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2016 (8) TMI 157 - GUJARAT HIGH COURT

2016 (8) TMI 157 - GUJARAT HIGH COURT - TMI - Deduction under section 80HHC - exclusion of Sales Tax and Excise duty from the total turnover for computing deduction under section 80HHC even after insertion of section 145A - Held that:- The question posed for our consideration in this appeal is answered in favour of the assessee and against the revenue and it is held that the Tribunal was justified in law and on facts in confirming the order passed by Commissioner (Appeals) directing to exclude S .....

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S JHAVERI) 1. By way of this appeal, the appellant has challenged order dated 30.04.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench A , Ahmedabad in ITA No.2705/Ahd/2002. 2. At the time of admitting present appeal, following question of law was framed:- Whether the Appellate Tribunal was justified in law and on facts in confirming the order passed by Commissioner (Appeals) directing to exclude Sales Tax and Excise duty from the total turnover for computing deduction under secti .....

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rayed that this appeal may be allowed. 4. Mr.Hemani, learned advocate for the respondent submitted that the issue involved in this appeal is covered by various decisions. He has relied upon the decision in the case of Commissioner of Income Tax v. Meghmani Industries Ltd. reported in [2014] 41 taxmann.com 525 (Gujarat), in support of his submission that the Tribunal has not committed any error while passing the impugned order. He submitted that in view of the observations of this Court in the af .....

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i Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra), the aforesaid question is held against the revenue. In the aforesaid decision in Tax Appeal No. 884 of 2006 and allied appeals in para 3 and 4 the Division Bench has observed and held as under: [3.0] Having heard Shri Manish Bhatt, learned counsel appearing on behalf of the Revenue and Shri Soparkar, learned counsel appearing for assessee in respective appeals and the substantial question of law raised, referred to hereinabove, and the dec .....

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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 broke .....

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d 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 .....

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was no need to call for any rule of interpretation or external aid to interpret the said word; that having regard to the plain words of the section, excise duty and sales tax ought to have been included in the total turnover. Learned counsel submitted that the word turnover even in the ordinary sense would include the above two items. Learned counsel urged that the formula should be read strictly. In this connection, he pointed out that the legislature had expressly excluded items of freight and .....

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urnover referred to the aggregate amount for which the goods were sold and since sales tax and excise duty formed part of the value of the goods, the said two items were includible in the definition of the words total turnover. In this connection, learned counsel placed reliance on the judgment of the Supreme 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 o .....

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e 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 account. It was urge .....

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r. 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 .....

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onstitute an element of turnover. 18.We do not find any merit in the above contentions advanced on behalf of the Department. It is important to note that tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under Section 2(24) of the Act the word income includes profits and gains. The charge is not on gross receipts but on profits and gains. The charge is not on gross receipts but on profits and gains properly so called. Gross receipts or sale proceeds, however .....

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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 .....

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nd 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 o .....

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erpret 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 defined in accounting principles. Goods for export do not incur excise duty liability. As stated above, even commission and interest formed a part of the profit and loss account, however, they were not eligible for deduction under Section 80HHC. They were not eligible even without the clarification introduced by the legislature by various amendment .....

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business profits as computed under Section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. 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 tot .....

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es 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) fo .....

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o 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 .....

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