2014 (3) TMI 29 - HC - Income Tax

Deduction u/s 80HHC of the Act - Whether the Tribunal is justified in holding that the total turnover for the purpose of deduction u/s 80HHC will not include Sales Tax and Excise Duty even after insertion of Section 145A Held that - The decision in CIT v. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court and CIT v. Shiva Tex Yarn Ltd. 2012 (9) TMI 658 - SUPREME COURT followed amendments to section 80HHC(3) indicate exclusion of book profits but reasoning in this judgment is confined to the workability of the formula in section 80HHC(3) as it stood at the material time. Sales tax and excise duty also 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 - Therefore, if they are made relatable to exports, the formula under Section 80HHC would become unworkable - The view which we have taken is in the light of amendments made to Section 80HHC from time to time - the learned Tribunal has not committed any error in holding that the excise duty is to be excluded for the purpose of computation of deduction u/s. 80HHC Decided against Revenue. Setoff of MAT Credit before interest liability - Whether the Tribunal is justified in holding that interest u/s 234B of the Act is to be charged on the tax payable after reducing the credit available u/s 115JAA of the Act for A.Y. 2000-01 ignoring the fact that Explanation 1 below Section 234B of the Act has been introduced with effect from 01.04.2007 and therefore, cannot be applied retrospectively Held that - The decision in CIT v. Tulsyan Nec Ltd. 2010 (12) TMI 23 - Supreme Court of India followed - There is no provision under Section 115JAA which postpones the right of the assessee to claim set off to the determination of the total income by the A.O. in the first assessment year - Entitlement/right to claim set off is different from the quantum/quantification of that right - Entitlement of MAT credit is not dependent upon any action taken by the Department - the right to set off arises as a result of the payment of tax under Section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year - It is immaterial that the relevant form prescribed under Income Tax Rules, at the relevant time provided for set off of MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under Section 234B - This was directly contrary to a plain reading of Section 115JAA(4) - form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute thus, Mat credit allowed to be set off from advance tax before calculating interest Decided against Revenue.

Summary

Issues Involved:
1. Inclusion of Sales Tax and Excise Duty in "Total Turnover" for deduction under Section 80HHC of the Income Tax Act.
2. Charging of interest under Section 234B on tax payable after reducing the credit available under Section 115JAA, considering the retrospective application of Explanation 1 below Section 234B.

Issue-wise Detailed Analysis:

Issue 1: Inclusion of Sales Tax and Excise Duty in "Total Turnover" for Deduction under Section 80HHC

The primary issue was whether the "total turnover" for the purpose of deduction under Section 80HHC should include Sales Tax and Excise Duty, even after the insertion of Section 145A.

The court referred to the Supreme Court's decisions in CIT v. Lakshmi Machine Works and CIT v. Shiva Tex Yarn Ltd.. The Supreme Court had established that the "total turnover" should not include Sales Tax and Excise Duty. Specifically, the court noted that the amendments to Section 80HHC were aimed at ensuring that only the profits attributable to exports qualified for the deduction, which necessitated excluding non-turnover elements like Sales Tax and Excise Duty from "total turnover."

The court emphasized the principle that tax under the Act is on income, profits, and gains, not on gross receipts. The Supreme Court had clarified that excise duty and sales tax are indirect taxes recovered on behalf of the government and do not constitute turnover. Including them would distort the calculation of export profits, making the formula under Section 80HHC unworkable.

Thus, the court concluded that the Tribunal was justified in excluding Sales Tax and Excise Duty from the "total turnover" for the purpose of Section 80HHC deduction, aligning with the Supreme Court's rulings.

Issue 2: Charging of Interest under Section 234B after Reducing Credit under Section 115JAA

The second issue addressed whether interest under Section 234B should be charged on the tax payable after reducing the credit available under Section 115JAA, considering the retrospective application of Explanation 1 below Section 234B.

The court referred to the Supreme Court's decision in CIT v. Tulsyan Nec Ltd., which held that interest under Section 234B should be computed after reducing the credit available under Section 115JAA. The court noted that the Revenue could not present any contrary decisions to this ruling.

The court concluded that the Tribunal was justified in holding that interest under Section 234B should be charged on the tax payable after reducing the credit available under Section 115JAA, and Explanation 1 below Section 234B, introduced with effect from 01.04.2007, could not be applied retrospectively.

Conclusion

Both issues were resolved against the Revenue. The Tribunal's decisions were upheld, and the tax appeal was dismissed. No order as to costs was made.