2002 (7) TMI 222 - AT - Income Tax

Excise duty and sales tax in 'total turnover' for s.80HHC export deduction formula excluded; deduction to be recomputed accordingly

Whether excise duty and sales tax should be excluded from 'total turnover' while computing deduction under s. 80HHC(3)(c)(i) was the dominant issue. ... Deduction u/s 80HHC - export of both manufactured and trading goods - income derives from production and sale of Indian Made Foreign Liquor (IMFL), Industrial Alcohol, bottling of spirit and export of marine food - Whether, for the purposes of computation of the amount of deduction under section 80HHC by applying the formula as provided in sub clause (i) of clause (c) of sub-section (3) of the said section, it is necessary to exclude the amounts of excise duty and sales-tax from the figure of 'total turnover' of the business of the assessee for the purpose of bringing in parity between the numerator viz. 'export turnover' and the denominator 'total turnover' in the said formula, inasmuch as, 'export turnover' does not include excise duty and sales-tax which are not leviable on exportable goods ? - HELD THAT:- One can conclude that excise duty and sales-tax constitute part of turnover and trading receipts of the business and therefore, the term 'total turnover', should be taken as inclusive of these levies. The principle seems to be that in Statute directed to commercial men, words having definite commercial sense must be understood in that sense as that would be the natural proper sense in that context has been generally applied by the judicial authorities in the construction of Income tax Act. When it has been held by various judicial authorities that the term like 'turnover' used in fiscal legislation in countries like England, America as well as India has to be held to include the taxes levied also. The reason for such inclusion is stated to be that the dealer who realised the tax does not hand it over forthwith to Government but keeps it with him and turns it over in his business before he parts with it. Thus the tax becomes, for the time being, an integral part of the circulating capital of the tradesman and his turnover in his hands. Therefore, in calculating the total turnover, taxes like sales tax and excise duty are treated as part of the turnover because 'turnover' means the amount of money which is turned over in the business. The two terms, namely, 'export turnover' and 'total turnover' should unless a contra intention appears be given their natural and general meaning as understood in commercial laws as interpreted by the judicial decisions and not the restricted meaning as claimed by the assessee on the ground that one has a particular kind of receipt and therefore the other should also be of similar nature or specie. The contention of the assessee that like should be compared with the like may give absurd results and it could never be applied unless the same type of goods are exported and sold in local market. In the present case, export is stated to be of marine goods, etc. and the local sales are of IMFL, Industrial Alcohol, etc. If the export sale is of a different item than sold in the local market, then also, it can be said that two things - export and local - would not be alike or of the same specie. We, however, find two decisions of the High Court accepting the claim of the assessee on the issue. One is of Bombay High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000 (8) TMI 73 - BOMBAY HIGH COURT] cited at the time of hearing and the other is of Jurisdictional High Court of Calcutta in the case of Chloride India Ltd.[1994 (12) TMI 109 - ITAT CALCUTTA-D]. In these two decisions a contra intention was expressed to the meaning of the term 'total turnover'. It may be stated here that these are the only two decisions of Bombay and Calcutta High Courts which are directly on the issue of interpretation of section 80HHC wherein it was held that excise duty and sales-tax are not part of the total turnover for the purposes of computing export profit within the meaning of section 80HHC(3) of the I.T. Act, 1961. Thus, we are of the opinion that though 'total turnover' may include the receipts of excise duty and sales-tax etc. in its general parlance and under specific statute, because of its wider coverage in the definitions given thereunder, it has to be given a restrictive meaning while computing the 'export profit' for the purposes of section 80HHC namely only that part of the receipt for sale consideration is to be taken as part of the total turnover which has an element of profit therein and, accordingly, the receipts of excise duty and sales-tax which do not include an element of profit should be excluded from 'total turnover'. In the result, the Assessing Officer is directed to compute the deduction under section 80HHC on export profits arrived at on the basis of the export turnover and total turnover exclusive of the receipt of excise duty and sales tax. Issues: Whether, for computing deduction under section 80HHC(3)(c)(i) of the Income-tax Act, 1961, the amounts of excise duty and sales-tax recovered and included in local sales must be excluded from the figure of 'total turnover' so as to align the denominator with the 'export turnover' which does not include such levies.Analysis: The statutory framework comprises section 80HHC (including sub-section (3) and the Explanations defining 'export turnover' and 'total turnover'). 'Export turnover' is defined as sale proceeds received in convertible foreign exchange and expressly excludes freight and insurance; Explanation (ba) excludes freight, insurance and certain export incentive receipts from 'total turnover'. Judicial and commercial meaning of 'turnover' ordinarily includes amounts collected as taxes or duties if they form part of the sale consideration, as reflected in earlier authorities and accepted commercial dictionaries. However, the purpose of section 80HHC is to compute export-derived profits and the apportionment formula in sub-clause (i) of clause (c) requires a denominator that reflects only that part of local receipts which bears an element of profit. Where excise duty and sales-tax are mere pass-through levies without an element of profit, including them in 'total turnover' would distort the apportionment with 'export turnover' which excludes such levies. Precedents and statutory text show that specific exclusions are made where intended; nonetheless, the provision must be construed to produce a fair apportionment of export profit by taking 'total turnover' net of receipts that do not carry profit. Applying these principles to the facts, excise duty and sales-tax recovered in local sales are to be excluded from 'total turnover' for the purposes of computing deduction under section 80HHC(3)(c)(i).Conclusion: Deduction under section 80HHC is to be computed by applying the formula in section 80HHC(3)(c)(i) with 'total turnover' and adjusted turnover excluding the amounts of excise duty and sales-tax; outcome is in favour of the assessee.