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TMI Blog2005 (6) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover and that involves element of profit, then such turnover is to be included in the total turnover for determining the proportionate export profit u/s 80HHC(3) for the purpose of allowing deduction u/s 80HHC(1). It is clear from the records that the assessee had generated profit on sale of cotton as well as sale of condemned material and it also generated profits from process charges which is included in the business profit and, therefore, these elements have to be included in the total turnover. In the result, the revenue's appeal is allowed and the Cross Objection of the assessee is rejected. - HON'BLE T.R. SOOD, MEMBER (A) AND MAHAVIR SINGH, MEMBER (J) For the Appellant : K.E.B. Rengarajan For the Respondent : R. Srinivasan ORDER T.R. Sood, Accountant Member. 1. The revenue has raised the following grounds:- 1.1 The Commissioner (Appeals) ought to have held that the conversion charges are part of total turnover for the purpose of computation of deduction under section 80HHC. 1.2 The CIT(Appeals) ought to have held that the receipt of conversion charges will form part of turnover since it is also trading/revenue receipt. Further, since the profit derived from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision: 6. Otherwise also, it is settled principle of law that what is to be followed is the ratio decidendi or principles laid down in a case decided by a higher forum of judiciary. 7. The relevant portion of section.80HHC is as under:- 80HHC(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exports only, then he is entitled to deduction on whole of such profits. However, if some such specified goods are sold in the local market, then deduction will be available on the proportionate basis as per section 80HHC(3)(a). This provision has been introduced very clearly to accounts are not available following Illustrations:- Illustration 1: Where assessee's whole business consists of export in specified goods. [In this case, although there is no need to apply formula given in section 80HHC(3)(a), but for understanding the issue even if formula is applied, result will remain same.] Total turnover Rs. 1,000 Export turnover Rs. 1,000 Business profit Rs. 100 = Rs. 100 Thus, 'A' is getting deduction on export profit only. Illustration 2: Where assessee is having local sales also in specified goods. (Here, proportion of export profit has to be determined by applying the prescribed formula.) Total turnover Rs. 1,500 Export turnover Rs. 1,000 Domestic sale Rs. 500 Business profit Rs. 150 Thus, 'A' is getting deduction only on export profit. Illustration 3: Where assessee is having export turnover and local turnover of specified goods and unspecified goods. Tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceed to examine the decision in the case of the Hon'ble Madras High Court in the case of Madras Motors Ltd., we would like to note the latest observations of the Hon'ble Madras High Court in the case of CIT v. Sundaram Fasteners Ltd. [2005] 272 ITR 652. At page 656, it is observed as under:- 'It is a settled law that though the total turnover may include the receipts of excise duty and sales tax, etc. in its general parlane and under specific statutes, because of its wider coverage in the definitions given thereunder, it has to be given a restrictive meaning while computing the export profit for the purposes of section 80HHC, namely, only that part of the receipt for sale consideration is to be taken as part of the total turnover which has an element of profit therein , and, accordingly, the receipts of excise duty and sales tax which do not include an element of profit should be excluded from the total turnover':' The above portion of the judgment makes it clear that the Hon'ble High Court has very clearly said that deduction under section 80HHC can be allowed only on the profits from export of the goods and if element of profit is involved on some transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Bombay High Court went on to hold that the total turnover cannot include the amount of sales tax and excise duty because the same do not involve any profit element. This was done because normally export sales would not involve any sales tax and excise duty and thus the denominator and the numerator will not remain comparable if the amount of excise duty and sales tax was included in the total turnover, whereas there would be no element of excise duty and sales tax in export sales, i.e., numerator and in any case, there is no element of profit involved in excise duty and sales tax. 16. From the above it becomes clear that element of sales tax and excise duty is not includible in the total turnover, which has been again reiterated by the Hon'ble Madras High Court in the case of Sundaram Fasteners Ltd. because same does not involve any element of profit. 17. Similar view was taken by Chennai C Bench of the Tribunal in ITA No. 2704/Mds./96 and ITA No. 51/Mds./97 in the case of Loyal Textile Mills Ltd. (copy of order placed on record). Vide para 24, it was observed as under:- 24. The next ground of appeal is regarding inclusion of processing charges in the total tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n prescribed to arrive at the profits from exports. It was rightly contended by Dr. Pal that if the denominator was to include octroi, sales tax and excise duty and if the numerator excluded those items the formula would certainly become unworkable. In the case of CIT v. Sudarshan Chemicals Industries Ltd [2000] 245 ITR 769 the Division Bench of the Bombay High Court clearly held that in order to ascertain the export profits, the aforesaid items cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which an assessee is entitled to. In this context, it is significant to note that section 80HHC(1) of the Act provides, inter alia, that where an assessee engaged in the business of exports out of India of any goods or merchandise, there shall be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise. So in the matter of computing the total income of such assessee, profits derived by the assessee from the exports are clearly deductible. Section 80HHC(3)(a) lays down that where the export is of goods, the profits derived from such export shall be the am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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