2002 (1) TMI 960 - AT - Income Tax

Tribunal allows appeals: Freight charges surplus included in sale price for section 80-I deduction

The Tribunal allowed the appeals, determining that the surplus from freight outward charges should be considered part of the sale price for the purpose of ... Freight forms part of sale price - surplus from freight outward to be included in turnover - Deduction under section 80-I - allocation/bifurcation of sale price - turnover inclusion of charges shown separately on invoiceFreight forms part of sale price - surplus from freight outward to be included in turnover - Deduction under section 80-I - Whether the surplus arising from freight outward collected by the assessee is part of the sale price and hence eligible for deduction under section 80-I. - HELD THAT: - The Tribunal examined the purchase/supply orders and the invoices which showed a bifurcation of the sale price with freight charged at a fixed rate (not varying with actual dispatch distance or weight). This uniform, contractually-stipulated freight component indicated that the amount was not a reimbursement of actual transport cost but a component of the sale consideration fixed by the purchasing electricity boards. The Tribunal accepted the assessee's submission that the company did not carry on transport business and that the surplus (difference between freight collected and freight paid) represented a part of the sale price rather than income from a separate non-manufacturing activity. The Tribunal noted and applied the view in the jurisdictional High Court decision in Birla Jute Mfg. Co. Ltd. that such freight forms part of turnover. Consequently, the surplus in the freight outward account for the years under appeal must be treated as part of sale receipts for the limited purpose of computing deduction under section 80-I, and the matter was remitted to the Assessing Officer to allow the deduction accordingly. [Paras 6]Surplus arising from freight outward is part of the sale price and the Assessing Officer is directed to allow deduction under section 80-I on that surplus for both years.Final Conclusion: Appeals partly allowed; the Tribunal set aside the CIT(A)'s finding and directed the Assessing Officer to allow deduction under section 80-I in respect of the surplus freight received by the assessee for the assessment years 1990-91 and 1991-92. Issues:1. Whether freight charges constitute the sale price of manufactured products for the purpose of section 80-I deduction.Analysis:The appeals were initially decided, but later a misc. application was allowed to reconsider whether freight constitutes the sale price for section 80-I. The Assessing Officer did not agree that freight outward charges should be excluded for the deduction under section 80-I. The appellant argued that the freight collected was part of the sale price fixed by the Electricity Board and was not income from activities other than manufacturing. The CIT(A) dismissed this argument.Before the Tribunal, the appellant presented purchase orders showing the bifurcation of sale price and freight charges. The appellant claimed the benefit of section 80-I only on the surplus from freight outward charges. The appellant contended that the surplus arose due to the policy of the Electricity Board, and it should be considered part of the sale price. The appellant cited a judgment of the M.P. High Court regarding the inclusion of railway freight in turnover. The Tribunal did not consider the issue of bank interest deduction as it was beyond the limited purpose of the recall order.The Tribunal found merit in the appellant's argument regarding freight outward charges. It observed that the purchase price was divided into segments including freight, and the freight charged was part of the sale price bifurcated separately. Citing the judgment of the jurisdictional High Court, the Tribunal agreed that the surplus from freight charges should be considered part of the sale price for allowing deduction under section 80-I. Consequently, the order of the CIT(A) was set aside, and the Assessing Officer was directed to allow the deduction under section 80-I on the surplus of freight charges in both years.In conclusion, the appeals were partly allowed based on the finding that the surplus arising from freight outward charges was deemed part of the sale price for the purpose of section 80-I deduction.