TaxTMI 
TaxTMI 
2010 (10) TMI 496
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....n the circumstances of the case, the hon'ble Income-tax Appellate Tribunal was right in law in holding that sale of scrap in India is not a part of total turnover of the respondent-firm for the purposes of calculation of deduction under section 80HHC ? (ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in ignoring the sale of scrap in computing the total turnover, when such generation was a by-product of manufacturing process ? (iii) Whether, on the facts and in the circumstances of the case, a by-product in a manufacturing process is not eligible for being considered in computation of the total turnover for computing section 80HHC deduction ?" 3. The aforesaid questions of law being inter-related are taken up together for decision. The solitary issue that would require determination is whether the scrap which had been generated during the manufacturing process and was sold in the domestic market would form part of the total turnover. 4. Briefly the facts which are essential for the decision of the appeal may be noticed. 5. The assessee is a registered firm. The return of....
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....ission. Support was also gathered from the decision of the Kerala High Court in CIT v. Kar Mobiles Ltd. [2011] 333 ITR 478 (Ker), I. T. A. No. 773 of 2009, decided on January 15, 2010. 10. On the other hand, controverting the submission made by the learned counsel for the Revenue, learned counsel for the assessee laid stress on the judgments in CIT v. Madras Motors Ltd./M. M. Forgings Ltd. [2002] 257 ITR 60 (Mad), CIT v. Wheels India Ltd. [2005] 275 ITR 319 (Mad), CIT v. Sundaram Clayton Ltd. [2006] 281 ITR 425 (Mad), CIT v. Shiva Distilleries Ltd. [2007] 293 ITR 108 (Mad), CIT v. Ashok Leyland Ltd. [2008] 297 ITR 107 (Mad), CIT v. Punjab Stainless Steel Ind. [2007] 162 Taxman 9 (Delhi), CIT v. Lakshmi Machine Works [2007] 290 ITR 667 (SC) and CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769 (Bom). Support was also sought from the decisions of this court in I. T. A. No. 362 of 2004 decided on October 29, 2009 (CIT v. Porrits and Spencer (A) Ltd. and CIT v. Vardhman Polytex Ltd. [2008] 296 ITR 382 (P&H). 11. In order to effectively resolve the controversy, it would be advantageous to refer to certain provisions of the statute. Section 80HHC(3) releva....
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....ight or insurance. A conjoint reading of both the clauses leads to one conclusion that they include anything which has nexus with the sale proceeds. In other words, they exclude everything which has no nexus with the sale proceeds. 14. Having examined the provision relating to "export turnover" and "total turnover", it is apt to refer to the judicial enunciation on the point and interpretation placed by various pronouncements. (i) The Division Bench of the Madras High Court in Madras Motors Ltd.'s case [2002] 257 ITR 60 was seized of the matter relating to two deductions, i.e., one under section 80HH and the other under section 80HHC of the Act. In so far as the claim of the assessee in respect of deduction under section 80HH is concerned, it need not be referred to as the same is not relevant for purposes of the present case. However, reference is made to controversy relating to deduction under section 80HHC of the Act. The assessee was an export oriented company which was manufacturing forgings and derived income from interest receipt, modvat credits and international price rationalisation. The assessee had sold its forgings in India and earned income from loc....
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....uction admissible to the assessee under section 80HHC on export turnover. It was observed thus (pages 773-774) : "Under section 80HHC, the Legislature intends that the profits from exports should not be taxed. For this purpose, a formula has been introduced whereby if the business is of composite nature then the proportionate profit relatable to the export business is to be found out by multiplying the profits of a business by the export turnover and dividing the product by the total turnover. This formula finds place in section 80HHC(3) as it stood at the relevant time. Under clause (b) of the Explanation to section 80HHC, export turnover is defined to mean sale proceeds received in India by the assessee in foreign exchange. Under the said definition, export turnover is defined to mean the sale proceeds of any goods which are exported out of India but which will not include freight or insurance. Clause (ba) defines total turnover to exclude freight or insurance. This clause (ba) explains the turnover in a negative manner so as to exclude freight or insurance. Therefore, a combined reading of the above two clauses shows that they include anything which has nexus with the ....
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....its and gains of business', the same proportion as the export turnover to the total turn-over. The emphasis is on the words 'profits derived from the exports'. Therefore, weightage must be given to such profits. Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have an element of profit in it. It is only the actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even according to the accounting principles, such levies do not form part of the profit and loss account. In fact, they are shown as liability in the balancesheet. In the circumstances, the above two items cannot be included in the total turnover. We prefer this interpretation as it advances the object sought to be achieved by the Legislature. Lastly, we are of the view that sales tax and excise duties are levied under the separate enactments which have different objects. We are concerned with section 80HHC which is separate code by itself. Hence, the general definit....
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....is not an export sale. He further contends that the Madras High Court in CIT v. Madras Motors Ltd./M. M. Forgings Ltd. [2002] 257 ITR 60 has fairly held that for the purpose of computing section 80HHC, only the turnover relating to export business of the assessee shall be taken into account and not the turnover relating to the other business of the assessee. Relying upon these two decisions, he requests the court to answer the question of law against the Revenue and in favour of the assessee. Having heard the counsel for the parties, we have to consider whether the value received by the assessee by selling scrap in a domestic market has to be included towards its total turnover while calculating deduction under section 80HHC. By looking into the definition of export turnover and the total turnover as defined under section 80HHC(4C) Explanation (b) and (ba), it is clear they are different and distinct turnovers. The export turnover includes only the value received by selling the products of the assessee from out of country. But total turnover includes the turnover of the assessee which is inclusive of export turnover and also the domestic turnover. Therefore, we are of the....