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2003 (2) TMI 15

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....nd in view of Explanation (ba) to section 80HHC and clauses (iiia), (iiib) and (iiic) of section 28, will not turnover take into account all other receipts other than the excluded items of receipts?" In I.T.A. Nos. 30 and 72 of 2000 these are the only two questions raised whereas in I.T.A. Nos. 86 and 105 of 2000 the first two questions raised are the same as extracted earlier. However, in those two cases the following two questions also arise: "3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that interest on the deposit accounts made not for the purpose of the business alone would be assessable separately as income under the head 'Other sources' and is such a 'distinction drawn by the Tribunal in accordance with law? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is right in taking the above view in view of the decision of the Kerala High Court in the cases of Collis Line Pvt. Ltd. v. ITO [1982] 135 ITR 390; CIT v. Cochin Refineries Ltd. [1985] 154 ITR 345 and Nanji Topanbhai and Co. v. Asst. CIT [2000] 243 ITR 192?" Though in I.T.A. No. 105 of 2000 one more question is there it is a f....

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....is in appeal before this court. We have heard Sri P.K.R. Menon, Senior Central Government Standing Counsel for Taxes appearing for the applicant and Sri P. Balachandran, learned counsel for the respondents-assessees. In order to appreciate the rival contentions it is necessary to refer to the relevant provisions of section 80HHc. Section 80HHC as it stood at the relevant time reads as follows: "80HHC. Deduction in respect of profits retained for export business.--(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, 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 export of such goods or merchandise... (3) For the purposes of sub-section (1), (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export ....

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....ods bears to the total turnover of the business carried on by the assessee. It also provides that where the export out of India is of goods or merchandise manufactured or processed by the assessee and, of trading goods, the profits derived from such export, shall, in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee, and 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. The proviso to sub-section (3) states 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 clauses (iiib) and (iiic), of section 28, the same proportion as the export turnover bears to the total turnover of the business car....

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....llows: "Turnover" of the dealer includes the entire sum paid by the purchaser as consideration for the sale of goods though part of it might be styled price and another part as sales tax in the bill or invoice issued to the purchaser. Going by the above definition of the word "turnover" one thing is clear that the consideration received must be for the sale of goods and it must be available with the assessee for being turned over, or in other words it must come to the assessee's till as the money belonging to him. It has got relation to the capital employed in the business; turnover has also got relationship with profits of the business. The assessee admittedly is a registered dealer under the K.G.S.T. Act. The word "turnover" defined in section 2(xxvii) means the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration. Explanation 1(A)(i) says that the turnover in respect of works contract shall be the aggregate amount received or receivable by the dealer for the transfer of goods (wheth....

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....ssee. In the present case admittedly the assessee has processed raw cashew nuts belonging to third parties in his factory and had only collected the processing charges. As already noticed, the contention of the Department is that the processing charges received by the assessee must be treated as turnover of the business of the assessee and is liable to be included in the total turnover. We are unable to accept the said contention for the reason that what is includible in the total turnover is only the consideration for the transfer of goods effected by the assessee and the expenses incurred in connection with the said transfer, of course excluding the freight or insurance attributable to the transport of goods or merchandise. In fact a question arose before the Division Bench of this court in I.T.A. No. 98 of 1999 (CIT v. T.C. Usha [2003] 264 ITR 368 (Ker)) where an assessee, who is engaged in the business of local and export sales of cashew kernels claimed relief under section 80HHC While computing the total turnover, the Assessing Officer included therein Rs. 10,045 and Rs. 1,17,483 towards claim for bad quality of raw nuts purchased. According to the assessee, these two amount....

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....the meaning of total "turnover" there must be transaction either by way. of purchase or by way of sale of goods. This decision, according to us, will also apply to the facts of the case on hand. Counsel for the assessee also took us to the circulars issued by the Central Board of Direct Taxes. Central Board of Direct Taxes Circular No. 564 dated 5th July, 1990, is a clarification regarding deduction under section 80HHC of the Income-tax Act, 1961. With reference to the definition of "total turnover" occurring in the Explanation to section 80HHC, in paragraph 9 of the said circular, it is stated that in order to arrive at the amount deductible under section 80IlliC in the case of an assessee doing export business as well as some other domestic business, the fraction of "export turnover" to "total turnover", will be applied to his profits computed under the head "Profits and gains of business or profession". Thereafter illustration is given with regard to the operation of section 80HHC read with section 28 as amended by the Finance Act, 1990. It categorises four types of transactions. Code I--Exclusively export business, Code II 2/3 export, 1/3 domestic sale. Code III 1/2 export, 1/....

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....ssee was not entitled to claim deduction under section 80HHC Another Division Bench of the Bombay High Court in (CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769) held that excise duty and sales tax are not includible in total turnover for the purpose of computation of special deduction under section 80HHC It was observed that turnover should be restricted to such receipts which have an element of profit in it and that it is only the actual sale price which is relevant. Again the Bombay High Court in CIT v. Kantilal Chhotalal [2000] 246 ITR 439 considered the question whether reassortment charges (commission received by the assessee from local parties in India from. their export sale) were includible in business profits in the formula of                                        Export turnover Business profits   *    ------------------------                    &....