2000 (8) TMI 235 - AT - Income Tax

Tribunal decision: Sales tax, excise duty included in turnover; deductions allowed for rent, municipal taxes.

GUJARAT FLUORO CHEMICALS LTD. Versus JOINT COMMISSIONER OF INCOME TAX.

GUJARAT FLUORO CHEMICALS LTD. Versus JOINT COMMISSIONER OF INCOME TAX. - TTJ 076, 313, Issues Involved:1. Inclusion of sales-tax and excise duty in 'total turnover' for computing deduction under Section 80HHC of the IT Act.2. Disallowance of rent, municipal taxes, and depreciation related to the guest house under Section 37(4).3. Deductibility of sundry balances written off as business expenditure.4. Treatment of interest earned on deposits for deductions under Sections 80HH and 80-I.5. Profits from trading activity and their inclusion in income derived from the industrial undertaking.6. Disallowance of expenditure on a diversification project given up during the year.Detailed Analysis:1. Inclusion of Sales-Tax and Excise Duty in 'Total Turnover' for Section 80HHC Deduction:The primary issue was whether sales-tax and excise duty collected from customers should be included in the 'total turnover' for computing the deduction under Section 80HHC. The assessee argued that these amounts should be excluded as they do not contain an element of profit and are separately credited to accounts for tax liabilities. The Tribunal, however, held that the position is well settled by various Supreme Court judgments that excise duty and sales-tax recovered from customers constitute trading receipts. The Tribunal referred to several decisions, including *Chowringhee Sales Bureau (P) Ltd. vs. CIT* and *Sinclair Murray & Co. (P) Ltd. vs. CIT*, which established that such recoveries are part of trading receipts. The Tribunal also noted that Section 80HHC(3) defines 'total turnover' without excluding sales-tax and excise duty, except for freight and insurance attributable to transport beyond customs stations. Hence, the Tribunal upheld the CIT(A)'s decision to include these amounts in the total turnover.2. Disallowance of Rent, Municipal Taxes, and Depreciation Related to the Guest House:The assessee contested the disallowance of rent, municipal taxes, and depreciation related to the guest house. The Tribunal, following the decision of the Gujarat High Court in *CIT vs. Ahmedabad Mfg. & Calico Printing Co. Ltd.*, allowed the deduction for rent and municipal taxes but disallowed the depreciation, adhering to the Gujarat High Court's ruling in *CIT vs. Gaekwar Mills Ltd.*.3. Deductibility of Sundry Balances Written Off:The assessee argued that sundry balances written off should be deductible as business expenditure under Section 28, even if not allowable under Section 36. The CIT(A) had directed the AO to allow deductions for amounts related to past sales. The Tribunal accepted the assessee's contention and directed the AO to consider advances for purchases written off as business losses under Section 28 if they were non-recoverable.4. Treatment of Interest Earned on Deposits for Deductions under Sections 80HH and 80-I:The assessee sought to include interest earned on deposits in the profits of the industrial undertaking for deductions under Sections 80HH and 80-I. The AO and CIT(A) treated this interest as 'income from other sources,' excluding it from business income. The Tribunal upheld this view, citing the Supreme Court's decision in *Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT*, which established that interest on deposits is taxable under 'income from other sources.' The Tribunal also rejected the assessee's alternative request to net off interest expenses against interest income, as there was no direct nexus between the business activity and the inter-corporate deposits.5. Profits from Trading Activity:The assessee did not press this ground, and it was rejected by the Tribunal.6. Disallowance of Expenditure on Diversification Project:The assessee did not press this ground either, and it was rejected by the Tribunal.Conclusion:The appeal was partly allowed. The Tribunal upheld the inclusion of sales-tax and excise duty in the total turnover for Section 80HHC deductions, allowed deductions for rent and municipal taxes related to the guest house, directed the AO to consider non-recoverable advances as business losses under Section 28, and confirmed the treatment of interest on deposits as 'income from other sources,' excluding it from deductions under Sections 80HH and 80-I. The grounds related to trading activity profits and diversification project expenditure were not pressed and thus rejected.