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TMI Blog2014 (1) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... ct taxes. They are recovered by the assessee on behalf of the Government - Decided against Revenue. - Tax Appeal No. 1653 of 2005 - - - Dated:- 26-12-2013 - M. R. Shah And R. P. Dholaria,JJ. For the Appellant : Mr. Varun K. Patel, Advocate For the Respondent : Rule Unserved JUDGMENT (Per : Honourable Mr. Justice M. R. Shah) 1.0. Feeling aggrieved and dissatisfied with impugned judgment and order dated 4.4.2005 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to the as ITAT ) in ITA No.3937/AHD/2004 for AY 200001, the revenue has preferred present Tax Appeal. 2.0. At the outset it is required to be noted that in all these tax appeals, the only following substantial question of law is framed/raised. Whether the Appellate Tribunal is right in law and on facts in holding that Sales Tax and excise duty cannot be included in working out total turnover for the purpose of Section 80HHC ? 3.0. Having heard Shri Varun K. Patel, learned counsel appearing on behalf of the Revenue, it appears that the aforesaid substantial question of law framed is now not res integra and the aforesaid substantial question of law is held against the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the legislature as business profits, the question of treating the same as part of the total turnover in the above formula did not arise. In fact, Section 80 HHC had to be amended several times since the formula on several occasions gave a distorted figure of export profits when receipts like interest, rent, commission etc. which did not have the element of turnover got included in the profit and loss account and consequently became entitled to deduction. This was clarified by the above amendment to Section 80HHC commencing from 1.4.92. The said amendment made it clear that though commission and interest emanated from exports, they did not involve any element of turnover and merely for the reason that commission, interest, rent etc. were included in the profit and loss account, they did not become eligible to deduction. We have to give purposeful interpretation to the above section. The said section is entirely based on the formula. The amendments from time to time indicate that they became necessary in order to make the formula workable. Hence, we have to give schematic interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Appeal in the case of Love v. Norman Wright (Builders), Ltd. # (1944) 1 All E.R. 618, in which it has been held that if a seller quotes a price of 'x' + purchase tax, the buyer has to pay the amount of the tax as part of the price and since the tax is charged on the wholesale value of the goods the tax element has to be taken into account. It was urged that one has to give strict interpretation to the word "turnover". It was urged that there was no question of giving purposeful interpretation to the word "turnover" in the said Section 80HHC of the Act. It was urged that the legislature had used the expression "total turnover" from which it became clear that the said expression referred to the aggregate amount for which the goods were sold and since the above two items formed part of the value of the goods, they were includible in the "total turnover". Learned counsel urged that there was no merit in the contention advanced on behalf of the assessee that excise duty was the liability of the assessee to the Government and, therefore, it was not includible in the total turnover. Learned counsel urged that there was no merit in the contention advanced on behalf of the assessee tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that the legislature intended to exclude items like commission and interest from deduction on the ground that they did not possess any element of "turnover" even though commission and interest emanated from exports. We have to read the words "total turnover" in Section 80HHC as part of the formula which sought to segregate the "export profits" from the "business profits". Therefore, we have to read the formula in entirety. In that formula the entire business profits is not given deduction. It is the business profit which is proportionately reduced by the above fraction/ratio of export turnover w total turnover which constitute 80HHC concession (deduction). Income in the nature of "business profits" was, therefore, apportioned. The above formula fixed a ratio in which "business profits" under Section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words "total turnover" but also to the words "export turnover", "total export turnover" and "business profits". That is the reason why we have quoted hereinabove extensively the illustration f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover. Therefore, 90% of such commission, interest etc. was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in Section 80HHC(3) for the simple reason that it did not emanate from the "export turnover", much less any turnover. Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the "turnover". Just as interest, commission etc. did not emanate from the "turnover", so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and, therefore, they were not includible in the "total turnover". The above discussion shows that income from rent, commission etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the A.O. [See: page no.24 of the paper book], if so, then excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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