TMI Blog2007 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ame time, the assessee processes cashew nuts which are supplied to him by the exporters on job-work basis. After processing, the assessee returns the processed cashew nuts to the exporters. He earns processing charges. Therefore, the assessee is an exporter and a job worker. 4. Computation of Export Incentive under Section 80HHC(3) of the Income Tax Act, 1961 ("I.T. Act", for short), is the issue for determination in this batch of civil appeals. 5. The assessee made a claim for Export Incentive under Section 80HHC(3) in his returns filed for the assessment year 1993-94. The assessee did not include processing charges (receipts) in his total turnover. In his return, he indicated his business profits at Rs.1,94,08,220. The figure of Rs.1,94,08,220 included the processing charges (receipts) amounting to Rs.1,54,68,811. However, the assessee did not include the processing charges amounting to Rs.1,54,68,811 in his total turnover. He contended that although the processing charges (receipts) amounting to Rs.1,54,68,811 constituted part of business profits as computed under Section 28 of the I.T. Act, since Section 80HHC (3) was the formula to work out export incentive, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export incentives only in respect of receipts in foreign exchange from sale of goods and from processing provided such processing was done to goods which the taxpayer exported. That, he was not the exporter of goods which were only processed for third parties and, therefore, such processing charges were not includible in the total turnover even though, such charges were includible in the "business profits" under clause (baa) to the said Explanation. In this connection, learned counsel contended that such processing charges had no nexus with the activity of exports and, therefore, such charges were not includible in the total turnover. In this connection, reliance was placed on the judgment of this Court in the case of CIT v. Lakshmi Machine Works - 2007(6) Scale 168. 9. Mr. Vikas Singh, learned Addl. Solicitor General appearing on behalf of the Department, contended that in view of Explanation (ba) read with Explanation (baa) to Section 80HHC of the I.T. Act when the said processing charges were includible in the business profits the same were also simultaneously includible in total turnover in the above formula. According to learned counsel, Section 80HHC provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 assessee (other than the supporting manufacturer) in convertible foreign exchange , within a period of six months from the end of previous year or, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 clause (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. Explanations. 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 business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3); (c) 'adjusted total turnover' means the total turnover of the business as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified 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) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges; that, the purpose behind the said formula was to find out the profits attributable to export turnover i.e. profit on export sales. Further, according to High Court, in the above formula business income was to be computed in order to determine the quantum of eligible deduction. That, in the said formula, business income in the context of total turnover was income generated on purchase and sales. That, in the context of Section 80HHC the total turnover referred to sales and purchase turnover and it did not include receipts in the nature of income which income was not attributable to sales. Further, according to High Court, even under the Circulars (Circular No.621 dated 19.12.91) issued by CBDT a clarification was issued to the effect that to arrive at the quantum of eligible deduction under Section 80HHC, in the case of an assessee having export and domestic business, a fraction of export turnover to total turnover had to be applied to Business Profits computed under Section 28 of the I.T. Act. According to High Court, such processing charges with which we are concerned had no connection with the word "sale", therefore, they were not liable to be included in the total turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Therefore, in our view, if the said processing charges were a part of gross total income of the taxpayer being profits from business then it had to be included in the total turnover in the above formula. It is important that deduction has to be from profits as understood in the commercial sense. Moreover, under clause (baa)(1), 90% of any amount referred to in clause (iiia), (iiib) and (iiic) of Section 28 of the I.T. Act or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. The said expression "included in such profits" indicated that the said processing charges formed part of the gross total income being business profits. This has been clarified by clause (baa) to the said Explanation which inserted the definition of "profits from business" in the said Section 80HHC(3) of the I.T. Act. 19. In the present case the Assessing Officer had worked out Business Profits of Rs.1,94,08,220 as gross total income on the basis of income received from cashew business (See: pages 50 and 52 of the SLP Paper book). Even according to assessees, in the above formula his Business Profits included the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od during assessment year 1993-94. At that time Section 80HHC(3) of the I.T. Act constituted a Code by itself. Subsequent amendments have imposed restrictions/qualifications by which the said provision has ceased to be a code by itself. In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90% of the sums referred to in clause (baa) to the said Explanation. In the computation of deduction under Section 80HHC all four variables had to be taken into account. All four variables were required to be given weightage. The substitution of Section 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90% of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in Business Profits, had to be deducted from Business Profits computed in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 and while applying the four variables one has to ascertain whether the receipt has an attribute of export turnover. An indirect tax like excise duty does not have that element of export turnover as understood in the above formula. As stated above, it is recovered by the taxpayer on behalf of the government. Therefore, in the present cases, our judgment in Commissioner of Income Tax, Coimbatore v. Lakshmi Machine Works - [2007] (6) Scale 168, has no application. 25. Accordingly, the impugned judgments of the High Court and the Tribunal are set aside and the above civil appeals filed by the Department are accordingly allowed with no order as to costs. Loss (Negative Profits) Civil Appeal No. of 2007 arising out of S.L.P.(C) No.13747 of 2004, Civil Appeal No. of 2007 arising out of S.L.P.(C) No.13748 of 2004 , Civil Appeal No. 3687 of 2005. 26. Leave granted. A short question which arises for determination in this batch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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