High Court of Madras
Case Law Search
The Commissioner of Income Tax v. M/Sundaram Clayton Ltd. - T.C.No.1041 of 2005  RD-TN 753 (26 October 2005)
IN THE HIGH COURT OF JUDICATURE AT MADRAS
THE HON'BLE MR.JUSTICE P.D.DINAKARAN
THE HON'BLE MR.JUSTICE N.KANNADASAN
T.C.No.1041 of 2005
and T.C.No. 1042 of 2005
The Commissioner of Income Tax,
Chennai. ... Appellant
M/Sundaram Clayton Ltd.,
Chennai ... Respondent
T.C.Appeals filed against the order of Income-tax Appellate Tribunal made in ITA.Nos.696/Mds/1996 and 2326/Mds/97, dated 8.11.2004. For appellant : Mrs.Pushya Sitaraman,Sr.SC. For IT For Respondent : ---
(Delivered by P.D.DINAKARAN,J.)
Against the order of the Appellate Tribunal in ITA.Nos.696/Mds/1996 and2326/Mds/97, dated 8.11.2004, the Revenue has preferred the appeals and raised the following common substantial question of law: " Whether in the facts and circumstances of the case, Tribunal was right in holding that sales tax, excise duty, sales of raw materials, charges of miscellaneous income and commission does not form part of the turnover for the purpose of calculation of deduction u/s.80HHC?"
2. The Revenue is the appellant. The assessment years involved in the appeals are 1992-93 and 1993-94. The assessee claimed sales-tax, excise duty, sales of raw materials, charges of miscellaneous income, commission, etc. for availing the relief under section 80HHC of the Income-tax Act, but the Assessing Officer disallowed the same. The Commissioner of Income-tax (Appeals), in the appeal by the assessee, directed the assessing officer to recompute the total income of the assessee and partly allowed the appeal. The Appellate Tribunal, following the decision of this Court in CIT v. MADRAS MOTORS LTD./M.M. FORGINGS LTD. (257 ITR 60), held that the above amounts could not be treated as a part of turnover, but as a part of profit and decided the issue in favour of the assessee. The said order of the Appellate Tribunal is put in issue in the present appeals.
3. It is fairly submitted by the learned counsel appearing for the appellant that the issue raised in the question is covered against the Revenue by the decisions of this Court in CIT v. MADRAS MOTORS LTD./M.M.FORGINS LTD. (257 ITR 60) as well as in CIT V. WHEELS INDIA LTD. (275 ITR 319).
4. In CIT v. MADRAS MOTORS LTD./M.M.FORGINS LTD. (257 ITR 60), a Division Bench of this Court, referring to the decision of Bombay High Court in C.I.T. v. Sudarshan Chemicals Industries Ltd. (245 ITR 769), held as under:-
".... we are of the clear opinion that the turnover from the business of sale of motorcycles, motorcycle spare parts, television sets cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which the assessee is entitled to. That would be clearly going against the object of section 80HHC, which is solely to encourage the exports. The Bombay High Court in a somewhat similar situation in the decision reported in CIT v. Sudarshan Chemicals Industries Ltd.  245 ITR 769, while interpreting the words "total turnover" has observed as follows : "That the total turnover cannot include the sales tax and the excise duty and total turnover should be restricted only to such receipts which have an element of profit in it and it would be only the sale price which should be the relevant figure."
In that case, the total turnover which is the denominator in the prescribed formula was tried to be inflated by including the sales tax and the excise duty into the same. Though the court was considering the amended section, its observations are apposite. The Bombay High Court in that case took into account the object of the section and observed as under: "In the circumstances, we are of the view that in order to ascertain the export profits, the above two items cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which an assessee is entitled to. Ultimately, the object of section 80 HHC is required to be kept in mind in order to encourage exports."
We are in total agreement with the above observations."
5. In CIT V. WHEELS INDIA LTD. (275 ITR 319), the Division Bench of this Court, in which one of us was a party, after considering the question in detail, held as under:-
" When the definition of total turnover excludes incidental expenses such as freight and insurance, which amount has to be borne by the assessee for safe transportation of his goods from and out of his pocket, it is highly impossible to accept the contention that the term, 'turnover' would include the excise duty and sales tax components which are all indirect taxes and which the assessee has to collect and pay over to the Government and such statutory dues will not have any element of profit of business. .... The object of section 80HHC is required to be kept in mind while considering that section. The general definition of the word 'turnover' or the definition under the sales tax laws or the case law dealing with the definition of turnover under the State levy cannot be imported into section 80HHC of the Act, particularly, when such expressions are are incorporated and explained in the provision itself. Sales tax and excise duty are not to be included in the total turnover while computing the deduction under section 80HHC."
4. In view of the above settled law, we are of the considered view that the Appellate Tribunal was right in holding that the sales tax, excise duty, sales of raw materials, charges of miscellaneous income and commission do not form part of the turnover for the purpose of calculation of deduction under section 80HHC of the Act. Accordingly, the question of law referred to above is answered in the affirmative, against the Revenue and in favour of the assessee. The appeals are dismissed. No costs. Index: Yes
1. The Assistant Registrar,
Income-tax Appellate Tribunal,
Rajaji Bhavan, Besant Nagar,
Chennai (5 copies with records)
2. The Secretary, Central Board of Direct Taxes, New Delhi ( 3 copies)
3. The Commissioner of Income-tax (Appeals),VII, Madras.
4. The Deputy Commissioner of Income-tax
Spl. Range II, Madras-34.
5. The Commissioner of Income-tax,
Tamil Nadu III, Madras.
Double Click on any word for its dictionary meaning or to get reference material on it.