2005 (10) TMI 43 - HC - Income Tax

Claim for special deduction - Whether Tribunal was right in holding that sales tax, excise duty, sales of raw materials, charges of miscellaneous income and commission does not form part of the turnover for the purpose of calculation of deduction under section 80HHC? - we are of the considered view that the Appellate Tribunal was right in holding that the sales tax, excise duty, sales of raw materials, charges of miscellaneous income and commission do not form part of the turnover for the purpose of calculation of deduction under section 80HHC of the Act. Accordingly, the question of law referred to above is answered in the affirmative, against the Revenue and in favour of the assessee

Summary

Issues: Interpretation of turnover for the purpose of calculation of deduction under section 80HHC of the Income-tax Act.

Analysis:
The High Court of MADRAS addressed the issue raised by the Revenue against the order of the Appellate Tribunal regarding the treatment of sales tax, excise duty, sales of raw materials, charges of miscellaneous income, and commission in the calculation of deduction under section 80HHC. The assessee had claimed these amounts to avail relief under section 80HHC, but the Assessing Officer disallowed them. The Commissioner of Income-tax (Appeals) partly allowed the appeal directing the re-computation of total income. The Appellate Tribunal, following precedents, held that these amounts should be considered as part of profit, not turnover, favoring the assessee. The court cited previous decisions to support this interpretation, emphasizing that the purpose of section 80HHC is to encourage exports, and including items like sales tax and excise duty in turnover artificially would go against this objective.

The court referred to the decision in CIT v. Madras Motors Ltd./M.M. Forgings Ltd., where it was held that turnover should not be inflated artificially by including items like sales tax and excise duty, as the objective of section 80HHC is to promote exports. Additionally, the court cited the case of CIT v. Sudarshan Chemicals Industries Ltd., stating that total turnover should only include receipts with an element of profit, such as the sale price. The court agreed with these observations, emphasizing that the purpose of section 80HHC is to encourage exports, and including non-profit elements in turnover would defeat this objective.

Furthermore, the court referred to the case of CIT v. Wheels India Ltd., where it was held that incidental expenses like freight and insurance, which do not contribute to the profit of the business, should be excluded from turnover. The court reiterated that sales tax and excise duty, being indirect taxes that the assessee collects and pays to the government, should not be included in turnover for the purpose of calculating deduction under section 80HHC. The court emphasized that the definition of turnover under sales tax laws or state levy should not be imported into section 80HHC, and that these statutory dues do not contribute to the profit of the business.

Based on the settled law and precedents, the High Court concluded that the Appellate Tribunal was correct in holding that sales tax, excise duty, sales of raw materials, charges of miscellaneous income, and commission do not form part of turnover for the purpose of calculating deduction under section 80HHC. Therefore, the question of law was answered in favor of the assessee and against the Revenue, leading to the dismissal of the appeals with no costs.