2001 (12) TMI 34 - HC - Income Tax

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 ... Entitlement to deduction in respect of the exports under section 80HHC - Whether the octroi, sales tax and excise duty should be excluded from the total turnover while computing the deduction under section 80HHC - HELD THAT:- It is settled law that the words of a statute, where there is a doubt about their meaning are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the Legislature has in view. This principle of law was laid down by the Supreme Court in the case of Workmen of Dimakuchi Tea Estate [1958 (2) TMI 39 - SUPREME COURT] and other subsequent decisions. In the case of S. Mohan Lal, [1979 (2) TMI 197 - SUPREME COURT], the Supreme Court observed as follows: 'It is not a sound principle of construction to interpret expressions used in one Act with reference to their use in another Act; more so if the two Acts in which the same word is used are not cognate Acts. Neither the meaning, nor the definition of the term in one statute affords a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally. On the other hand, it is a sound, and, indeed, a well-known principle of construction that meaning of words and expressions used in an Act must take their colour from the context in which they appear'. Viewed in this perspective it can well be held that the case of McDowell and Co. Ltd. [1985 (4) TMI 64 - SUPREME COURT] which deals with separate enactments has got no manner of application to interpretation of the words 'total turnover' which find place in the relevant provision of the Income-tax Act. It is to be borne in mind in this context that the sales-tax, octroi and excise duties are levied under the separate enactments which have different objects and as such the general definition of the word 'turnover' or the case law dealing with the said definition under the Sales Tax Act can in no way be imported into section 80HHC of the Income-tax Act with which we are presently concerned. Thus, the Tribunal was right in law in holding that octroi, sales tax and excise duty should be excluded from the figure of 'total turnover' while computing the deduction under section 80HHC of the Act. The question of law referred to us by the Tribunal is answered in the affirmative, 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 80HHCThe 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.