Section 80HHC: Octroi, sales tax and excise excluded from total turnover for deduction; Tribunal view upheld

Calcutta HC held that octroi, sales tax and excise duty must be excluded from total turnover when computing deduction under section 80HHC. Applying principles of statutory construction, the court found that definitions and levies under separate enactments cannot be imported into section 80HHC, and therefore upheld the Tribunal's view. The reference was answered in favour of the assessee and against the Revenue.

---

---

Issues Involved:
1. Whether octroi, sales tax, and excise duty should be excluded from the "total turnover" while computing the deduction u/s 80HHC of the Income-tax Act, 1961.

Summary:

Issue 1: Exclusion of Octroi, Sales Tax, and Excise Duty from "Total Turnover" u/s 80HHC

The assessee, a private limited company engaged in the manufacturing and export of automobile batteries, contended that octroi, sales tax, and excise duty should be excluded from the total turnover while computing the deduction u/s 80HHC of the Income-tax Act, 1961. The Tribunal agreed with the assessee, stating that both the export turnover and the total turnover should consist of the same components or ingredients to maintain uniformity. Therefore, the Tribunal directed the exclusion of these statutory levies from the total turnover.

The Revenue argued that the definition of "total turnover" in Explanation (bb) and later in clause (ba) did not expressly exclude octroi, sales tax, and excise duty. They contended that these items should be included in the total turnover, as their exclusion was not mandated by the statute. They cited the Supreme Court judgment in McDowell and Co. Ltd. v. CTO, which defined "turnover" to include all sums charged by the dealer.

The assessee, represented by Dr. Pal, argued for a liberal interpretation of section 80HHC to promote exports. He contended that the turnover should only include receipts with an element of profit, excluding statutory levies like octroi, sales tax, and excise duty, which do not contribute to profits. He cited various cases to support a purposive interpretation of the statute.

The Court found merit in the assessee's contention, emphasizing that both the export turnover and total turnover should include items with a nexus to the sale proceeds. Including octroi, sales tax, and excise duty in the total turnover would distort the formula used to compute export profits, making it unworkable. The Court referred to the Bombay High Court's decision in CIT v. Sudarshan Chemicals Industries Ltd., which supported the exclusion of these items from the total turnover.

The Court held that the interpretation of "turnover" under the Sales Tax Act could not be applied to the Income-tax Act. It emphasized that the statutory levies should not be included in the total turnover as they do not have any element of profit. The Court concluded that the Tribunal was right in excluding octroi, sales tax, and excise duty from the total turnover while computing the deduction u/s 80HHC.

The question of law was answered in the affirmative, in favor of the assessee, and against the Revenue. Both reference cases, I.T.R. Nos. 131 of 1995 and 136 of 1995, were disposed of accordingly, with each party bearing its own costs.

Concurrence:
TARUN CHATTERJEE J. concurred with the judgment.

---