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TMI Blog2002 (7) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods ? Though a reference to clause (a) of sub-section (3) of Section 80HHC is made in the question which is applicable where the export out of India is of goods and merchandise manufactured or processed by the assessee, the real controversy in this case arises under clause (c) of Section 80HHC(3) which applies where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods because in the assessee s case the export is both of manufactured and trading goods. Secondly, the question of exclusion of octroi from the figure of total turnover is not in issue in this appeal. We, therefore, reframe the question as under : Whether, for the purposes of computation of the amount of deduction under section 80HHC by applying the formula as provided in sub-clause (i) of clause (c) of sub-section (3) of the said section, it is necessary to exclude the amounts of excise duty and sales tax from the figure of total turnover of the business of the assessee for the purpose of bringing in parity between the numerator, viz., export turnover and the denominator, total turnover , in the said formula, inasmuch as, export turnover does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover for the purpose of deduction under section 80HHC. As per the decision of the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, excise duty and sales tax forms part of turnover. In view of the aforesaid fact, claim of the assessee for deduction under section 80HHC at Rs. 1,70,56,997 is rejected. Deduction under section 80HHC is worked out at Rs. 1,05,12,956 as discussed above. 3. The Commissioner of Income-tax (Appeals) agreed with the Assessing Officer and rejected the assessee s claim to for reduction of excise duty and sales tax from the total turnover shown in the profit and loss account. 4. We have heard learned Counsel for the assessee, Shri Rahul Mitra, and the learned Departmental Representatives, Ms. Banani Ghosh, Commissioner of Income-tax, Departmental Representative and Shri D.K. Ghosh, Senior Departmental Representative, considered the rival submissions and gone through the record and various judgments cited at the Bar. 5. Section 80HHC provides for incentives for exports by granting deduction of the export profit earned by the assessee. It reads as under : 80HHC. (1) Where an assessee, being an Indian company or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period as the Chief Commissioner or Commissioner may allow in this behalf. (b) This section does not apply to the following goods or merchandise, namely : - (i) mineral oil; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). Explanation 1. - The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2. - For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act, 1962 (52 of 1962), shall, for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods; (d) direct costs means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) indirect cost means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) trading goods means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be, - (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more export house or trading houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee. (4) The deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total turnover shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after April 1, 1991, the expression total turnover shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (baa) profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced by - (1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other estab lishment of the assessee situate outside India; (c) Export House Certificate or Trading House Certificate means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover and total turnover under the Act. As extracted above the term export turnover is defined in Explanation (b) to section 80HHC(4A) to mean that the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange on the export of goods outside India but does not include freight or insurance attributable to the transport of goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (hereinafter referred to as the Customs Act ). Under Explanation (ba) total turnover is defined not to include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962. The expression total turnover also excluded any sum of export incentives referred to in clauses (iiia), (iiib) and (iiic) of section 28. It is thus evident that though export turnover is stated to be the sale proceeds received in convertible foreign exchange without inclusion of freight and insurance, total turnover is not given any meaning, but negatively stated to be not including freight and insurance and also receipts of export benefits. The Legislature while specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of Goods Act and the amount collected by it was as a dealer and, therefore, a trading or business receipt. In this context it was observed that (page 548): as the amount of sales tax was received by the appellant in its character as an auctioneer, the amount, in our view, should be held to form part of its trading or business receipt. 10. In Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC) again the dispute was that the sales tax collected by a trader was liable to be included in the total income of the assessee and it was held that the matter stood concluded by the decision in the case of Chowringhee Sales Bureau P. Ltd. [1973] 87 ITR 542 (SC). A reference to the Constitution Bench of the Supreme Court in the case of George Oakes (Private) Ltd. v. State of Madras, AIR 1962 SC 1037; [1961] 12 STC 476 was made wherein the vires of the Madras General Sales Tax (Definition of Turnover and Validation of Assessment) Act, 1954, was upheld and in this context the Supreme Court held in that case that when the seller passed on the tax and the buyer agrees to pay sales tax in addition to the price, the tax is really part of the entire consideration and the distinction bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We think that these observations are apposite even in the context of the provisions of the Acts we are considering now, and there is nothing in those provisions which would indicate that when the dealer collects any amount by way of tax, that cannot be part of the sale price. So far as the purchaser is concerned, he pays for the goods what the seller demands, viz., price even though it may include tax. That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover. 13. In the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), the dispute was whether sales tax was payable by the assessee the Andhra Pradesh General Sales Tax Act, 1957, on the basis of its turnover which excluded excise duty which was leviable on the manufacture of liquor and the manufacturer could not remove the same from the distillery unless the duty imposed under the Excise Duty Act has been paid. In that case, buyers of Indian liquor from assessee s distillery obtained distillery passes for release of liquor after making payment of excise duty and presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the further observation at page 1500 of the Report as under (page 27 of 43 STC) : Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The sale price in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But, even so, it would be part of the sale price because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer. And, on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id, one can conclude that excise duty and sales tax constitute part of turnover and trading receipts of the business and, therefore, the term total turnover , should be taken as inclusive of these levies. The principle seems to be that in a statute directed to commercial men, words having definite commercial sense must be understood in that sense as that would be the natural proper sense in that context has been generally applied by the judicial authorities in the construction of the Income-tax Act. When it has been held by various judicial authorities that the term like turnover used in fiscal legislation in countries like England, America as well as India has to be held to include the taxes levied also, the reason for such inclusion is stated to be that the dealer who realised the tax does not hand it over forthwith to Government but keeps it with him and turns it over in his business before he parts with it. Thus the tax becomes, for the time being, an integral part of the circulating capital of the tradesman and his turnover in his hands. Therefore, in calculating the total turnover, taxes like sales tax and excise duty are treated as part of the turnover because turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeds that is relevant; that anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit; that even according to the accounting principles, such levies do not form part of profit and loss account; that in fact, they are shown as liabilities in the balance-sheet; and that in such circumstances, the above two items cannot be included in the total turnover. Their Lordships also held as follows (page 774 of 245 ITR) : Lastly, we are of the view that sales tax and excise duties are levied under the separate enactments which have different objects. We are concerned with section 80HHC which is a separate code by itself. Hence, the general definition of the word turnover or the case law dealing with the said defini tion under the Sales Tax Act which is a State levy, cannot be imported into section 80HHC of the Income-tax Act. Hence, we do not find any merit in these appeals. 20. The aforesaid decisions of the Bombay High Court had made no reference or discussion of the three Supreme Court decisions, namely, Chowringhee Sales Bureau P. Ltd. s case [1973] 87 ITR 542 ; George Oakes (Private) Ltd. s case [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally. On the other hand, it is a sound, and, indeed, a well-known principle of construction that meaning of words and expressions used in an Act must take their colour from the context in which they appear. 22. Viewed in this perspective, their Lordships observed that it can be held that the case of McDowell and Co. Ltd. [1985] 154 ITR 148 (SC) which deals with separate enactments has got no manner of application to interpretation of the words total turnover which find place in the relevant provision of the Income-tax Act. It was further observed that it is to be borne in mind in this context that the sales tax, octroi and excise duties are levied under the separate enactments which have different objects and as such the general definition of the word turnover or the case law dealing with the said definition under the Sales Tax Act can in no way be imported into Section 80HHC of the Income-tax Act with which we are presently concerned. 23. It may be noted here that the Calcutta High Court considered the McDowell decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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