2015 (1) TMI 1158 - HC - Income Tax

Deduction under section 80HHC - Appellate Tribunal held that the amount of Sales Tax and Excise duties do not form a part of total turnover for the purpose of calculating deduction - Held that - Issues squarely covered by the decision of Commissioner of Income Tax v. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court wherein while deciding the issue in favour of the assessee the Honourable Supreme Court has observed that Section 80HHC of the Income-Tax Act, 1961 is a beneficial section it was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of turnover for the purposes of section 80HHC, excise duty and sales tax also cannot form part of turnover . Just as interest, commission, etc. do not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover such taxes are however to be excluded. Commission, interest, rent, etc. do yield profits, but they do not partake of the character of turnover and therefore they are not includible in the total turnover . If so, excise duty and sales tax also cannot form part of the total turnover under section 80HHC(3). - Decided in favour of the Assessee

Summary

Issues:
Challenging judgment and order of Income Tax Appellate Tribunal regarding deductions under Section 80HHC of the Income Tax Act, 1961.

Analysis:
1. Tax Appeal No.679/2007:
- The Assessing Officer included Sales Tax and Excise duties in total turnover for deduction under Section 80HHC. However, the Commissioner (Appeals) and the Appellate Tribunal directed their exclusion based on a precedent.

2. Tax Appeal No.694/2007:
- The company claimed deduction under Section 80HHC but did not include excise duty and sales tax in turnover. The deduction amount was revised following a Supreme Court decision, allowing a lower deduction.

3. Tax Appeal No.696/2007:
- The company engaged in manufacturing claimed deduction under Section 80HHC excluding excise duty and sales tax from turnover. Citing various legal precedents, the company argued for the exclusion of these amounts from turnover.
- The submissions were considered but not accepted, and it was ruled that excise duty and sales tax must be included in the turnover for Section 80HHC deduction.

4. Legal Precedents:
- The Supreme Court's decision emphasized that Section 80HHC aims to promote exports by exempting profits related to exports. It clarified that excise duty and sales tax should not be part of turnover for this purpose.
- The Court highlighted that the formula in Section 80HHC aims to disallow deductions not directly linked to exports, such as excise duty and sales tax, to make the provision workable.

5. Judgment:
- After considering the arguments and legal principles, the Court ruled in favor of the Assessee and against the Department. The decisions cited supported the exclusion of excise duty and sales tax from total turnover for calculating deductions under Section 80HHC of the Income Tax Act, 1961.