2010 (9) TMI 381 - HC - Income Tax

Supreme Court: Excise duty not part of turnover for tax deduction under Section 80HHC

The Supreme Court ruled in favor of the assessee, affirming that excise duty should not be included in the total turnover for claiming a deduction under ... Section 260A of the Income Tax Act, 1961 - Whether on the facts and in the circumstances of the case, the Hon'ble I.T.A.T. was justified in law in allowing assessee's claim of deduction under Section 80 HHC of the I.T. Act, 1961 - CIT V. Lakshmi Machine Works (2007 -TMI - 6557 - SUPREME Court) - as can be seen from the Income Tax Rules and from the above Form No.10CCAC in the case of deduction under Section 80HHC a report of the auditor certifying deduction based on export turnover was sufficient - The question of law is thus decided against the department, and in favour of the assessee The excise duty is not to be included in the total turnover for the purpose of computation of deduction u/s 80HHC of the I.T. Act, 1961 Issues:1. Interpretation of Section 80HHC of the Income Tax Act, 1961 regarding the inclusion of excise duty in the total turnover for the purpose of deduction.Analysis:The primary issue in this case revolves around the interpretation of Section 80HHC of the Income Tax Act, 1961, specifically concerning the treatment of excise duty in the total turnover for the purpose of claiming a deduction. The Income Tax Appellate Tribunal allowed the assessee's claim of deduction under Section 80HHC based on the judgment of the Bombay High Court in Sudarshan Chemicals Industries Ltd. The Bombay High Court's decision was further supported by judgments in related cases, emphasizing that excise duty should not be included in the total turnover for assessment. The Supreme Court, in CIT v. Lakshmi Machine Works, reiterated this stance by explaining that the formula under Section 80HHC aims to segregate export profits from business profits. The Court highlighted that excise duty and sales tax should not be considered part of the total turnover to make the formula workable and to ensure that only profits related to exports are exempted. The legislative intent behind Section 80HHC is to incentivize exports by exempting profits linked to export activities. The Court emphasized that the formula for deduction under Section 80HHC is based on business profits as computed under Section 28, which must be apportioned based on the ratio of export turnover to total turnover.The judgment also delves into the concept of profits and gains under the Income Tax Act, emphasizing that the tax is imposed on income, profits, and gains rather than gross receipts. The Court clarified that while the charge is not on gross receipts but on profits and gains, the definition of income includes profits and gains. The interpretation of 'total turnover' within the formula of Section 80HHC requires a comprehensive analysis of export turnover, total export turnover, and business profits to ensure that only profits related to exports are eligible for deduction. The Court highlighted that deductions should be allowed if necessary to ascertain profits and gains, even if such expenses are not expressly disallowed by the Act. The judgment emphasized that the legislative intent behind Section 80HHC is to promote exports by providing incentives and that the formula for deduction is designed to exempt profits specifically linked to export activities.In conclusion, the Court ruled in favor of the assessee, affirming the interpretation that excise duty should not be included in the total turnover for the purpose of claiming a deduction under Section 80HHC of the Income Tax Act, 1961. The decision aligns with previous judgments and the legislative intent to incentivize exports by ensuring that only profits related to export activities are eligible for deduction. The judgment provides a detailed analysis of the relevant legal provisions and judicial precedents to support the interpretation regarding the treatment of excise duty in the context of claiming deductions under Section 80HHC.