2002 (7) TMI 222 - AT - Income Tax

Summary

Issues Involved:
1. Whether excise duty and sales tax should be excluded from the "total turnover" for the purpose of computing deduction u/s 80HHC.

Summary:

Issue 1: Exclusion of Excise Duty and Sales Tax from Total Turnover for Deduction u/s 80HHC

The Special Bench was constituted u/s 255(4) of the Income-tax Act, 1961 to address whether excise duty and sales tax should be excluded from the "total turnover" when computing the deduction u/s 80HHC. The original question was reframed to focus on the necessity of excluding excise duty and sales tax to maintain parity between "export turnover" and "total turnover."

The assessee, a public limited company, claimed a deduction u/s 80HHC based on the total turnover of Rs. 79,34,53,717 and export turnover of Rs. 23,77,09,602. The Assessing Officer adjusted the deduction to Rs. 1,05,12,956, including excise duty and sales tax in the total turnover. The assessee revised the claim to Rs. 1,70,56,997 by excluding these taxes, which was rejected by the Assessing Officer and upheld by the CIT (Appeals).

The Tribunal examined various judicial interpretations and definitions of "turnover" and "total turnover." It was noted that "export turnover" excludes freight and insurance beyond the customs station, while "total turnover" does not explicitly exclude excise duty and sales tax. The Tribunal referred to several Supreme Court decisions, including Chowringhee Sales Bureau (P.) Ltd. v. CIT and McDowell & Co. Ltd. v. CTO, which held that taxes form part of the turnover.

However, the Tribunal also considered High Court decisions, such as CIT v. Sudarshan Chemicals Industries Ltd. and Chloride India Ltd., which supported the exclusion of excise duty and sales tax from "total turnover" for the purpose of section 80HHC. These decisions emphasized that only receipts with an element of profit should be included in the total turnover.

The Tribunal concluded that while "total turnover" generally includes excise duty and sales tax, for the purposes of computing export profit u/s 80HHC, these should be excluded as they do not contain an element of profit. The Assessing Officer was directed to compute the deduction based on export turnover and total turnover exclusive of excise duty and sales tax.