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TMI Blog2007 (4) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed the allowable deduction under section 80HHC without taking into account in the total turnover the sales tax and excise duty. The assessee was asked to explain why the total turnover should not be recomputed by including sales tax and excise duty. In this connection, the Department placed reliance on the judgment of this court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542. The assessee objected to the above inclusion. However, that objection was dismissed by the Assessing Officer on the ground that under section 80HHC, Explanation (ba), deduction from "total turnover" was restricted only to three items, namely, profit on sale of import licence, duty drawback and CCS. The Assessing Officer further held that from the profits of business, the assessee was entitled to deduct the above three items and also brokerage, commission, interest, rent, charges or any other receipt of similar nature. Before the Assessing Officer, the assessee contended that items which cannot be regarded as profits, the question of treating those items as part of "total turnover" did not arise. The Assessing Officer treated certain miscellaneous receipts and interest receipts as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of the profits derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods; Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation.-For the purposes of this sub-section, (a) 'adjusted export turnover' means the export turnover as reduced by the export turnover in respect of trading goods; (b) 'adjusted profits of the business' means the profits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section: Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law. Explanation.-For the purposes of this section, (a) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (aa) 'export out of India' shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962); (b) 'export turnover' means the sale proceeds, received in, or brought into India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "export turnover" to "total turnover". In effect, the formula was as follows: 80HHC concession = export profits = total profits X Export turnover Total turnover Where the export consisted of goods purchased from third parties (trading goods) there was a second method of computation in which the export profits were to be calculated by deducting from the export turnover, direct and indirect costs attributable to such exports. In that case the formula was asunder: 80HHC concession = export profits = export turnover- (costs attributable to such exports) By the Finance Act, 1992, one more amendment was made by which the Legislature declared that commission received on assignment of export orders, brokerage, interest, rent and items mentioned in section 28(iiia), (iiib) and (iiic), should not be treated in toto as profits of the business relatable to exports and only 10 per cent. thereof should be considered as the profit of the business and the balance 90 per cent. should not be included in the profits. These amendments took place with effect from April 1, 1992, the date from which the dual system of computation of export pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch section 80HHC applies, computed under sub-section (3) of section 80HHC 15. Export turnover, deduction in respect of which will be claimed by a supporting manufacturer in accordance with proviso to sub-section (1) of section 80HHC 16. Profit from the export turnover mentioned in item 15 above, calculated in accordance with proviso to sub-section (1) of section 80HHC 17. Deduction under section 80HHC to which the assessee is entitled (Item 14 minus Item 16) 18. Remarks, if any ANNEXURE B [See paragraph 2(b) of Form No. 10CCAC] Details relating to the claim of the supporting manufacturer for deduction under section 80HHC of the Income-tax Act, 1961 Section A 1. Name of the assessee 2. Assessment year 3. Total turnover of the business 4. The amount of profit under the head 'Profits and gains of business of profession' 5. Total turnover in respect of sale of Export House/Trading House for which certificate is received from Export House/Trading House 6. Profit from the turnover mentioned in item 5 above, computed under sub-section (3A) of section 80HHC 7. Remarks, if any Section B Details of sale of Export House/Trading House Sl No. Nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar establishment of the assessee situate outside India. 2. Export turnover.-Sale proceeds received in, or brought into India, in convertible foreign exchange within the prescribed time (or within the extended time limit) minus freight and insurance attributable to the transportation of goods/merchandise beyond the customs station is export turnover for this purpose. 3. Total turnover.-From the turnover (as per books of account) the following should be deducted if these are part of turnover: a. freight/insurance attributable to the transport of goods or merchandise beyond customs station in India; and b. export incentives. 4. Export incentives.-Export incentives are: a. profits on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947 [section 28(iiia)]; b. cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India [section 28(iiib)]; c. any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 [section 28(iiic)]." To simplify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business or profession' 9,94,680 Less : 90% of export incentives (i.e., 90% of Rs. 6,50,000) (-) 5,85,000 90% of brokerage, commission, rent and interest (i.e., 90% of Rs. 2,70,000) (-) 2,43,000 Profit of the foreign branch (-) 80,000 Profit of the business 86,680 2. Export turnover.-It is Rs. 24,90,000 being the brought to India (within the time limit), in the convertible foreign exchange. 3. Total turnover.-It is Rs. 30,50,000. 4. Export incentive.-Export incentive is Rs. 6,50,000. Amount of deduction is as follows: (Rs. 86,680 x Rs. 24,90,000 + Rs. 30,50,000) + (90% of Rs. 6,50,000 x Rs. 24,90,000 + Rs. 30,50,000) = Rs. 5,48,355. 107.13-4 Assessee who exports goods manufactured/processed by others-How to find out deduction.- This category covers those assessees who export goods manufactured/processed by others: 107.13-4a Conditions.-In order to get deduction one has to satisfy conditions specified in paragraphs 107.13-3a. 107.13-4b Amount of deduction.-Deduction under section 80HHC will be determined as under: (Export turnover1 minus direct cost2 minus indirect cost3) + (90 per cent. of export incentive5 x Export turnover + total turnover) 1. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover: a. freight/insurance attributable to the transport of goods or merchandise beyond customs station in India; and b. export incentives. 5. Export incentives-Export incentives are: a. profits on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947 [section 28(iiia)]; b. cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India [section 28(iiib)]; c. any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 [section 28(iiic)]." The above examples show that the formula under section 80HHC was very simple as far as it related to the sole business of exports. The formula became complicated in cases of composite business. In the case of direct exporter there were three categories of assessees-(i) an assessee who exported goods manufactured by him; (ii) an assessee who did not export goods manufactured by him but exported goods manufactured by others; and (iii) an assessee who exported manufactured goods as well as trading goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise duty and sales tax ought to have been included in the "total turnover". Learned counsel submitted that the word "turnover" even in the ordinary sense would include the above two items. Learned counsel urged that the formula should be read 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 Chowrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax did not form part of trading receipts. Learned counsel submitted that there was no merit in the contention of the assessee that the expression "business profits" in section 80HHC did not include receipts which did not emanate for exports and, therefore, such receipts did not constitute an element of turnover. 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 got to be ascertained on ordinary principles of commercial trading and accounting. However, the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible for deduction under section 80HHC. They were not eligible even without the clarification introduced by the Legislature by various amendments because they did not involve any element of turnover. Further, in all other provisions of the Income-tax Act, profits and gains were required to be computed with reference to the books of account 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. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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