COMMISSIONER OF INCOME TAX Vs. LUCAS TVS LTD

JUDGEMENT

(1.) THE appeal is filed framing the following questions of law:

(2.) THE assessment year is 1993-94. The return of income for the said assessment year which was assessed under section 143 (3) of the Income Tax Act, 1961. The assessing officer, while completing the assessment, recomputed the benefit under section 80hhc by including the excise duty, sales tax and scrap sales receipts in the total turnover. Aggrieved by that order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who confirmed the order of assessment and dismissed the appeal. The assessee took the matter in further appeal before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal. Aggrieved by the order of the Tribunal, the revenue filed the present appeal by formulating the questions of law as stated above.

(3.) IT is submitted by the learned counsel for the revenue that the first issue is covered by the decision of the apex Court in the case of CIT v. Lakshmi Machine Works (2007) 290 ITR 667 wherein the Court held that Section 80hhc of the Act is a beneficial section; it was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of 'turnover' for the purposes of section 80hhc, excise duty and sales tax also cannot form part of 'turnover'. Just as interest, commission, etc. , do not emanate from the 'turnover' so also excise duty and sales tax do not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent, etc. , do yield profits, but they do not partake of the character of turnover and therefore they are not includible in the 'total turnover'. If so, excise duty and sales tax also cannot form part of the 'total turnover' under section 80hhc (3 ). The Court further held that 'the principal reason for enacting a formula in section 80hhc of the Income Tax Act, 1961 is to disallow a part of the concession thereunder when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words 'total turnover' in the formula in section 80hhc, one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc. , do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the 'total turnover' under section 80hhc (3) of the Act; otherwise the formula becomes unworkable. Hence, following the decision of the apex Court, the first question of law is decided against the revenue and in favour of the assessee.