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2014 (1) TMI 808 - HC - Income TaxWhether excise duty be included in total turnover for the purpose of Section 80HHC Held that - Following Commissioner of IncomeTax vs. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court - Under Section 2(24) of the Act the word income includes profits and gains - The charge is not on gross receipts but on profits and gains - Gross receipts or sale proceeds, however, include profits - Such profits have to be got to be ascertained on ordinary principles of commercial trading and accounting - Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act - Therefore, schematic interpretation for making the formula in Section 80HHC workable cannot be ruled out. Just as interest, commission etc. did not emanate from the turnover , so also excise duty and sales tax did not emanate from such turnover - Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded - Excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government - Decided against Revenue.
Issues Involved:
1. Whether excise duty and sales tax should be included in the total turnover while calculating the deduction under Section 80HHC of the Income Tax Act. Detailed Analysis: Issue 1: Inclusion of Excise Duty and Sales Tax in Total Turnover for Section 80HHC Deduction: The primary issue in this case is whether excise duty and sales tax should be included in the total turnover when calculating the deduction under Section 80HHC of the Income Tax Act. The appellant, represented by Mr. Sudhir M. Mehta, challenged the decision of the Income Tax Appellate Tribunal (ITAT), which excluded these components from the total turnover. The High Court noted that the substantial question of law raised is not res integra and has been settled against the Revenue by the Supreme Court in the cases of Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Supreme Court had held that excise duty and sales tax should not be included in the total turnover for the purpose of Section 80HHC deductions. In the case of Lakshmi Machine Works, the Supreme Court emphasized that the formula for calculating the deduction under Section 80HHC was designed to exclude components that do not have an element of turnover, such as brokerage, commission, interest, and rent. The Court reasoned that these items do not form part of business profits as they lack a direct nexus with the activity of exports. The Court further clarified that excise duty and sales tax, being indirect taxes collected on behalf of the government, do not constitute turnover and should be excluded from the total turnover. Despite the appellant's argument that Section 145A of the Income Tax Act, which deals with the method of accounting for excise duty, had not been considered in the Supreme Court's decisions, the High Court found that there was no amendment in Section 80HHC that would alter the Supreme Court's interpretation. The Court reiterated that the components of excise duty and sales tax do not form part of the sale proceeds for the purpose of Section 80HHC deductions. The High Court also referred to its previous decision in Tax Appeal No. 884 of 2006, where it had applied the Supreme Court's rulings in Lakshmi Machine Works and Shiva Tex Yarn Ltd. to similar facts and concluded that excise duty and sales tax should be excluded from the total turnover. Ultimately, the High Court dismissed the present Tax Appeal, affirming that the ITAT had not erred in excluding excise duty and sales tax from the total turnover for the purpose of Section 80HHC deductions. The appeal was dismissed with no costs.
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