High Court Of Kerala
CIT vs. O.E.N. India Ltd.
Section 80HHC
Asst. Year 1992-93
H.L. Dattu, C.J. & K.T. Sankaran, J.
IT Appeal No. 68 of 2000
12th June, 2007
Counsel Appeared :
P.K.R. Menon & George K. George, for the Appellant : A.K. Jayasankar Nambiar & Anil D. Nair, for the Respondent
JUDGMENT
H.L. Dattu, C.J. :
The IT Department has filed this appeal, under s. 260A of the IT Act, 1961, hereinafter for the sake of convenience referred to as Act, 1961, being aggrieved by the orders passed by the Tribunal, Cochin Bench, Cochin dt. 31st Jan., 2000 for the asst. yr. 1992-93.
2. The facts in nutshell are : The assessee is a company engaged in the manufacture of switches, relays and potentiometers. In the returns filed under s. 139 of the Act for the asst. yr. 1992-93, the assessee had claimed exclusion of excise duty paid from the total turnover for the purpose of computation of deduction under s. 80HHC of the Act. The case of the assessee was that as per the method of accounting consistently followed by it, the excise duty collected and paid has been credited to a separate account and treated as a liability in the accounts and not as assessee’s income and therefore, it should not be included in the assessee’s total income for the purpose of computation of deduction under s. 80HHC of the Act. The assessing authority while calculating the turnover for the purpose of computation of deduction under s. 80HHC of the Act has included the said turnover as the assessee’s income though the excise duty collected was separately accounted by the assessee in its books of account.
3. The assessee being aggrieved by the aforesaid inclusion had carried the matter in an appeal before the first appellate authority. The appellate authority by applying the principles laid down by the apex Court in the case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), confirmed the order of the assessing authority.
4. Being aggrieved by the said order, the assessee had approached the Tribunal, Cochin Bench, Cochin in ITA No. 830 of 1990. The Tribunal, following its earlier decision in ITA No. 779/1995 in the case of United Catalysts (India) Ltd. vs. Dy. CIT for the asst. yr. 1992-93, had held that for the purpose of computing the total turnover for the purpose of deduction under s. 80HHC of the Act, the excise duty requires to be excluded.
5. The Revenue being aggrieved by the orders passed by the Tribunal is before us in this appeal.
6. The Revenue has raised the following questions of law for our consideration and decision. They are :
“1. Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that for the purpose of s. 80HHC, excise duty could not form part of the total turnover ?
2. Whether, on the facts and in the circumstances of the case and on an interpretation of s. 80HHC (3), statutory levy like excise duty is to be ignored ?”
7. Learned senior counsel appearing for the Revenue would submit, that, the view taken by the Tribunal is contrary to the provisions of Expln. (ba) to s. 80HHC of the Act. According to the learned senior counsel, the said Explanation does not exclude excise duty from the definition of total turnover. It is further contended that in view of the authoritative pronouncements of the apex Court in the cases of Hindustan Sugar Mills vs. State of Rajasthan AIR 1978 SC 1496, Chowringhee Sales Bureau vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC), Jonnalla Narasimha Rao & Co. & Ors. vs. CIT (1993) 112 CTR (SC) 126 : (1993) 200 ITR 588 (SC) and Addl. CIT vs. T. Naggee Reddy (1993) 115 CTR (SC) 418 : (1993) 202 ITR 253 (SC), the excise duty collected and paid forms part of the turnover of the manufacturer or dealer. In view of that, learned senior counsel would submit that the judgment of the Tribunal requires to be annulled by this Court and the questions of law framed by the Revenue require to be answered in favour of the Revenue and against the assessee.
8. Per contra, learned counsel appearing for the assessee would submit that the questions of law framed by the Revenue for consideration and decision of this Court are no more res integra, in view of the decision of the apex Court in the case of CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1 : (2007) 290 ITR 667 (SC). According to the learned counsel, for the purpose of computing “total turnover” for computation of deduction under s. 80HHC of the Act, the excise duty paid and collected requires to be excluded.
9. In reply to the aforesaid submission of the learned counsel for the assessee, learned senior counsel for the Revenue would submit that the decision of the apex Court in Lakshmi Machine Works’ case (supra) applies only to asst. yr. 1993-94. In aid of this submission, learned senior counsel puts his finger on the lines extracted by the apex Court in the aforesaid judgment. Further contention of the learned senior counsel is that the law laid down by the apex Court in the aforesaid decision will apply only to asst. yr. 1993-94 and not for any previous assessment years. In aid of this submission, learned counsel takes us to the penultimate para of the decision in Lakshmi Machine Works’ case (supra). In the said decision, the apex Court has observed : “Before concluding we may state that profits are of three types, namely, book profits, statutory profits and actual profits. The amendments to s. 80HHC(3) indicate exclusion of book profits. For example, commission, interest, etc. do not form part of the P&L a/c but for the purposes of calculation of profits derived from local sales and exports, they stand excluded. The difficulty arises because the formula is based on hybrid system of profits, namely, actual and statutory profits. Therefore, the judgment should be read in the context of the above parameters. Our reasoning in the judgment is confined to the workability of the formula in s. 80HHC(3) of the Act as it stood at the material time”.
10. Learned counsel for the assessee would contend that the provisions of s. 80HHC even for the assessment year were in pari materia with the provisions which were considered by the apex Court. In aid of this submission, learned counsel by comparing the provisions of the Act which came up for consideration in Lakshmi Machine Works’ case (supra) and the provisions which existed for the asst. yr. 1992-93, submits, that, since the provisions which existed for the asst. yr. 1992-93 and the provisions which came up for consideration before the apex Court for the asst. yr. 1993-94 were identical, and therefore, the same view as has been taken by the Supreme Court in Lakshmi Machine Works’ case (supra) requires to be taken by this Court, since this Court is bound by law declared by the apex Court, by virtue of Art. 141 of the Constitution of India.
11. We have carefully perused the provisions of s. 80HHC of the Act which were in the statute book for the asst. yr. 1992-93 and also the provisions which came up for consideration before the apex Court for the asst. yr. 199394. The provisions have not undergone any change whatsoever. Therefore, it could be safely said that the provisions which came up for consideration before the apex Court in Lakshmi Machine Works’ case (supra) and the provisions which were in existence for the asst. yr. 1992-93 are pari materia and identical. In view of this, the law declared by the apex Court in Lakshmi Machine Works’ case (supra) can be safely applied for the asst. yr. 1992-93.
12. In Lakshmi Machine Works’ case (supra), the Supreme Court while considering whether the excise duty collected and paid should be excluded from the total turnover for the purpose of deduction under s. 80HHC of the Act, has observed as follows “Sec. 80HHC of the IT Act, 1961, 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 purpose of s. 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 s. 80HHC(3). One cannot interpret the words ‘total turnover’ with reference to the definition of the word ‘turnover’ in other laws like the central sales-tax or as defined in accounting principles. Excise duty and sales-tax are indirect taxes. They are recovered by the assessee on behalf of the Government. By the Court : The principal reason for enacting a formula in s. 80HHC of the IT 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 s. 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 ‘total turnover’ under s. 80HHC(3), otherwise the formula becomes unworkable.”
13. In view of the law declared by the apex Court in the aforesaid decision and respectfully following the dictum laid down by the apex Court, the question of law raised by the Revenue requires to be answered in the negative and in favour of the assessee. Accordingly, the appeal is disposed of. Ordered accordingly.
[Citation : 294 ITR 289]
