Indirect costs - Definition / Legal Terminology - Income Tax

Explanation.(e) - For the purposes of sub-section (3) of section 80HHC of the Income tax Act 1961,- Indirect costs means- costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover ; STARCHIK SPECIALITIES LTD.- [ 2003 (7) TMI 283 - ITAT HYDERABAD-B] 12. It may be observed that the indirect costs to be taken into consideration are the proportion of the total costs which include the costs of Manufacturing Division and not a proportion of the costs relatable to the Sales Division alone. When the denominator in the formula for working out the relevant portion of indirect costs is the total turnover, The Hon'ble Apex Court, in the case of Hero Exports Ltd. [ 2007 (11) TMI 13 - SUPREME COURT], held that under section 80HHC(3)(b) one has to balance the principle of attribution with the concept of allocation . The concept of allocation is meant to reduce the incentive. However, when allocation has to be balanced with the principle of attribution , the object is to reduce the incentive and not to eliminate it.