emphasized that the formula in Section 80HHC was designed to segregate export profits from business profits, and therefore, components like excise duty and sales tax, which do not involve turnover, should be excluded from the total turnover. The Supreme Court in Lakshmi Machine Works stated that tax under the Act is on income, profits, and gains, not on gross receipts. Therefore, excise duty and sales tax, being indirect taxes recovered on behalf of the government, do not form part of the turnover and should be excluded to make the formula in Section 80HHC workable. The Gujarat High Court, applying the ratio from the Supreme Court decisions, held that the Tribunal was justified in excluding Sales Tax and Excise Duty from the total turnover for the purpose of computing deduction under section 80HHC, even after the insertion of section 145A. The Court concluded that the Tribunal did not commit any error in its decision, and the question posed was answered in favor of the assessee and against the revenue. Conclusion: The appeal was dismissed, and it was affirmed that the Tribunal was justified in law and on facts in excluding Sales Tax and Excise Duty from the total turnover for computing deduction under section 80HHC, even after the insertion of section 145A of the Act.
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