2008 (6) TMI 344 - HC - Income Tax

Export- Special Deduction- The assessee an industrial company engaged in the business of manufacture and sale of fireworks excluded the sales tax and excise duty from the total turnover for purposes of the deduction u/s 8HHC and also claimed exemption in respect of subsidy received in a sum of Rs. 15 lakhs. On wind mill. Assessing officer disallowed the exemption on sale tax and excise duty but charging 100 percent depreciation on subsidy allow exemption on windmill. The Commissioner(Appeals) pass the order for deleting the addition due to excise and sales tax. Tribunal also confirm it. Held that- Tribunal was correct in holding that the excise duty and sale tax collected did not form part of the turnover for he purpose of calculation of deduction.

Summary

Issues:
1. Whether excise duty and sales tax should be included in turnover for deduction under section 80HHC.
2. Whether windmill subsidy is a capital receipt and should not be added to the cost of the asset.
3. Whether windmill subsidy should be reduced from the cost of the asset for depreciation calculation.

Analysis:

Issue 1:
The appeals were filed by the Revenue challenging the order of the Income-tax Appellate Tribunal regarding the inclusion of excise duty and sales tax in turnover for section 80HHC deduction. The Supreme Court precedent in CIT v. Lakshmi Machine Works clarified that excise duty and sales tax do not form part of turnover for section 80HHC purposes. The Court held that such taxes do not emanate from turnover and should be excluded. Consequently, the first issue was decided against the Revenue.

Issue 2 and 3:
Regarding the windmill subsidy, the Assessing Officer added the subsidy amount to the cost of the asset for taxation purposes. However, the Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, stating that the windmill subsidy is a capital receipt and should not be added to the cost of the asset. The Supreme Court precedent in CIT v. P. J. Chemicals Ltd. established that such subsidies are not intended to meet the actual cost of the asset and should not be deducted from the actual cost for depreciation calculation. Therefore, the second and third issues related to the windmill subsidy for the assessment year 1996-97 were also decided against the Revenue.

In conclusion, all three appeals by the Revenue were dismissed based on the legal interpretations and precedents discussed in the judgment.