Full Judgment Text
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CASE NO.:
Appeal (civil) 5173 of 2007
PETITIONER:
Commissioner, Income Tax,Thiruvananthapuram
RESPONDENT:
K. Ravindranathan Nair
DATE OF JUDGMENT: 13/11/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 5173 OF 2007
(Arising out of S.L.P. (C) No24617 of 2003)
With
Civil Appeal No. 5174 of 2007 arising out of S.L.P.(C) No.5647 of 2004,
Civil Appeal No. 5175 of 2007 arising out of S.L.P.(C) No.6267 of 2004,
Civil Appeal No. 5176 of 2007 arising out of S.L.P.(C) No.12609 of 2004,
Civil Appeal No. 5178 of 2007 arising out of S.L.P.(C) No.13747 of 2004,
Civil Appeal No. 5179 of 2007 arising out of S.L.P.(C) No.13748 of 2004 ,
Civil Appeal No. 5181 of 2007 arising out of S.L.P.(C) No.12325 of 2004,
Civil Appeal No.3687 of 2005 and Civil Appeal No.3167 of 2006.
KAPADIA, J.
Processing
Civil Appeal No. 5173 of 2007 arising out of S.L.P.(C) No.24617 of 2003,
Civil Appeal No. 5174 of 2007 arising out of S.L.P.(C) No.5647 of 2004,
Civil Appeal No. 5175 of 2007 arising out of S.L.P.(C) No.6267 of 2004,
Civil Appeal No. 5181 of 2007 arising out of S.L.P.(C) No.12325 of 2004.
Leave granted.
2. This is a batch of civil appeals filed by the Department. For
the sake of convenience we state the facts occurring in Civil
Appeal No. of 2007 arising out of S.L.P.(C) No.24617 of
2003 - Commissioner, Income Tax, Thiruvananthapuram v. K.
Ravindranathan Nair. Assessee-respondent has a factory in
which he processes cashew nuts which are grown in his farm.
Thereafter he exports the cashew nuts as an exporter. For
processing, the assessee has complete infrastructure. He has
plant and machinery in his factory. At the same time, the
assessee processes cashew nuts which are supplied to him by the
exporters on job-work basis. After processing, the assessee
returns the processed cashew nuts to the exporters. He earns
processing charges. Therefore, the assessee is an exporter and a
job worker.
3. Computation of Export Incentive under Section 80HHC(3) of
the Income Tax Act, 1961 ("I.T. Act", for short), is the issue for
determination in this batch of civil appeals.
4. The assessee made a claim for Export Incentive under
Section 80HHC(3) in his returns filed for the assessment year
1993-94. The assessee did not include processing charges
(receipts) in his total turnover. In his return, he indicated his
business profits at Rs.1,94,08,220. The figure of Rs.1,94,08,220
included the processing charges (receipts) amounting to
Rs.1,54,68,811. However, the assessee did not include the
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processing charges amounting to Rs.1,54,68,811 in his total
turnover. He contended that although the processing
charges(receipts) amounting to Rs.1,54,68,811 constituted part
of business profits as computed under Section 28 of the I.T. Act,
since Section 80HHC (3) was the formula to work out export
incentive, the said figure of Rs.1,54,68,811 was not includible in
the total turnover in the formula under the said Section
80HHC(3) of the I.T. Act. According to assessee, Section
80HHC(3) provided for computation of export
incentive/concession to be computed by allocating business
profits in the ratio of export turnover w by total turnover. This
argument was not accepted by the Department.
5. The narrow dispute which arises for determination is:
whether the Department was right in including processing
charges, amounting to Rs.1,54,68,811, in the total turnover
while arriving at export profits under Section 80HHC(3) of the
Act, as it stood at the material time.
6. According to A.O., the gross total income of the assessee
was Rs.1,94,08,220 from which an amount of Rs.1,74,13,200
(90%) was deducted in terms of clause (baa) to the Explanation to
Section 80HHC to arrive at the Business Profits (See: page 52 of
the S.L.P. paper book).
7. Shri T.L.V. Iyer, learned senior counsel appearing on behalf
of respondent-assessee, submitted that Section 80HHC(3) of the
I.T. Act provided for export incentives. According to learned
counsel, the object behind enactment of the said sub-section was
to encourage exports. He, therefore, submitted that the above
formula should be read to exclude processing charges from the
total turnover in the above formula even though such charges
constituted part of the business profits required to be calculated
in terms of the provisions of Section 28 to 44D of the I.T. Act.
According to learned counsel, the word "turnover" includes all
receipts from sale of goods and not from sale of services.
According to learned counsel, the assessee had two independent
businesses, in one case he processed and exported his own
products and in the other he processed the raw material (cashew
nuts) supplied by third parties which he processed for earning
process charges. According to learned counsel, income from
works contract by way of processing charges were not includible
in the denominator, in the above formula, namely, total turnover.
According to learned counsel, if processing charges were to be
included in total turnover then the export incentives would stand
reduced and that would defeat the very object behind enactment
of Section 80HHC(3) of the I.T. Act. Further, according to learned
counsel, Section 80HHC(3) had granted export incentives only in
respect of receipts in foreign exchange from sale of goods and
from processing provided such processing was done to goods
which the taxpayer exported. That, he was not the exporter of
goods which were only processed for third parties and, therefore,
such processing charges were not includible in the total turnover
even though, such charges were includible in the "business
profits" under clause (baa) to the said Explanation. In this
connection, learned counsel contended that such processing
charges had no nexus with the activity of exports and, therefore,
such charges were not includible in the total turnover. In this
connection, reliance was placed on the judgment of this Court in
the case of Commissioner of Income Tax, Coimbatore v. M/s.
Lakshmi Machine Works - 2007(6) Scale 168.
8. Mr. Vikas Singh, learned Addl. Solicitor General appearing
on behalf of the Department, contended that in view of
Explanation (ba) read with Explanation (baa) to Section 80HHC of
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the I.T. Act when the said processing charges were includible in
the business profits the same were also simultaneously includible
in total turnover in the above formula. According to learned
counsel, Section 80HHC provided for export profits; that, in order
to compute the quantum of eligible deduction under Section
80HHC of the I.T. Act, the Department was right in including the
processing charges in the Business Profits and if such charges
constituted part of Business Profits then such charges cannot be
excluded from total turnover. That, Business Profits, under the
above formula, was required to be calculated in accordance with
clause (baa) to the said Explanation. According to learned
counsel, keeping in mind the provisions of Explanation (ba) and
Explanation (baa) it is clear that what was includible in the
Business Profits in the above formula had to be included also in
the total turnover. Therefore, according to learned counsel, the
Tribunal as well as High Court had erred in holding that
processing charges were not includible in the total turnover. In
this connection, learned counsel placed heavy reliance on the
judgment of the Rajasthan High Court in the case of
Commissioner of Income-Tax v. Sharda Gum and Chemicals \026
(2007) 288 ITR 116 (Raj).
9. For the sake of convenience we quote hereinbelow Section
80HHC as it stood at the material time which reads as follow:
"Deduction in respect of profits retained for export business
80HHC. (1) 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 to
which this section applies, there shall, in accordance with and
subject to the provisions of this section, be allowed, in computing
the total income of the assessee, a deduction of the profits derived
by the assessee from the export of such goods or merchandise :
Provided that if the assessee, being a holder of an Export House
Certificate or a Trading House Certificate (hereafter in this
section referred to as an Export House or a Trading House, as the
case may be,) issues a certificate referred to in clause (b) of sub-
section (4A), that in respect of the amount of the export turnover
specified therein, the deduction under this sub-section is to be
allowed to a supporting manufacturer, then the amount of
deduction in the case of the assessee shall be reduced by such
amount which bears to the total profits derived by the assessee
from the export of trading goods, the same proportion as the
amount of export turnover specified in the said certificate bears to
the total export turnover of the assessee in respect of such trading
goods.
(1A) Where the assessee, being a supporting manufacturer, has
during the previous year, sold goods or merchandise to any
Export House or Trading House in respect of which the Export
House or Trading House has issued a certificate under the proviso
to sub-section (1), there shall, in accordance with and subject to
the provisions of this section, be allowed in computing the total
income of the assessee, a deduction of the profits derived by the
assessee from the sale of goods or merchandise to the Export
House or Trading House in respect of which the certificate has
been issued by the Export House or Trading House.
(2)(a) This section applies 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 previous year or, where the Chief
Commissioner or Commissioner is satisfied (for reasons to be
recorded in writing) that the assessee is, for reasons beyond his
control, unable to do so within the said period of six months,
within such further period as the Chief Commissioner or
Commissioner may allow in this behalf.
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(b) This section does not apply to the following goods or merch-
andise, namely:--
(i) mineral oil; and
(ii) minerals and ores (other than processed minerals and ores
specified in the Twelfth Schedule) .
Explanation 1.\027The sale proceeds referred to in clause (a) shall
be deemed to have been received in India where such sale process
are credited to a separate account maintained for the purpose by
the assessee with any bank outside India with the approval of the
Reserve Bank of India.
Explanation 2.\027For the removal of doubts, it is hereby declared
that where any goods or merchandise are transferred by an asses-
see to a branch, office, warehouse or any other establishment of
the assessee situate outside India and such goods or merchandise
are sold from such branch, office, warehouse or establishment,
then, such transfer shall be deemed to be export out of India of
such goods and merchandise and the value of such goods or
merchandise declared in the shipping bill or bill or export as I-
ferred to in sub-section (1) of section 50 of the Customs Act,
1962 (52 of 1962), shall, for the purposes of this section, be
deemed to be the sale proceeds thereof.
(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;
(b) where the export out of India is of trading goods, the profits
derived from such export shall be the export turnover in respect
of such trading goods as reduced by the direct costs and indirect
costs attributable to such export ;
I where the export out of India is of goods or merchandise
manufactured or processed by the assessee and of trading goods,
the profits, derived from such export shall,--
(i) in respect of the goods or merchandise manufactured or
processed by the assessee, be the amount which bears to the
adjusted profits of the business, the same proportion as the
adjusted export turnover in respect of such goods bears to the
adjusted total turnover of the business carried on by the assessee;
and
(ii) in respect of trading goods, be the export turnover in respect
of such trading goods as reduced by the direct and indirect costs
attributable to export of such trading goods :
Provided that the profits computed under clause (a) or clause (b)
or clause (c) of this sub-section shall be further increased by the
amount which bears to ninety per cent of any sum referred to in
clause (iiia) (not being profits on sale of a licence acquired from
any other person), and clause (iiib) and (iiic) of section 28, the
same proportion as the export turnover bears to the total turnover
of the business carried on by the assessee.
Explanations. \027 For the purposes of this sub-section,--
(a) ’adjusted export turnover’ means the export turnover as
reduced by the export turnover in respect of trading goods;
(b) ’adjusted profits of the business’ means the profits of the
business as reduced by the profits derived from the business of
export out of India of trading goods as computed in the manner
provided in clause (b) of sub-section (3);
I ’adjusted total turnover’ means the total turnover of the business
as reduced by the export turnover in respect of trading goods;
(d) ’direct costs’ means costs directly attributable to the trading
goods exported out of India including the purchase price of such
goods;
(e) ’indirect costs’ means costs, not being direct costs, allocated
in the ratio of the export turnover in respect of trading goods to
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the total turnover;
(f) ’trading goods’ means goods which are not manufactured or
processed by the assessee.
(3A) For the purposes of sub-section (1A), profits derived by a
supporting manufacturer from the sale of goods or merchandise
shall be,--
(a) in a case where the business carried on by the supporting
manufacturer consists exclusively of sale of goods or merch-
andise to one or more Export Houses or Trading Houses, the
profits of the business [*];
(b) in a case where the business carried on by the supporting
manufacturer does not consist exclusively of sale of goods or
merchandise to one or more Export Houses or Trading Houses,
the amount which bears to the profits of the business [*] the
same proportion as the turnover in respect of sale to the
respective Export House or Trading House bears to the total
turnover of the business carried on by the assessee.
(4) The deduction under sub-section (1) shall not be admissible
unless the assessee furnishes in the prescribed form, along with
the return of income, the report of an accountant, as defined in the
Explanation below sub-section (2) of section 288, certifying that
the deduction has been correctly claimed in accordance with the
provisions of this section.
(4A) The deduction under sub-section (1A) shall not be admis-
sible unless the supporting manufacturer furnishes in the pre-
scribed form along with his return of income,--
(a) the report of an accountant, as defined in the Explanation
below sub-section (2) of section 288, certifying that the deduction
has been correctly claimed on the basis of the profits or the
supporting manufacturer in respect of his sale of goods or
merchandise to the Export House or Trading House; and
(b) a certificate from the Export House or Trading House
containing such particulars as may be prescribed and verified in
the manner prescribed that in respect of the export turnover
mentioned in the certificate, the Export House or Trading House
has not claimed the deduction under this section :
Provided that the certificate specified in clause (b) shall be duly
certified by the auditor auditing the accounts of the Export House
or Trading House under the provisions of this Act or under any
other law.
Explanation.\027For the purposes of this section,--
(a) ’convertible foreign exchange’ means foreign exchange which
is for the time being treated by the Reserve Bank of India as
convertible foreign exchange for the purposes of the Foreign
Exchange Regulation Act, 1973 (46 of 1973), and any rules made
thereunder;
(aa) ’export out of India’ shall not include any transaction by way
of sale or otherwise, in a shop, emporium or any other
establishment situate in India, not involving clearance at any
customs station as defined in the Customs Act, 1962 (52 of
1962);
(b) ’export turnover’ means the sale proceeds, received in, or
brought into, India by the assessee in convertible foreign
exchange in accordance with clause (a) of sub-section (2) of any
goods or merchandise to which this section applies and which are
exported out of India, but does not include freight or insurance
attributable to the transport of the goods or merchandise beyond
the customs station as defined in the Customs Act, 1962 (52 of
1962);
(ba) ’total turnover’ shall not include freight or insurance
attributable to the transport of the goods or merchandise beyond
the customs station as defined in the Customs Act, 1962 (52 of
1962) :
Provided that in relation to any assessment year commencing on
or after the 1st day of April, 1991, the expression total turnover
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shall have effect as if it also excluded any sum referred to in
clauses (iiia), (iiib) and (iiic) of section 28;
(baa) ’profits of the business’ means the profits of the business as
computed under the head Profits and gains of business or
profession as reduced by\027
(1) ninety per cent of any sum referred to in clauses (iiia), (iiib)
and (iiic) of section 28 or of any receipts by way of brokerage,
commission, interest, rent, charges or any other receipt of a
similar nature included in such profits; and
(2) the profits of any branch, office, warehouse or any other
establishment of the assessee situate outside India;
[*]
[*]
I ’Export House Certificate’ or ’Trading House Certificate’
means a valid Export House Certificate or Trading House
Certificate, as the case may be, issued by the Chief Controller of
Imports and Exports Government of India;
(d) ’supporting manufacturer’ means a person being an Indian
company or a person (other than a company) resident in India,
manufacturing (including processing) goods or merchandise and
selling such goods or merchandise to an Export House or a
Trading House for the purposes of export."
10. Section 80HHC has been the subject-matter of frequent
amendments. The said section was inserted in 1983. It was
substituted in 1985. Thereafter, it was amended in 1986, 1988,
1989, 1990, 1991, 1992, 1994, 1999, 2000, 2003 and 2005.
Therefore, while considering the applicability of Section 80 HHC,
it is very important to keep in mind the working of the said
section as applicable in a given assessment year.
11. In this civil appeal we are concerned with the assessment
year 1993-94.
12. At this stage, we may mention that, according to High
Court, in order to include any amount in the total turnover the
said amount must either be the purchase price or the sale price
or an item incidental to the transfer of the goods dealt with by the
assessee. According to High Court, the assessee had processed
raw cashew nuts belonging to third parties in his factory for
which he received the said charges; that, the purpose behind the
said formula was to find out the profits attributable to export
turnover i.e. profit on export sales. Further, according to High
Court, in the above formula business income was to be computed
in order to determine the quantum of eligible deduction. That, in
the said formula, business income in the context of total turnover
was income generated on purchase and sales. That, in the
context of Section 80HHC the total turnover referred to sales and
purchase turnover and it did not include receipts in the nature of
income which income was not attributable to sales. Further,
according to High Court, even under the Circulars (Circular
No.621 dated 19.12.91) issued by CBDT a clarification was
issued to the effect that to arrive at the quantum of eligible
deduction under Section 80HHC, in the case of an assessee
having export and domestic business, a fraction of export
turnover to total turnover had to be applied to Business Profits
computed under Section 28 of the I.T. Act. According to High
Court, such processing charges with which we are concerned had
no connection with the word "sale", therefore, they were not liable
to be included in the total turnover.
13. Being aggrieved by the impugned judgments holding that
the said charges were not includible in the total turnover, the
Department has come to this Court by way of civil appeals.
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14. This batch of civil appeals pertains to assessment year
1993-94, therefore, we have quoted the said section at it stood on
the material date.
15. Section 80 HHC of the I.T. Act was not a charging section.
It was an incentive provision. Its object was not to ascertain real
income. Section 80HHC(3) provided for the following formula:
Profits of the business x export turnover
total turnover
16. Section 80HHC had a Head Note. That Head Note said
"deduction in respect profits retained for export business".
The said Head Note was inserted by Finance Act, 1985 w.e.f.
1.4.86. Under the original section as inserted by Finance Act,
1983, the Head Note stated "deduction in respect of export
turnover". Therefore, the very basis shifted from "export
turnover" to "retention of profits for export business".
17. Under Section 80HHC(1) of the I.T. Act it was inter alia
provided that in computing the "total income" a deduction of the
profits derived by the assessee from the export of goods shall be
made. That, that the words "profits derived from exports" in the
said sub-section was substituted for the words "whole of income"
by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1.4.89. The
expression "derived from" in the said sub-section is narrower
than the expression "attributable to", therefore, it is only "profits
derived from exports" which become the basis for working out the
said formula in Section 80HHC(3) of the Act. Similarly, by
Finance Act, 1991 w.e.f. 1.4.92, for the first time, the expression
"profits of the business" stood defined to mean the "profits of the
business" as computed under the head "profits and gains of
business" under Sections 28 to 44D of the I.T. Act. Therefore,
before giving Deduction, under Section 80HHC(3)(a), (b) or (c) of
the I.T. Act, the gross total income of the assessee being profits
from business had to be arrived at in terms of clause (baa) to the
said Explanation. However, one point needs to be noted, namely,
while calculating "Business Profits" the same had to be done in
terms of Section 28 to Section 44D of the I.T. Act alone. Other
provisions like Sections 70 and 71 of the I.T. Act were excluded.
Therefore, in our view, if the said processing charges were a part
of gross total income of the taxpayer being profits from business
then it had to be included in the total turnover in the above
formula. It is important that deduction has to be from profits as
understood in the commercial sense. Moreover, under clause
(baa)(1), 90% of any amount referred to in clause (iiia), (iiib) and
(iiic) of Section 28 of the I.T. Act or any receipts by way of
brokerage, commission, interest, rent, charges or any other
receipt of a similar nature included in such profits. The said
expression "included in such profits" indicated that the said
processing charges formed part of the gross total income being
business profits. This has been clarified by clause (baa) to the
said Explanation which inserted the definition of "profits from
business" in the said Section 80HHC(3) of the I.T. Act.
18. In the present case the A.O. had worked out Business
Profits of Rs.1,94,08,220 as gross total income on the basis of
income received from cashew business (See: pages 50 and 52 of
the SLP Paper book). Even according to assessees, in the above
formula his Business Profits included the above-mentioned
processing charges. However, according to assessees, the said
charges were not to be included in the total turnover. We are not
inclined to accept the contention of the assessees. The above
discussion indicates that the formula in Section 80HHC(3) of the
I.T. Act provided for a fraction of export turnover divided by total
turnover to be applied to Business Profits calculated after
deducting 90% of the sums mentioned in clause (baa) to the said
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Explanation. That, profit incentives and items like rent,
commission, brokerage, charges etc. though formed part of gross
total income had to be excluded as they were "independent
incomes" which had no element of export turnover. That, the
said items distorted the figure of export profits.
19. In our view, for the above reasons, the said processing
charges, which was part of gross total income, was an
independent income like rent, commission, brokerage etc. and,
therefore, 90% of the said sum had to be reduced from the gross
total income to arrive at the Business Profits and since the said
processing charge was an important component of Business
Profits, it also had to be included in the total turnover in the said
formula to arrive at business profits in terms of clause (baa) to
the said Explanation.
20. One point still remains for consideration. On behalf of
assessees it has been vehemently urged that the above-
mentioned processing charges, earned by the assessees by
processing raw cashew nuts for third parties, had no nexus with
the export business and, therefore, such charges were not
includible in the total turnover. It was also further argued that
export incentives were admissible only in respect of profits on
export sales. In this connection, it was submitted that the
assessees earned processing charges from an activity which had
no connection with exports. According to assessees, no export
turnover arose from processing of raw material by the assessees
for third parties and, therefore, the said receipts did not
constitute an element of total turnover. Therefore, according to
assessees, the A.O. had erred in including the said charges in the
total turnover. According to assessees, profits derived from local
sales were includible in Business Profits but not in the total
turnover.
21. At the outset, we may state that, in the present case, we are
dealing with the law as it stood during assessment year 1993-94.
At that time Section 80HHC(3) of the I.T. Act constituted a Code
by itself. Subsequent amendments have imposed
restrictions/qualifications by which the said provision has ceased
to be a code by itself. In the above formula there existed four
variables, namely, business profits, export turnover, total
turnover and 90% of the sums referred to in clause (baa) to the
said Explanation. In the computation of deduction under Section
80HHC all four variables had to be taken into account. All four
variables were required to be given weightage. The substitution
of Section 80HHC(3) secures profits derived from the exports of
eligible goods. Therefore, if all the four variables are kept in
mind, it becomes clear that every receipt is not income and every
income would not necessarily include element of export turnover.
This aspect needs to be kept in mind while interpreting clause
(baa) to the said Explanation. The said clause stated that 90% of
incentive profits or receipts by way of brokerage, commission,
interest, rent, charges or any other receipt of like nature included
in Business Profits, had to be deducted from Business Profits
computed in terms of Sections 28 to 44D of the I.T. Act. In other
words, receipts constituting independent income having no nexus
with exports were required to be reduced from Business Profits
under clause (baa). A bare reading of clause (baa)(1) indicates
that receipts by way of brokerage, commission, interest, rent,
charges etc. formed part of gross total income being Business
Profits. But for the purposes of working out the formula and in
order to avoid distortion of arriving export profits clause (baa)
stood inserted to say that although incentive profits and
"independent incomes" constituted part of gross total income,
they had to be excluded from gross total income because such
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receipts had no nexus with the export turnover. Therefore, in the
above formula, we have to read all the four variables. On reading
all the variables it becomes clear that every receipt may not
constitute sale proceeds from exports. That, every receipt is not
income under the I.T. Act and every income may not be
attributable to exports. This was the reason for this Court to
hold that indirect taxes like excise duty which are recovered by
the taxpayers for and on behalf of the government, shall not be
included in the total turnover in the above formula (See:
Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi
Machine Works - 2007(6) Scale 168).
22. In the present case, the processing charges were included in
the gross total income from cashew business. That, even
according to assessee the said charges constituted an important
component of gross total income from cashew business. This is
not disputed. Therefore, in terms of clause (baa), 90% of the
"independent income" had to be deducted from gross total income
to arrive at Business Profits to which the fraction had to be
applied. Since, the processing charges constituted independent
income similar to rent, commission, etc., which formed part of
the gross total income, the same had to be reduced by 90% as
contemplated in clause (baa) to arrive at Business Profits.
Therefore, the said processing charges were includible in the total
turnover in the formula under Section 80HHC(3) of the I.T. Act.
23. Before concluding we state that the nature of every receipt
needs to be ascertained in order to find out whether the said
receipt forms part of/or that it has an attribute of an export
turnover. When an indirect tax is collected by the taxpayer on
behalf of the government the tax recovered is for the government.
It may be an income in the conceptual sense or even under the
I.T. Act but while working out the formula under Section
80HHC(3) of the I.T. Act and while applying the four variables one
has to ascertain whether the receipt has an attribute of export
turnover. An indirect tax like excise duty does not have that
element of export turnover as understood in the above formula.
As stated above, it is recovered by the taxpayer on behalf of the
government. Therefore, in the present cases, our judgment in
Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi
Machine Works - 2007(6) Scale 168, has no application.
24. Accordingly, the impugned judgments of the High Court and
the Tribunal are set aside and the above civil appeals filed by the
Department are accordingly allowed with no order as to costs.
Loss (Negative Profits)
Civil Appeal No. of 2007 arising out of S.L.P.(C) No.13747 of 2004,
Civil Appeal No. of 2007 arising out of S.L.P.(C) No.13748 of 2004 ,
Civil Appeal No.3687 of 2005.
25. Leave granted.
26. A short question which arises for determination in this
batch of civil appeals filed by the Department is:
"Whether in the matter of computation of deduction,
under Section 80HHC(3)(c) of the I.T. Act, losses
suffered by the taxpayer in the export of trading
goods can be set off/adjusted against profits from
export of manufactured goods and vice versa and
whether the assessee would be entitled to deduction
if after such adjustments/set off the net figure is a
loss."
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10
27. In a recent judgment of this Court in the case of A.M.
Moosa v. Commissioner of Income-tax \026 [2007] 294 ITR 1(SC),
this Court vide para 11 has ruled as follows:
"A plain reading of section 80HHC makes it clear
that in arriving at the profits earned from export of
both self-manufactured goods and trading goods,
the profits and losses in both the trades have to be
taken into consideration. If after such adjustments
there is a positive profit, the assessee would be
entitled to deduction under section 80HHC(1). If
there is a loss he will not be entitled to any
deduction."
28. Accordingly, civil appeals filed by the Department stand
allowed, the impugned judgments of the High Court are set aside
and the matters are remitted to A.O. for fresh disposal of the
cases in accordance with the judgment of this Court in A.M.
Moosa (supra). No order as to costs.
Processing and Negative Profits (loss)
Civil Appeal No. of 2007 arising out of S.L.P.(C) No.12609 of 2004.
29. Leave granted.
30. Assessee is a company engaged in cashew business.
31. For the assessment year 1993-94 assessee did not include
processing charges in its total turnover for computing deduction
under Section 80HHC of the I.T. Act.
32. Assessee adjusted its losses from export of trading goods
against profits from export of manufacturing goods for
determining its export profits.
33. Therefore, two following questions arise for determination:
"Whether processing charges were includible in the
"total turnover" in the formula in Section 80HHC(3),
as it stood at the material time, for computing
deduction under Section 80HHC of the I.T. Act."
"Whether in the matter of computation of deduction,
under Section 80HHC(3)(c) of the I.T. Act, losses
suffered by the taxpayer in the export of trading
goods can be set off/adjusted against profits from
export of manufactured goods and vice versa and
whether the assessee would be entitled to deduction
if after such adjustments/set off the net figure is a
loss."
34. For the reasons given hereinabove, we answer both the
above questions in favour of the Department and against
assessee. Accordingly civil appeal filed by the Department is
allowed, the impugned judgment of the High Court is set aside
and the matter is remitted to A.O. for fresh disposal of the case in
accordance with law declared hereinabove on both the points. No
order as to costs.
Civil Appeal No.3167 of 2006
35. In view of the Judgment in Commissioner of Income Tax,
Coimbatore v. M/s. Lakshmi Machine Works - 2007(6) Scale
168, Civil Appeal No.3167 of 2006 filed by the Department is
accordingly dismissed with no order as to costs.