2014 (2) TMI 993 - HC - Income Tax

Deduction u/s 80HHC of the Act - Whether the Tribunal was right in law in holding that the components of sales tax and central excise do not form part of the sale proceeds for the purpose of Section 80HHC of the Act despite insertion of Section 145A Held that - The decision in CIT v. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. 2012 (9) TMI 658 - SUPREME COURT followed - sales tax and excise duty do not have any element of turnover which is the position even in the case of rent, commission, interest etc. - excise duty and sales tax are indirect taxes - They are recovered by the assessee on behalf of the Government - if they are made relatable to exports, the formula under Section 80HHC would become unworkable - The view which is taken in the light of amendments made to Section 80HHC from time to time the Tribunal has not committed any error in holding that the components of sales tax and central excise do not form part of sale proceeds for the purpose of Section 80HHC of the Act despite insertion of Section 145 A of the Act Decided against Revenue.

Summary

Issues Involved:
1. Whether the components of sales tax and central excise form part of the sale proceeds for the purpose of Section 80HHC of the Income Tax Act despite the insertion of Section 145A.

Detailed Analysis:

Issue 1: Inclusion of Sales Tax and Central Excise in Sale Proceeds for Section 80HHC

The primary issue in this case is whether sales tax and central excise should be included in the sale proceeds for the purpose of calculating deductions under Section 80HHC of the Income Tax Act. The Revenue argued that these components should be included, citing the insertion of Section 145A.

Court's Observation:

The court referenced the Supreme Court's decisions in CIT v. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd., both of which held that sales tax and excise duty do not form part of the "total turnover" for the purpose of Section 80HHC. The court noted that these decisions were not distinguished by the Revenue, despite their attempt to argue that Section 145A was not considered in those cases.

Supreme Court's Rationale:

The Supreme Court's rationale, as cited in the judgment, emphasized that:
- The term "total turnover" must be interpreted schematically to exclude components like sales tax and excise duty, which do not have an element of turnover.
- The legislative amendments to Section 80HHC aimed to exclude items like commission and interest from business profits as they do not relate to export activities.
- The formula in Section 80HHC is designed to segregate export profits from business profits, and including sales tax and excise duty would distort this calculation.
- Sales tax and excise duty are indirect taxes collected on behalf of the government and do not represent income or profits of the business.

Court's Conclusion:

The court concluded that the ITAT was correct in excluding sales tax and excise duty from the sale proceeds for the purpose of Section 80HHC, despite the insertion of Section 145A. This conclusion was consistent with the Supreme Court's decisions and the court's own previous rulings in similar cases.

Final Judgment:

The court dismissed the Revenue's appeal, affirming that the components of sales tax and central excise do not form part of the sale proceeds for the purpose of Section 80HHC. The appeal was dismissed with no costs.