9911796707
TMI Blog2017 (4) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,70,29,716/- and reflected the same, as 'other income' for the Assessment year 1999-2000. During earlier assessment years viz., 1988-89 to 1994-95 the Assessee has transferred certain REP Licenses and no Sales Tax was paid thereon as the transfer of REP Licenses did not involve any transfer of property. The Tamil Nadu General Sales Tax Act has been amended charging Sales Tax on transfer of REP Licenses. A challenge mounted to the provisions of the amended Sales Tax Act has ended before the Supreme Court which upheld the amendment. In those circumstances, Sales Tax has become liable to be paid and accordingly the same has been paid by the Assessee to the State. But however, exporters of leather goods have represented to the State Government against the retrospective levy and the Government took a sympathetic view and allowed the exporters to claim a refund/reimbursement of the amount of Sales Tax paid by them. In these circumstances, the refund of Sales Tax paid by the Assessee during the earlier years was refunded by the State Government and hence it was considered as other income for the Assessment year 1999-2000. 4. The Assessee claims that as per Explanation (baa) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 3 which in turn means the financial year immediately preceding the assessment year. Chapter VIA of the Act dealt with deductions to be made in computing the total income of an Assessee. Section 80HHC, falling in Chapter VIA, has specifically dealt with deduction in respect of profits retained for export business. Sub-section (1) thereof will have certain bearing upon the controversy at issue and hence the relevant part of it, as it stood prior to 01.04.2001, is extracted below:- "80HHC. Deduction in respect of profits retained for export business:- (1) Where an assessee, being an Indian Company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, 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 export of such goods or merchandise:" 7. Sub-section (1) of Section 80HHC thus enables the Assessee, which is an Indian Company or any person resident in India, if it is engaged in the business of export out of India of any goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income tax, by reducing it from the total income derived from the whole of the business or profession of such an Assessee. Thus, what was insulated against incidence of Tax by Section 80HHC was that part of the profit derived from export of goods. A formula is required to be applied to find out or for segregating the profit earned from the export business segment from out of the total profits earned, where the Assessee is not carrying on exclusively business of export of goods or merchandise but indulges in carrying on business of both export of goods as well as domestic sales. There may not present a problem where the Assessee is carrying on 100% export oriented business, in which case there will be no occasion for dissecting the profits earned, but where, like in the instant case, the Assessee is carrying on business of both export and domestic sales, to the extent of profit derived by it from the export of goods and merchandise alone, having been permitted to be retained by Section 80HHC, hence, it is required by the Department to ascertain and then segregate the extent of profit made out of export business from out of the total amount of profit earned from the composite busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and accordingly chargeable to income tax. In the instant case, in the previous assessment years expenditure towards Sales Tax has been claimed by the Assessee. But however, during the previous financial year to the Assessment year 1999-2000, the amount representing Sales Tax has been remitted back to the Assessee. Thus, the said remission amounts to obtaining profit and gain of the business during the relevant Assessment year, in terms of sub-section (1) of Section 41 and chargeable to Income Tax. When we keep in mind the provisions contained under Section 28 read with Section 41 further read with Section 80HHC, it becomes clear that the remission of Sales Tax obtained by the Assessee answers the description of profit and gain from the business of the Assessee chargeable to income tax and at the same time it having no bearing exclusively to the component of export business carried on by the Assessee, the same cannot be retained by the Assessee by way of deduction without being charged for income tax. Since, as a policy, any profit and gain derived by the Assessee from out of export business carried on is only allowed to be retained, hence if the Assessee seeks to retain the refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1872. It was pointed out in that Act that if a pledge pawned for ten shillings or under was not redeemed within the year of redemption and days of grace, the pledge article would become the pawnbroker's absolute property. There was no dispute that profit arising out of sale of such pledged article would be the pawnbroker's income. Under the second type of pledges which were pawned for a sum exceeding ten shillings and not exceeding ten pounds, the pledged article did not become the property of the pawnbrokers. If the pledges were sold for more than the amount of the loan and interest due at the time of sale, the excess had to be paid to the pawner on demand provided the demand was made within three years after the sale. In the third type of case, where pledges were pawned for a sum exceeding ten pounds, there was no time-limit for return of the excess amount to the pawners after the sale. But limitation set in after six years. It was held in that case that the surplus receipts in the pawnbroker's trade became assessable profits. The Court agreed with the assessee's contention that these surpluses were debts owed to the customers and that for three years or six yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. " 12. The Supreme Court in Lakshsmi MaachineWorks case had an occasion to consider the whole scheme of rationalization of provisions relating to tax concession for export profits and held as under:- "7. A brief analysis of the above Section 80HHC of the Act, as amended with effect from 1.4.1992, indicates rationalization of provisions relating to tax concession for export profits. Under Section 80HHC, the exporters were allowed, in the computation of their total income, a deduction of the entire profits derived from exports. During the relevant year, there existed a dual system for computation of export profits. The first method operated in cases where the export was of goods manufactured by the tax payer. In those cases the export profit had to be computed on the basis of the ratio of "export turnover" to "total turnover". In effect, the formula was as follows: 80HHC concession = export profits = ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count 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 interpretation to Section 80HHC of the Act. 16.............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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unworkable. The view which we have taken is in the light of amendments made to Section 80HHC from time to time. 17. Before concluding we may state that profits are of three types, namely, book-profits, statutory profits and actual profits. The amendments to Section 80HHC(3) indicate exclusion of book profits. For example, commission, interest, etc. do form part of the profit and loss account but for the purposes of calculation of profits derived from local sales and exports, they stand excluded. The difficulty arises because the formula is based on the Hybrid System of Profits, namely, actual and statutory profits. Therefore, this judgment should be read in the context of the above parameters. Our reasoning in this judgment is confined to the workability of the formula in Section 80HHC(3) of the Act as it stood at the material time." 13. Whereas the learned Standing counsel Mrs.Hemalatha has placed reliance upon the judgment rendered by the Supreme Court in Commissioner of Income Tax vs. K.Ravindaranathan Nair (Civil Appeal No.5173 of 2007). 14. At the very out set, it is only appropriate for us to notice that, the Supreme Court after noticing the ratio laid down by it in Laks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the I.T. Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the government, shall not be included in the total turnover in the above formula (See: Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi Machine Works - 2007(6) Scale 168). 22....... 23. Before concluding we state that the nature of every receipt needs to be ascertained in order to find out whether the said receipt forms part of/or that it has an attribute of an export turnover. When an indirect tax is collected by the taxpayer on behalf of the government the tax recovered is for the government. It may be an income in the conceptual sense or even under the I.T. Act but while working out the formula under Section 80HHC(3) of the I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
