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TMI Blog2014 (3) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... penses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act. Sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc. - excise duty and sales tax are indirect taxes - They are recovered by the assessee on behalf of the Government - if they are made relatable to exports, the formula under Section 80HHC would become unworkable – thus, the Tribunal has not committed any error in holding that the excise duty is excise duty is to be excluded for the purpose of computation of deduction u/s. 80HHC – Decided against Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Lakshmi Machine Works (Supra), the Hon'ble Supreme Court has observed and held as under: "16. The principal reason for enacting the above formula was to disallow a part of 80HHC concession when the entire deduction claimed could not be regarded as relatable to exports. Therefore, while interpreting the words "total turnover" in the above formula in Section 80HHC one has to give a schematic interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to Section 80HHC show that receipts by way of brokerage, commission, interest, rent etc. do not form part of business 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 ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax" by Kanga and Palkhivala (eighth edition) at page 123. In support of the contention that a tax or duty is part of the dealer's trading/business receipts, even if the tax or duty is charged separately or credited to a separate account. Reliance was also placed on the judgment of the King's Bench Division in the case of Paprika, Ltd., and Another v. Board of Trade ( 1944)1 All E.R. 372, in which it has been held that wherever a sale attracts purchase tax, that tax affects the price which the seller who is liable to pay the tax demands, but it does not cease to be the price which the buyer has to pay even if the price is expressed as cost x + purchase tax. Reliance was also placed on the judgment of the Court 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of commercial trading and accounting. However, the income tax has laid down certain rules to be applied in deciding how the tax should be assessed and even if the result is to tax as profits what cannot be construed as profits, still the requirements of the income tax must be complied with. Where a deduction is necessary in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act [SEE: page 455 of "The Law and Practice of Income Tax" by Kanga and Palkhivala]. Therefore, schematic interpretation for making the formula in Section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of Section 80HHC which 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 exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits relatable to exports. In the case of combined business of an assessee having export business and domestic business the legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover". Similarly, "interest" emanates from exports and yet "interest" does not involve an element of turnover. The object of the legislature in enacting Section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, "turnover" was the requirement. Commission, rent, interest etc. did not involve any turnover. Therefore, 90% of such commission, interest etc. was excluded from the profits derived from the export. Therefore, even without the clari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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