TMI Blog2014 (3) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... - if they are made relatable to exports, the formula under Section 80HHC would become unworkable – thus, the excise duty is excise duty is to be excluded for the purpose of computation of deduction u/s. 80HHC – Decided against Revenue. - TAX APPEAL NO. 1364 of 2008 - - - Dated:- 21-12-2013 - M.R. SHAH AND R.D.KOTHARI, JJ. For the Appellant : Mrs. Mauna Bhatt JUDGMENT :- PER : M.R. Shah Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal, Ahmedabad (hereinafter referred to as the ITAT ) dated 25.05.2007 passed in ITA No.1215/AHD/2003 for AY 1999-00, the revenue has preferred present Tax Appeal raising following substantial question of law. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to exclude excise duty and sales tax from the total turnover computing deduction u/s 80 HHC? 2. We have heard Ms. Mauna Bhatt, learned advocate for the revenue. 3. As stated hereinabove, present Tax Appeal has been admitted to consider the substantial question of law whether the Appellate Tribunal is right in law and on facts in holding that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely covered against the Revenue by the decisions of the Hon'ble 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 Hon'ble Supreme Court has observed and held as under: 16. The principal reason for enacting the above formula was to disallow a part of 80HHC concession when the entire deduction claimed could not be regarded as relatable to exports. Therefore, while interpreting the words total turnover in the above formula in Section 80HHC one has to give a schematic interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to Section 80HHC show that receipts by way of brokerage, commission, interest, rent etc. do not form part of business profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the legislature as business profits, the question of treating the same as part of the total turnover in the above formula did not arise. In fact, Section 80 HHC had to be amended several times since the formula on several occasions gave a distorted figure of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme 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 dealer's trading/business receipts, even if the tax or duty is charged separately or credited to a separate account. Reliance was also placed on the judgment of the King's Bench Division in the case of Paprika, Ltd., and Another v. Board of Trade [1944]1 All E.R. 372, in which it has been held that wherever a sale attracts purchase tax, that tax affects the price which the seller who is liable to pay the tax demands, but it does not cease to be the price which the buyer has to pay even if the price is expressed as cost x + purchase tax. Reliance was also placed on the judgment of the Court of Appeal in the case of Love v. Norman Wright (Builders), Ltd. # (1944) 1 All E.R. 618, in which it has been held that if a seller quotes a price of 'x' + purchase tax, the buyer has to pay the amount of the tax as part of the price and since the tax is charged on the wholesale value of the goods the tax element has to be taken into accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act [SEE: page 455 of The Law and Practice of Income Tax by Kanga and Palkhivala]. Therefore, schematic interpretation for making the formula in Section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of Section 80HHC which has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that the legislature intended to exclude items like commission and interest from deduction on the ground that they did not possess any element of turnover even though commission and interest emanated from exports. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature 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 received by an assessee is relatable to exports and yet it cannot form part of turnover , excise duty and sales tax also cannot form part of the turnover . Similarly, interest emanates from exports and yet interest does not involve an element of turnover. The object of the legislature in enacting Section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, turnover was the requirement. Commission, rent, interest etc. did not involve any turnover. Therefore, 90% of such commission, interest etc. was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in Section 80HHC(3) for the simple reason that it did not emanate from the export turnover , much less any turnover. Even if th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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