COMMISSIONER OF INCOME TAX Vs. SUNDARAM CLAYTON LTD

JUDGEMENT

(1.) 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. , 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.) IN 0CIT v. Madras Motors Ltd./M.M. Forgins Ltd. , a Division Bench of this Court, referring to the decision of Bombay High Court in C.I.T. v. Sudarshan Chemicals Industries Ltd. : [2000]245ITR769(Bom) , 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. : [2000]245ITR769(Bom) , 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 80HHC is required to be kept in mind in order to encourage exports.' We are in total agreement with the above observations.