TaxTMI 
TaxTMI 
2005 (6) TMI 252
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....: 2. In cross objection the assessee has raised the following grounds:- "The Commissioner of Income-tax (Appeals) erred in confirming the following sums as forming part of total turnover as defined under section 80HHC of the Income-tax Act. Sale of yarn : Rs. 42,64,575 Sale of condemned material : Rs. 6,32,125 3. The ld. AR submitted that the issues are covered in favour of assessee in respect of sale of yam and sale of condemned materials by the order of the Tribunal in the case of assessee for the assessment year 1994-95 in ITA No. 337/98 and in respect of the issue whether processing charges can be included in total turnover or not, by the order of the Tribunal in the case of Dy. CIT v. Virudhunagar Textiles in [IT Appeal No. 47 (Mad.) of 1997 (copies of both orders filed on record)]. He further submitted that in both these cases, the ratio laid down by the Hon'ble jurisdictional High Court in case of CIT v. Madras Motors Ltd./M.M. Forgings Ltd. [2002] 257 ITR 60 (Mad.) has been followed and thus the issue is also covered by the decision of jurisdictional High Court in the case of Madras Motors Ltd. 4. On the other hand, the ld. DR submitted that these decisions are....
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....chandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. (3) For the purposes of sub-section (1),- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee;" 8. A reading of this provision very clearly shows that where an assessee being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise is entitled for deduction as prescribed in the section. Sub-section (2) very clearly provides that this section applies to all goods or merchandise other than those specified in clause (b), which means negative goods which consist of mineral oil, minerals and ores. Sub....
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....t Rs. 200 (i) If correct meaning of section is taken, then export profit will be determined as under:- (ii) However, if assessee's interpretation is accepted, then assessee is getting deduction not only on export profit, but also on domestic sale (Turnover of other goods not included in total turnover). Here, 'A' is getting higher deduction than he is entitled. 9. In the above illustrations, the basic assumption was that the assessee is having 10 per cent profit on all the activities conducted by the assessee. To understand the formula given by the Legislature the simple assumption was made. In actual business scenario, things may not be as simple and assessee may be deriving higher or lower Income on various goods and again on export and domestic business, the proportion of profit may be lower or higher. To obviate the difficulty of determining the profit from export business, Legislature has propounded the average theory and proportionate profit from such proportionate export turnover is mandated to be determined by applying the formula. 10. From the above Illustrations, it is clear that there is no difficulty if assessee is engaged in the business ....
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....d no contradiction to our findings. At page 72, it is observed as under:- "The sub-section has been created only to see the ratio of the income out of the export to the total income out of the business in respect of those goods because of the obvious difficulty of segregating the profits earned out of export alone vis-a-vis the profits earned otherwise than by export. The total profits earned out of the business of such goods are not exemptible because those profits would include both profits out of exports and the profits earned otherwise than by export but one thing is certain that the business contemplated in the sub-section would be in relation to those goods alone to which the section applies as per clause (a) of sub-section (2). Once we read sub-section (1) of section 80HHC, clause (a) of sub-section (2) and clauses (a) and (b) of sub-section (3), there remains no doubt that the total turnover of the business would contemplate only the business regarding such goods part of which are exported and the others are not so exported. There is just no scope to include the turnover of the business of the goods which are not contemplated by the section. That way, though the Legislatu....
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.... was considered by the Bombay High Court in the case of CIT v. Bangalore Clothing Co. [2003] 260 ITR 371. It appears that the processing charges are received for job work done by the assessee by using the spare capacity of the machine by utilizing the goods supplied by others. Therefore, it is very clear that the job processing activity was linked to the manufacturing activity of the assessee. Therefore, the income owned by the assesse as job work charges or processing charges accrues by way of operational income. Therefore, it has to be included in the total turnover in view of the judgment of the Bombay High Court in the case of Bangalore Clothing Co. In view of the above, we confirm the order of the lower authority on this issue." 18. In this regard, we may also refer to the decision of the Hon'ble Calcutta High Court in CIT v. Chloride India Ltd. [2002] 256 ITR 625 where the issue has been discussed in detail at page 629 and it is observed as under:- 'Having regard to the rival contentions raised by Mr. Mallick and Mr. Agarwal, appearing for the revenue, and Dr. Pal, appearing for the assessee, and the relevant provisions of the Act and the principles of law as laid ....