Issues involved: Interpretation of whether sales tax and excise duty should be included in the total turnover for calculating deduction under section 80HHC of the Income-tax Act.
Summary: The judgment of the High Court of Bombay, delivered by S. H. Kapadia J., addressed the common question of law in multiple appeals regarding the inclusion of sales tax and excise duty in the total turnover for computing deduction under section 80HHC. The specific case, Income-tax Appeal No. 120 of 2000, concerned the assessment year 1994-95, where the Department contended that these items should be included in the turnover for deduction purposes.
Department's Argument: The Department argued that as per the plain words of the section, sales tax and excise duty should be included in the total turnover for section 80HHC deduction calculation. They emphasized that the legislative exclusion of only insurance and freight from the turnover indicated that other items, like sales tax and excise duty, should not be excluded. They also cited a Supreme Court judgment to support their interpretation.
Assessee's Argument: On the other hand, the assessee contended that the object of section 80HHC was to promote export turnover growth and that sales tax and excise duty should not be included in the turnover calculation. They highlighted that the formula for deduction under section 80HHC aimed to ascertain profits derived from exports and that including these statutory levies would artificially reduce export profits.
Court's Decision: The High Court found merit in the assessee's contentions, emphasizing that the legislative intent behind section 80HHC was to incentivize exports by not taxing export profits. They noted that the formula for deduction clearly excluded sales tax and excise duty from the export turnover, indicating that these items should not be part of the total turnover calculation. The Court highlighted that the object of the section was to encourage exports and that including these statutory levies in the turnover would defeat this purpose. They concluded that sales tax and excise duties, being levied under separate enactments with different objectives, should not be included in the total turnover for section 80HHC deduction calculation.
In conclusion, the High Court dismissed all appeals, upholding that sales tax and excise duty should not be included in the total turnover for computing deduction under section 80HHC of the Income-tax Act.
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