2007 (7) TMI 203 - SC - Income Tax

Whether sales tax and excise duty form part of the total turnover - Assessing Officer included excise duty and sales tax on the total turnover for computing the deduction under section 80HHC(3)(b) - It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore if they are made relatable to exports the formula u/s 80HHC; would become unworkable - revenue s appeal dismissed

Summary

Issues:
Challenge to the order passed by the Division Bench of the Bombay High Court regarding the inclusion of sales tax and excise duty in the total turnover for computing deductions under section 80HHC(3)(b) of the Income-tax Act for the assessment year 1997-98.

Analysis:
The dispute in this case revolves around the interpretation of the term "total turnover" for the purpose of computing deductions under section 80HHC of the Income-tax Act. The Assessing Officer initially included excise duty and sales tax in the total turnover for computing the deduction under section 80HHC(3)(b). However, the Commissioner of Income-tax (Appeals) held that these amounts should not be included in the total turnover for the purpose of deductions. The Revenue appealed this decision before the Income-tax Appellate Tribunal, which dismissed the appeal based on a previous decision of the Bombay High Court. Subsequently, the Revenue appealed to the High Court, which also ruled in favor of excluding excise duty and sales tax from the total turnover.

The crux of the argument presented in the appeal is that the plain meaning of the term "turnover" should be applied in the computation formula without the need for external interpretation. The court referred to a similar case and emphasized that the tax under the Income-tax Act is on income, profits, and gains, not on gross receipts. The court highlighted the importance of interpreting the term "total turnover" in conjunction with other elements of the formula to segregate export profits from business profits. The court also noted that excise duty and sales tax do not have an element of turnover and should be excluded from the total turnover for the formula to work effectively.

The court further explained that excise duty and sales tax are indirect taxes recovered by the assessee on behalf of the government, and including them in the total turnover would render the formula under section 80HHC unworkable. The court agreed with the view that excise duty and sales tax, like rent, commission, and interest, do not form part of the turnover and should be excluded from the calculation of deductions under section 80HHC. Ultimately, the court found the appeal without merit and dismissed it, with no order as to costs.

In conclusion, the judgment clarifies the interpretation of the term "total turnover" in the context of computing deductions under section 80HHC of the Income-tax Act, emphasizing the exclusion of excise duty and sales tax from the total turnover based on the legislative intent to promote exports and segregate export profits from business profits.