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2010 (9) TMI 92 - HC - Income TaxDeduction under Section 80HHC of the I.T. Act - excise duty is to be included in the total turnover for the purpose of computation of deduction u/s 80HHC of the I.T. Act - total turnover in Section 80HHC as part of the formula which sought to segregate the export profits from the business profits - entire business profits is not given deduction - Goods for export do not incur excise duty liability - they were not eligible for deduction under Section 80HHC - Section 80HHC deduction was business profits as computed under Section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section Held that - Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of turnover , excise duty and sales tax also cannot form part of the turnover Case is in favour of assessee.
Issues:
1. Interpretation of Section 80HHC of the Income Tax Act, 1961 regarding the inclusion of excise duty in the total turnover for the purpose of computation of deduction. Analysis: The primary issue in this case revolved around the interpretation of Section 80HHC of the Income Tax Act, 1961 concerning the inclusion of excise duty in the total turnover for the computation of deduction. The Income Tax Appellate Tribunal relied on the judgment of the Bombay High Court in Sudarshan Chemicals Industries Ltd. and held that excise duty should not be included in the total turnover for assessment under Section 80HHC. This decision was supported by subsequent judgments of the Supreme Court in CIT Vs. Catapharma (India) Pvt. Ltd. and Commissioner of Income Tax Vs. Lakshmi Machine Works. The Supreme Court emphasized that the purpose of the formula in Section 80HHC is to disallow a part of the concession when the deduction claimed does not entirely relate to exports. It was clarified that excise duty and sales tax should not be considered part of the total turnover under Section 80HHC to ensure the workability of the formula. The reasoning provided by the Supreme Court in CIT Vs. Lakshmi Machine Works further supported the exclusion of excise duty from the total turnover. The Court emphasized that the tax under the Income Tax Act is imposed on income, profits, and gains, not on gross receipts. The term 'income' includes profits and gains, and the charge is specifically on profits and gains, not on gross receipts. Therefore, the profits should be computed after deducting expenses incurred for business, even if those expenses are not expressly disallowed by the Act. The Court highlighted that the formula in Section 80HHC aims to segregate export profits from business profits, and excise duty should not be part of the total turnover for the deduction calculation. Additionally, the judgment highlighted the legislative intent behind Section 80HHC, which is to provide incentives for promoting exports by exempting profits related to exports. The formula for apportioning business profits based on turnovers was considered a method to arrive at export profits. The Court emphasized that excise duty, like commission and interest, should not be included in the turnover for the purpose of Section 80HHC deduction. The beneficial nature of Section 80HHC was underscored, as it aimed to encourage exports by allowing deductions based on export turnover. Therefore, the Court ruled in favor of the assessee, holding that excise duty should not be included in the total turnover for the computation of deduction under Section 80HHC of the Income Tax Act, 1961.
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