TMI Blog2003 (3) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the court was delivered by G. SIVARAJAN J.-These two appeals are filed by the Revenue against the common order of the Income-tax Appellate Tribunal, Cochin Bench, in I.T.A. Nos. 798 and 799 (Coch) of 1994 filed by them in respect of the assessment H years 1989-90 and 1991-92. The appeals filed by the respondent-assessee (I.T.A. Nos. 652 and 653 (Coch) of 1994) for the very same assessment years were also disposed by the said common order. The appeals filed by the Revenue were allowed in part and the appeals filed by the assessee were dismissed. There are no appeals by the assessee. Common questions of law arise for consideration in both these appeals. The only difference is in the amount in the two cases. Hence, these two cases are being disposed of by this common judgment. The respondent-assessee is a leading exporter of spices in South India. In the assessment under the Income-tax Act, 1961 (for short "the Act"), for the years 1989-90 and 1991-92, the assessee claimed deduction under section 80HHC of the Act in respect of interest received on fixed deposits. The assessee had also excluded the agency despatches from the total turnover for the computation of the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income under section 80HHC of the Act. The Assessing Officer had noted that in the appeal against the assessment order for the assessment year 1990-91 the first appellate authority had taken the view that interest on fixed deposit with the banks has to be treated as business income eligible for deduction under section 80HHC. However, since the said order was pending in appeal the Assessing Officer had maintained the stand that interest income is assessable under the head "Other sources". The claim was accordingly rejected. In the appeals against the assessment order for the years 1989-90 and 1991-92 the first appellate authority, relying on the appellate order for the year 1990-91, allowed the deduction in respect of the interest on deposits with the bank. In appeals by the Revenue, the Tribunal concurred with the view of the first appellate authority. The question as to whether interest income from bank deposits would constitute "business income" for the purpose of computation of the deduction under section 80HHC came up for consideration before this court in CIT v. Jose Thomas [2002] 253 ITR 553. The Division Bench, relying on its earlier decision in CIT v. Parekh Brot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 80HHC. The first appellate authority, relying on its earlier decision in the appeal against the assessment for 1990-91 directed the Assessing Officer to exclude the agency despatches from the total turnover for these years also. Though the Revenue challenged the said finding in appeal, the Tribunal concurred with the first appellate authority's view and dismissed the appeal. The contention of learned counsel for the Revenue is that the assessee itself had included the agency despatches under the head "Sales" in the profit and loss account and moreover the agency despatches form part of the turnover for the purposes of sales tax assessment. It was also contended that in view of the exclusive definition of total turnover only the sums referred to in clauses (iiia), (iiib) and (iiic) of section 28 are to be excluded. The contention of learned counsel for the assessee is that the expression "total turnover" of the business carried on by the assessee used in section 80HHC(3)(b) in the absence of any definition of "turnover" must be confined to the turnover of the product which the assessee was exporting and that at any rate, only the turnover of own goods can be included i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k out the deduction of export profits from the gross total income is Profits of the business -------------------------- x Export turnover Total turnover The expressions "export turnover" and "total turnover" are defined in the Explanation to section 80HHC as follows: "(b) 'export turnover' means the sale proceeds, received in, or brought into India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962): Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression 'total turnover' shall have effect as if it also excluded any sum referred to in clauses (iiia), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the commission is concerned it has no relationship with profit though such receipts have got the characteristic of "income". However, under the sales tax legislations of the States, commission sales are treated as turnover of the agent only because of the definition of the term "dealer" which takes in a commission agent also. The Supreme Court in Cardamom Planters' Association v. Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) [1989] 75 STC 118 has said so. In that case the appellant, a society registered under the Societies Registration Act, 1860, sold the produce of its members who were cardamom growers, under a statutory licence under which it could not charge more than one per cent. of the sale price as commission. Though the appellant had not claimed for purposes of the primary sales tax, that the turnover of the goods dealt with by it on behalf of the principals should be dissected and tax imposed or the basis of the liability of the principal, for the purpose of the surcharge under the Kerala Surcharge on Taxes Act, 1957, it made such a claim, The Supreme Court held that the appellant was clearly a "dealer" within the meaning of the statute, particularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing his liability, the taxable turnover of the dealer has to be found out." It is clear from the decisions of the Supreme Court discussed above that the agency transaction was treated as part of the total turnover of the agent only because of the extended meaning of the definition of "dealer" in the sales tax legislations and not otherwise. Now we will revert to the provisions of the Act dealing with the deduction under section 80HHC of the Act. The deduction is n respect of profits retained for export business. Sub-section (1) clearly provides that where an assessee, being an Indian company or a person 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. Thus in the case of a person who satisfies tie conditions of section 80HHC(1) what is required to get the relief under this section is to ascertain the profit derived by the assessee from the export of the goods or me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover should also constitute the ingredients of total turnover to enable working out the proportionate profit from exports. In fact clause (baa) in the Explanation to section 80HHC inserted by the Finance (No. 2) Act, 1991, defines "profits of the business" where it is clearly stated that the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by ninety per cent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. The scope and effect of all the amendments have been elaborated in Circular No. 621 dated December 19, 1991. Paras 32.10 and 32.11 of the said circular read thus: "32.10. The existing formula often gives a distorted figure of export profits when receipts like interest, commission, etc., which do not have element of turnover are included in the profit and loss account. 32.11. It has, therefore, been clarified that 'profits of the business' for the purpose of section 80HHC will not include receipts by way of brokerage, commission, interest, rent c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or insurance. Therefore, a combined reading of the above two clauses shows that they include anything which has nexus with the sale proceeds. Correspondingly, they show that they exclude everything which has no nexus with the sale proceeds. Further, the meaning of export turnover in clause (b) of the Explanation to section 80HHC, therefore, clearly shows that export turnover did not include excise duty and sales tax. The export turnover is the numerator in the above formula whereas the total turnover is the denominator. The above formula has been prescribed to arrive at the profits from exports. In the circumstances, the above two items, namely, Sales tax and excise duty, cannot form part of the total turnover. In fact, if the denominator was to include the above two items and If the numerator excluded the above two items then the formula would become unworkable." The court further observed as follows: "We prefer this interpretation as it advances the object sought to be achieved by the Legislature. Lastly, we are of the view that sales tax and excise duties are levied under the separate enactments which have different objects. We are concerned with section 80HHC which is a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the business of selling motor cycles, spare parts thereof and television sets, etc. The Assessing Officer took "total turnover" to be the turnover from all the sources of business as the assessee was also doing the business of selling the motor cycles, spare parts thereof and television sets. The contention of the assessee was that the "total turnover" must be confined to the turnover of the product which the assessee was exporting. This was accepted by the Tribunal. The Madras High Court held that the business contemplated in the section would be restricted only to the goods to which the section applies and, therefore, by necessary implication even the total turnover of the business would be the total turnover of the business of the goods to which the section applies. If one includes the turnover of the goods to which the section does not apply, according to the High Court, it would amount to doing violence to the language of the sub-section itself. It is observed that the sub-section has been created only to see the ratio of the income out of the export to the total income out of the business in respect of those goods because of the obvious difficulty of segregating the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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