2007 (2) TMI 151 - HC - Income Tax

Court Rules on Excluding Excise Duty from Turnover for Tax Calculation

The court held that excise duty should not be included in total turnover for Section 80 HHC calculation, aligning with precedent. Scrap sales were also ... E.duty, scrap sales, recoveries of rent and other income and service charges not consider but unabsorbed losses consider for the purpose of deduction u/s 80HHC- depreciation on vehicles allowable -Amount of premium on redemption of debenture is spread over and part is deductible in relevant year Issues Involved:1. Inclusion of excise duty in total turnover for Section 80 HHC calculation.2. Inclusion of scrap sales in total turnover for Section 80 HHC calculation.3. Inclusion of recovery of rent, lease rentals, other income, and service charges in business profits and total turnover.4. Eligibility for depreciation on assets sold but termed as lease transactions.5. Deduction of unabsorbed loss for Section 80 HHC calculation.6. Spreading premium payable on redemption of debentures over future years.7. Re-computation of interest exempted under Section 10(15)(iv).Detailed Analysis:1. Inclusion of Excise Duty in Total Turnover for Section 80 HHC Calculation:The court held that excise duty should not form part of the total turnover for the purpose of calculating deduction under Section 80 HHC. This decision aligns with the precedent set in CIT v. Sundaram Fasteners Ltd., where it was determined that excise duty is not part of the total turnover for this purpose. Consequently, the first question was answered against the Revenue.2. Inclusion of Scrap Sales in Total Turnover for Section 80 HHC Calculation:The court ruled that scrap sales should not be included in the total turnover for Section 80 HHC calculations. This decision was supported by precedents in CIT v. Madras Motors Ltd. and CIT v. NSC Shoes, which established that scrap sales, being incidental and not part of the trading goods or stock-in-trade, should be excluded from total turnover. Thus, the second question was also answered against the Revenue.3. Inclusion of Recovery of Rent, Lease Rentals, Other Income, and Service Charges in Business Profits and Total Turnover:The court addressed multiple aspects under this issue:- Recovery of Rent from Salaries: The Tribunal held that these amounts represent outgoings and recoveries, not business receipts, and should not be included in the computation of business profit for Section 80 HHC.- Lease Rentals: Although considered business income, lease rentals do not form part of the turnover. The Tribunal directed the exclusion of lease rentals from the total turnover for Section 80 HHC.- Service Charges and Other Income: These were treated as business income but excluded from the total turnover. The Tribunal's decision was based on the precedent in CIT v. Madras Motors/M.M. Forgings Ltd.The court upheld these views and answered the third question against the Revenue, confirming that these items should be included as business income but excluded from total turnover for Section 80 HHC.4. Eligibility for Depreciation on Assets Sold but Termed as Lease Transactions:The court examined the nature of transactions between the assessee and MSRTC. Despite the high initial deposit and other sale-like characteristics, the Tribunal found the transactions to be leases based on the terms of the agreements and the treatment under Maharashtra sales tax. The court agreed, noting that the registration, ownership clauses, and lease terms confirmed the lease nature. Consequently, the assessee was entitled to depreciation on the leased vehicles. This question was answered against the Revenue.5. Deduction of Unabsorbed Loss for Section 80 HHC Calculation:The court held that unabsorbed losses must be deducted to arrive at the profits for calculating the deduction under Section 80 HHC. This aligns with the Supreme Court's interpretation in IPCA Laboratory Ltd. v. Deputy C.I.T., which mandates that both profits and losses must be considered in computing total income. Therefore, the Tribunal's decision on this issue was reversed, and the question was answered in favor of the Revenue.6. Spreading Premium Payable on Redemption of Debentures Over Future Years:The court ruled that the premium payable on redemption of debentures should be spread over future years, in line with the Supreme Court decision in Madras Industrial Investment Corporation Ltd. v. CIT and the decision in CIT v. First Leasing Co. of India Ltd. This question was answered against the Revenue.7. Re-computation of Interest Exempted Under Section 10(15)(iv):The Tribunal remanded the matter to the Assessing Officer to re-compute the interest exempted under Section 10(15)(iv), depending on whether the bonds were subscribed or purchased from the market, following the ruling in Vijaya Bank v. CIT. The court found no fault with this remand order, and thus, the question was answered against the Revenue.Conclusion:- T.C.Nos.173 and 174 of 2003: All four questions were answered against the Revenue.- T.C.Nos.404 and 405 of 2004: All questions except the second were answered against the Revenue.- T.C.Nos.1329 and 1330 of 2005: All questions were answered against the Revenue.