2000 (8) TMI 73 - HC - Income Tax

Section 80HHC: Sales Tax and Excise Duty Excluded from Total Turnover for Deduction under Proportionate Profit Formula

HC held that for computing deduction under section 80HHC, sales tax and excise duty are excluded from total turnover. Export turnover (numerator) ... Deduction under section 80HHC - Export turnover - Total turnover - Statutory levies (sales tax and excise duty) - Profits derived from exports - Purposive interpretation to advance legislative objectTotal turnover - Export turnover - Statutory levies (sales tax and excise duty) - Profits derived from exports - Whether sales tax and excise duty are includible in the 'total turnover' for computing deduction under section 80HHC. - HELD THAT: - Section 80HHC grants a deduction by allowing profits derived from exports to be computed by applying the ratio of export turnover to total turnover to business profits. The Explanation defines export turnover as sale proceeds received in India in foreign exchange and expressly excludes freight and insurance; the corresponding negative definition of total turnover excludes freight and insurance as well. Export turnover (the numerator) does not include excise duty and sales tax. The object of the provision is to relieve profits derived from exports; therefore the formula must measure profit related receipts, not statutory levies that have no element of profit. Sales tax and excise duty are statutory impositions payable to separate enactments and, according to accounting treatment, do not form part of trading profit; including them in the denominator would artificially inflate total turnover, reduce the computed export profit and defeat the legislative purpose. Consequently, definitions or authorities under sales tax law cannot be imported to expand 'total turnover' under section 80HHC so as to include these levies, because that would render the formula unworkable and contrary to the scheme and object of section 80HHC.Sales tax and excise duty are not to be included in 'total turnover' for computing the deduction under section 80HHC; the appeals are dismissed.Final Conclusion: The High Court allowed the assessee's contention that statutory levies such as sales tax and excise duty are excluded from 'total turnover' for the purpose of computing deduction under section 80HHC, and the Department's appeals were dismissed with costs. Issues involved: Interpretation of whether sales tax and excise duty should be included in the total turnover for calculating deduction under section 80HHC of the Income-tax Act.Summary:The judgment of the High Court of Bombay, delivered by S. H. Kapadia J., addressed the common question of law in multiple appeals regarding the inclusion of sales tax and excise duty in the total turnover for computing deduction under section 80HHC. The specific case, Income-tax Appeal No. 120 of 2000, concerned the assessment year 1994-95, where the Department contended that these items should be included in the turnover for deduction purposes.Department's Argument:The Department argued that as per the plain words of the section, sales tax and excise duty should be included in the total turnover for section 80HHC deduction calculation. They emphasized that the legislative exclusion of only insurance and freight from the turnover indicated that other items, like sales tax and excise duty, should not be excluded. They also cited a Supreme Court judgment to support their interpretation.Assessee's Argument:On the other hand, the assessee contended that the object of section 80HHC was to promote export turnover growth and that sales tax and excise duty should not be included in the turnover calculation. They highlighted that the formula for deduction under section 80HHC aimed to ascertain profits derived from exports and that including these statutory levies would artificially reduce export profits.Court's Decision:The High Court found merit in the assessee's contentions, emphasizing that the legislative intent behind section 80HHC was to incentivize exports by not taxing export profits. They noted that the formula for deduction clearly excluded sales tax and excise duty from the export turnover, indicating that these items should not be part of the total turnover calculation. The Court highlighted that the object of the section was to encourage exports and that including these statutory levies in the turnover would defeat this purpose. They concluded that sales tax and excise duties, being levied under separate enactments with different objectives, should not be included in the total turnover for section 80HHC deduction calculation.In conclusion, the High Court dismissed all appeals, upholding that sales tax and excise duty should not be included in the total turnover for computing deduction under section 80HHC of the Income-tax Act.