2014 (10) TMI 257 - HC - Income Tax

Revenue appeal dismissed: Excise & sales tax can't be in turnover for sec 80HHC deduction

THE COMMISSIONER OF INCOME-TAX AND THE ASST COMMISSIONER OF INCOME-TAX Versus M/s MOTOR INDUSTRIES CO LTD

The appeal by the Revenue against the order passed by the Income Tax Appellate Tribunal is dismissed. The court held that excise duty and sales tax cannot ... Deduction u/s 80HHC - Computation of total turnover - Non-inclusion of excise duty and sales tax – Held that:- Following the decision in Commissioner of Income-Tax vs Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME Court] - The intention was to exempt profits relatable to exports - Just as interest, commission, etc., do not emanate from the 'turnover' so also excise duty and sales tax do not emanate from turnover - Since excise duty and sales tax did not involve any turnover such taxes had to be excluded - excise duty and sales tax also cannot form part of the 'total turnover' under section 80HHC(3)' – Decided against revenue. Receipts from sale of scrap – Held that:- Following the decision in Commissioner of Income-Tax –vs- Punjab Stainless Steel Industries & Others [2014 (5) TMI 238 - SUPREME COURT] it has been held that the raw material, which is not capable of being used for manufacturing the goods will have to be either sold as scrap or might have to be re-cycled of disposed of to someone who would re-cycle the scrap - when such scrap is sold, the sale proceeds of the scrap cannot be included in the term 'turnover' - the proceeds of sale of such scrap would not be included in 'sales' in the profit and loss account of the assessee. 90% of the fees received from Robert Bosch – Held that:- Following the decision in Commissioner of Income-tax Versus Motor Industries Co. Ltd. [2010 (8) TMI 333 - Karnataka High Court] - the assessee was in the business of export of goods and merchandise - The assessee was earning foreign exchange out of that export business - The disputed income was earned by the assessee for its fees towards developmental work from the foreign enterprise - The developmental work was intimately connected with the business of manufacture and sale of goods by the assessee - There was immediate nexus between the activity of export and the developmental work - The consideration received for developmental work was not liable to be deducted under clause (baa) in computing the profits of the business' – Decided against revenue. Issues involved:1. Whether excise duty and sales tax can be included in the total turnover for computation of deduction u/s.80HHC of the Income Tax Act.2. Whether receipts from the sale of scrap can be included in the total turnover for the purpose of deduction u/s.80HHC of the Act.3. Whether fees received from a foreign enterprise can be excluded from the total turnover for the computation of deduction u/s.80HHC of the Act.Analysis:1. The first issue pertains to the inclusion of excise duty and sales tax in the total turnover for the purpose of deduction u/s.80HHC of the Income Tax Act. The judgment cites the case of Commissioner of Income-Tax vs Lakshmi Machine Works, where it was held that excise duty and sales tax cannot form part of turnover for the purpose of section 80HHC. The court emphasized that these taxes do not emanate from turnover and should be excluded. Consequently, the first substantial question of law is answered in favor of the assessee and against the Revenue.2. The second issue revolves around whether receipts from the sale of scrap should be included in the total turnover for deduction u/s.80HHC. Referring to the case of Commissioner of Income-Tax vs Punjab Stainless Steel Industries & Others, the judgment clarifies that sale proceeds from scrap should not be included in turnover. The court highlighted that such proceeds do not fall under the definition of turnover as they are distinct from regular sales proceeds. Therefore, this substantial question of law is also resolved in favor of the assessee and against the Revenue.3. The final issue concerns the exclusion of fees received from a foreign enterprise from the total turnover for deduction u/s.80HHC. The judgment cites a case involving the assessee itself, where it was held that income earned from developmental work intimately connected with the export business should not be liable for deduction under section 80HHC. The court emphasized the immediate nexus between export activities and the developmental work, leading to the conclusion that such income should not be deducted from profits. Consequently, this substantial question of law is also decided in favor of the assessee and against the Revenue.In conclusion, the appeal by the Revenue against the order passed by the Income Tax Appellate Tribunal is dismissed based on the comprehensive analysis and resolution of the substantial questions of law related to the inclusion/exclusion of specific items in the total turnover for the purpose of deduction under section 80HHC of the Income Tax Act.