TaxTMI 
TaxTMI 
2005 (6) TMI 252
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....ross sales and hence it will include the receipts of conversion charges: 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 ....
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....pplies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise 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 o....
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....d unspecified goods. Total turnover Rs. 2,000 Total turnover of specified goods Rs. 1,500 Export turnover of specified goods Rs. 1,000 Domestic sale of specified goods Rs. 500 Domestic sale of non-specified goods Rs. 500 Business profit 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....
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....ion under section 80HHC can be allowed only on the profits from export of the goods and if element of profit is involved on some transaction same has to be included in total turnover. 13. Now let us consider the decision of the Hon'ble Madras High Court in the case of Madras Motors Ltd. and on principles we find 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 ....
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....(copy of order placed on record). Vide para 24, it was observed as under:- "24. The next ground of appeal is regarding inclusion of processing charges in the total turnover for the purpose of section 80HHC. During the course of hearing, it was submitted by both the representatives of the assessee and the revenue that a similar issue 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. Chlorid....
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....sessee, profits derived by the assessee from the exports are clearly deductible. Section 80HHC(3)(a) lays down that where the export is of goods, 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. So the emphasis should be laid on the words profits derived from the exports" and as such weightage must be given to such profits which cannot be reduced artificially by including statutory levies in the total turnover. In the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769, the Division Bench of the Bombay High Court clearly held that the turnover should be restricted to such receipts which have an element of profit in it and it is only the actual sale price which is relevant. We find no reason to differ from the view of the Division Bench of the Bombay High Court expressed in the above noted case. In our view, octroi, excise duty and sales tax cannot have any element of profit and as such those items cannot be included in the total turnover. If contrary view is taken that will m....