TMI Blog2016 (6) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... ortant 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 under Section 80HHC would become unworkable. The view which we have taken is in the light of amendments made to Section 80HHC from time to time. See Commissioner of Income Tax Versus Pogagen Amp Nagarsheth Powertronics Ltd. [2014 (3) TMI 934 - GUJARAT HIGH COURT ] - Decided in favour of assessee - TAX APPEAL No. 991 of 2008, TAX APPEAL No. 995 of 2008 - - - Dated:- 10-6-2016 - KS Jhaveri And G. R. Udhwani, JJ. For the Appellant : Mrs Mauna M Bhatt, Advocate For the Respondent : Mr. Hardik V. Vora, Advocate JUDGMENT ( Per : Honourable Mr. Justice KS Jhaveri ) 1. By way of these Appeals, the Appellant Department has challenged the judgment and order dated 20.07.2007 of the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' in ITA Nos.2036 and 2037/Ahd/2004 for the Assessment Years : 1999-2000 and 2000-2001. 2. While admitting the matters on 27.02.2009, the following substantial question of law were framed by the Court for consideration :- (A) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al times since the formula on several occasions gave a distorted figure of export profits when receipts like interest, rent, commission etc. which did not have the element of turnover got included in the profit and loss account 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. 17. Shri P.P. Malhotra, leaned senior counsel appearing for the Department (appellant), submitted that one has to give plain and unambiguous meaning to the word turnover in the above formula; that there was no need to call for any rule of interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the wholesale value of the goods the tax element has to be taken into account. It was urged that one has to give strict interpretation to the word turnover . It was urged that there was no question of giving purposeful interpretation to the word turnover in the said Section 80HHC of the Act. It was urged that the legislature had used the expression total turnover from which it became clear that the said expression referred to the aggregate amount for which the goods were sold and since the above two items formed part of the value of the goods, they were includible in the total turnover . Learned counsel urged that there was no merit in the contention advanced on behalf of the assessee that excise duty was the liability of the assessee to the Government and, therefore, it was not includible in the total turnover. Learned counsel urged that there was no merit in the contention advanced on behalf of the assessee that the components of export turnover and total turnover should be the same in the above formula. Learned counsel submitted that the formula would become unworkable if the components in the export turnover and the components in the total turnover are the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver even though commission and interest emanated from exports. We have to read the words total turnover in Section 80HHC as part of the formula which sought to segregate the export profits from the business profits . Therefore, we have to read the formula in entirety. In that formula the entire business profits is not given deduction. It is the business profit which is proportionately reduced by the above fraction/ratio of export turnover w total turnover which constitute 80HHC concession (deduction). Income in the nature of business profits was, therefore, apportioned. The above formula fixed a ratio in which business profits under Section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words total turnover but also to the words export turnover , total export turnover and business profits . That is the reason why we have quoted hereinabove extensively the illustration from the Direct Taxes (Income tax) Ready Reckoner of the relevant word. In the circumstances, we cannot interpret the words total turnover in the above formula with reference to the definition of the word turnover in other laws like Central Sales Tax or as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manate from the export turnover , much less any turnover. Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the turnover . Just as interest, commission etc. did not emanate from the turnover , so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and, therefore, they were not includible in the total turnover . The above discussion shows that income from rent, commission etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the A.O. [See: page no.24 of the paper book], if so, then excise duty and sales tax also cannot form part of the total turnover under Section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of turnover which is the position even in the case of rent, com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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