SUPREME COURT OF INDIA

Commissioner of Income-tax v. Catapharma (India) (P.) Ltd.

Section 80HHC of the Income-tax Act, 1961 – Deductions – Exporters – Assessment year 1997-98 – Whether excise duty and sales tax form part of total turnover while computing deduction under section 80HHC – Held, no

FACTS

While making assessment under section 143(3), the Assessing Officer included excise duty and sales tax in the total turnover for computing the deduction under section 80HHC(3)(b).

The Commissioners (Appeals) held that while calculating deduction under section 80HHC amounts of excise duty and sales tax collected by the Assessee were not to be included in the total turnover for the purpose of computing deductions under section 80HHC. On revenue’s appeal the Tribunal upheld the order of the Commissioner (Appeals). The High Court also dismissed the appeal of the revenue. In appeal before the Supreme Court, the revenue’s stand was that one has to give plain meaning of the word `turnover’ in the formula applied for computation of deduction under said section; and there was no need to call for any rule of interpretation or external aid to interpret the said word. In essence it was urged that having regard to the plain words of the section, excise duty and sales tax ought to have been included in the total turnover.

HELD

A similar plea, as raised by the revenue, was raised in CIT v. Lakshmi Machine Works [2007] 160 Taxman 404. The Supreme Court in that case has, inter alia, held that there was no merit in the contentions advanced by the department; the object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference to export turnover. Therefore, `turnover’ was the requirement. Just as interest, commission, etc., did not emanate from the ‘turnover’, so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Income from rent, commission, etc., cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. Then excise duty and sales tax also cannot form part of the ‘total turnover’ under section 80HHC(3), otherwise the formula becomes unworkable. Further, sales tax and excise duty also do not have any element of `turnover’ which is the position even in the case of rent, commission, interest, etc., it is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the Assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under section 80HHC would become unworkable. [para 4]

Above finding of the Supreme Court was to be sustained. Therefore, the appeal was without merit and was to be dismissed. [para 5]