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TMI Blog2016 (8) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... s capital expenditure. See BELL CERAMICS LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX [2016 (8) TMI 202 - GUJARAT HIGH COURT] - TAX APPEAL NO. 508 of 2009 With TAX APPEAL NO. 556 of 2009 - - - Dated:- 29-7-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MR KM PARIKH, ADVOCATE FOR THE OPPONENT : MR BS SOPARKAR, ADVOCATE for MRS SWATI SOPARKAR, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these appeals, the appellant has challenged order dated 16.07.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench C , Ahmedabad in ITA No.1750 1751/Ahd/2002. 2. At the time of admitting present appeals, following questions of law were framed:- TAX APPEAL No.508 of 2009 Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in upholding the order of Commissioner (Appeals) directing to reduce the amount of excise duty and sales tax while computing the total turnover for the purpose of deduction under section 80-HHC of the Income Tax Act, 1961 even after insertion of the provisions of section 145A(b) of the Act? TAX APPEAL No.556 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.0. Identical question came to be considered by this Court in Tax Appeal No.884 of 2006 and other allied Tax Appeals and relying upon the decisions of the Honble Supreme Court in the case of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra), the aforesaid question is held against the revenue. In the aforesaid decision in Tax Appeal No. 884 of 2006 and allied appeals in para 3 and 4 the Division Bench has observed and held as under: [3.0] Having heard Shri Manish Bhatt, learned counsel appearing on behalf of the Revenue and Shri Soparkar, learned counsel appearing for assessee in respective appeals and the substantial question of law raised, referred to hereinabove, and the decisions of the Honble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra), we are of the opinion that the substantial question of law raised in the present tax appeals is now not res integra and the same is squarely covered against the Revenue by the decisions of the Honble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra). In paras 16 to 18 in the case of Lakshmi Machine Works (Supra), the Honble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictly. In this connection, he pointed out that the legislature had expressly excluded items of freight and insurance and not sales tax and excise duty from the said definition. It was urged that while construing a taxing statute strict interpretation should be given by the Courts. It was urged that the definition of the words total turnover did not include freight/insurance. He urged that since the legislature had excluded only insurance and freight, it was not open to the courts to exclude excise duty and sales tax from the concept of total turnover in the said formula. He contended that the word turnover referred to the aggregate amount for which the goods were sold and since sales tax and excise duty formed part of the value of the goods, the said two items were includible in the definition of the words total turnover. In this connection, learned counsel placed reliance on the judgment of the Supreme Court in the case of M/s. Chowringhee Sales Bureau (supra). Reliance was also placed on The Law and Practice of Income Tax by Kanga and Palkhivala (eighth edition) at page 123. In support of the contention that a tax or duty is part of the dealers trading/business receipts, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not constitute an element of turnover. 18.We do not find any merit in the above contentions advanced on behalf of the Department. It is important to note that tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under Section 2(24) of the Act the word income includes profits and gains. The charge is not on gross receipts but on profits and gains. The charge is not on gross receipts but on profits and gains properly so called. Gross receipts or sale proceeds, however, include profits. According to The Law and Practice of Income Tax by Kanga and Palkhivala, the word profits in Section 28 should be understood in normal and proper sense. However, subject to special requirements of the income tax, profits have got to be assessed provided they are real profits. Such profits have to be got to be ascertained on ordinary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the income tax, profits and gains were required to be computed with reference to the books of accounts of the assessee. However, as can be seen from the Income Tax Rules and from the above Form No.10CCAC in the case of deduction under Section 80HHC a report of the auditor certifying deduction based on export turnover was sufficient. This is because the very basis for computing Section 80HHC deduction was business profits as computed under Section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court even with respect to assessment order after section 145A, has followed the decision of the Honble Supreme Court in the case of Lakshmi Machine Works (Supra). [4.0] Applying the ratio of law laid down by the Honble Supreme Court in the case of Lakshmi Machine Works (Supra) to the facts of the cases on hand, the question raised is held against the Revenue and it is held that the learned 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. 7.0. Applying ratio laid down by the Honble Supreme Court in the case of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra) as well as recent decision of this Court in Tax Appeal No. 884 of 2006 and other allied appeals, to the facts of the case on hand the question raised in the present Tax Appeal is answered against the revenue and it is held that the learned Tribunal has not committed any error in holding that the components of sales tax and central excise do not form part of sale proceeds for the purpose of Section 80HHC of the Act despite insertion of Section 145 A of the Act. 6. In view of above obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in manufacturing activities and it had started only a new line of production, namely, production of scooters, and the e expenditure incurred was not in connection with the plant or machinery established in order to produce the scooters. It was incurred in connection with the testing of the product and not in connection with the testing of the machinery or plant installed in order to manufacture the product. The decision in CIT v. Saurashtra Cement Chemical industries Ltd., (Income-tax Reference No. 26 of 1973 decided on August 25, 1975-[1981] 127 ITR 47 (Guj)) will not, therefore, come to the rescue of the Revenue in the facts and circumstances of the present case. In that case, the expenditure was incurred before a new plant commenced production. It was in that context that the court took the view that it was an expenditure of a capital nature having regard to the fact that it was a part of the actual cost incurred in order to bring into existence the cement plant which was to produce the cement. It may be mentioned that the expenditure incurred was in connection with the electricity charges paid in the course of the trial run for the plant before the plant commenced commer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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