The DCIT, Circle-4,, Ahmedabad v. Mazda Limited.,, Ahmedabad

ITA 793/AHD/2007 | 2003-2004
Pronouncement Date: 06-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 79320514 RSA 2007
Assessee PAN AANCM9273H
Bench Ahmedabad
Appeal Number ITA 793/AHD/2007
Duration Of Justice 3 year(s) 5 month(s) 16 day(s)
Appellant The DCIT, Circle-4,, Ahmedabad
Respondent Mazda Limited.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 06-08-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 06-08-2010
Date Of Final Hearing 22-07-2010
Next Hearing Date 22-07-2010
Assessment Year 2003-2004
Appeal Filed On 19-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI MUKUL SHRAWAT JM & SHRI A N PAHUJA AM ITA NO793/AHD/2007 (ASSESSMENT YEAR:- 2003-04 ) DCIT CIRCLE-4 ASHRAM ROAD AHMEDABAD. V/S MAZDA LTD. 650/1 MAZDA HOUSE PANCHVATI SECOND LANE AMBAWADI AHMEDABAD. [PAN:AANCM9273H] [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR AR REVENUE BY:- SHRI U S RAINA DR O R D E R A.N. PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 27-11- 2006 OF THE LD. CIT(APPEALS)-VII AHMEDABAD RAISES THE FOLLOWING GROUNDS: 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE AO TO DELETE THE DISALLOWANCE ON ACCOUNT OF LIQ UIDATED DAMAGES OF RS.4 48 136/-; 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS OF THE C ASE IN DIRECTING THE AO TO INCLUDE THE FOLLOWING INCOMES IN BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S .80HHC OF THE I.T.ACT : I) INTEREST INCOME RS.2 35 069/-; II) SERVING & COMMISSIONING RS.2 71 005/-; III) PACKING & FORWARDING RS.61 41 862/- IV) GST SET OFF RS.8 09 046/- 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS OF THE C ASE IN DIRECTING THE AO TO INCLUDE (I) SERVICING & COMMISSIONING INC OME OF RS.2 71 005/- AND (II) EXCISE MODVAT OF RS.42 28 99 8/- IN THE BUSINESS PROFIT CONSIDERING THE SAME AS PART OF BUSINESS PRO FIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC OF THE I.T.ACT. 4. THE LD.CIT(A) ERRED IN LAW AND ON FACTS OF THE C ASE IN DIRECTING TO EXCLUDE EXCISE DUTY AND SALES TAX AMOUNTING TO RS.1 64 34 268/- AND RS.60 61 333/- RESPECTIVELY FROM THE TOTAL INCOME F OR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. ITA.NO.793/AHD/2007 -2- 6. IT IS THEREFORE PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT THAT THE RETURN DECLARING INCOME O F RS.1 53 59 416/- FILED ON 30.11.2003 BY THE ASSESSEE AN ENGINEERING COMPANY ENGAGED IN MANUFACTURING VARIOUS PROCESS CONTROL EQ UIPMENTS AFTER BEING PROCESSED ON 24.1.2004 U/S 143(1) OF THE INCOME-TA X ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTE D FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 2 8-11-2004. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSING OFFICER [AO IN SHORT] NOTICED THAT THE ASSESSEE C LAIMED AN AMOUNT OF RS.4 48 136/- AS LIQUIDATED DAMAGES UNDE R THE HEAD ADMINISTRATIVE AND SELLING EXPENSES. TO A QUERY BY THE AO THE ASSESSEE STATED THAT AS PER THE TERMS OF THE PURCHASE ORDER ANY DELAY IN EXECUTION OF THE DRAWINGS SUPPLY INSPECTION ETC. IS CHARGED BY THE CUSTOMERS. THIS BEING AN INHERENT FEATURE IN THE BUSINESS THE CLAIM FOR DEDUCTION SHOULD NOT BE DISALLOWED. HOWEVER THE AO DID NOT ACCEPT THESE SU BMISSIONS OF THE ASSESSEE ON THE GROUND THAT LIQUIDATED DAMAGES WER E PAID DUE TO DELAY IN SUPPLY OF GOODS TO VARIOUS PARTIES RESULTING IN BR EACH OF CONTRACT BY THE ASSESSEE WHICH WAS NOT THE NORMAL INCIDENT OF THE BUSINESS. SINCE THESE LIQUIDATED DAMAGES WERE IN THE NATURE OF PENALTY IM POSED BY THE DIFFERENT PARTIES ON THE ASSESSEE COMPANY ON ACCOUNT OF DELAY ED DELIVERY OR LATE COMPLETION OF THE TERMS AND CONDITIONS OF THE CONTR ACT AND WAS NOT INCURRED EXCLUSIVELY AND WHOLLY FOR THE BUSINESS PURPOSES T HE AO DISALLOWED THE CLAIM. 3. ON APPEAL THE LEARNED CIT(A) FOLLOWING THE OR DER OF THE CIT(A) FOR A.Y.2000-2001 AND THE DECISION OF THE TRIBUNAL IN ITA NO.612/AHD/2001 FOR A.Y.1997-98 IN THE ASSESSEES OWN CASE ALLOWED TH E CLAIM OF THE ASSESSEE. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSE SSEE CONTENDED THAT THE ITA.NO.793/AHD/2007 -3- ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 21.5.2010 OF THE TRIBUNAL IN THE ASSESSEES OWN CAS E FOR THE AY 2004-05 IN ITA NO.85/AHD./2008. THE LD. DR DID NOT OPPOSE THE SE SUBMISSIONS OF THE LD. AR. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) ALLOWED THE CLAIM FOR DEDUCTION OF LIQUIDATED DAMAGES FOLLOWING THE DECISION OF THE TRIBUNAL I N ITA NO.612/AHD/2001 FOR A.Y.1997-98. EVEN IN THE AY 2004-05 THE ITAT MEREL Y FOLLOWED THE SAID DECISION IN THE AY 1997-98 AND ALLOWED THE CLAIM OF THE ASSESSEE. SINCE THE EXPENDITURE IS TOWARDS CONTRACTUAL OBLIGATIONS WHIL E SIMILAR CLAIM HAS BEEN ALLOWED IN THE AYS 1997-98 & 2004-05 BY THE ITAT IN THE LIGHT OF DECISION OF THE HONBLE PATNA HIGH COURT IN THE CASE OF SARDAR PRIT INDER SINGH VS. CIT 160 ITR 493 AND THE REVENUE HAVING NOT PLACED BEFORE US ANY MATERIAL OR EVEN CONTRARY DECISION SO AS TO ENABLE US TO TAK E A DIFFERENT VIEW IN THE MATTER WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FI NDINGS OF THE LD. CIT(A). THEREFORE GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. GROUND NOS. 2 & 3 RELATE TO EXCLUSION OF RECEIPT S ON ACCOUNT OF INTEREST SERVICING AND COMMISSIONING PACKING AND FORWARDING GST SET OFF & EXCISE MODVAT FROM THE PROFITS OF THE BUSINESS WHILE COMP UTING DEDUCTION U/S 80HHC OF THE ACT. THE AO NOTICED THAT THE ASSESS EE CLAIMED DEDUCTION OF RS.19 81 496/- UNDER 80HHC OF THE ACT. SINCE THE RE CEIPTS ON ACCOUNT OF INTEREST( RS.2 35 069) SERVICING AND COMMISSIONING (RS.2 71 005) PACKING AND FORWARDING ( RS.61 41 862) GST SET OFF(RS.8 09 046/-) AND EXCISE MODVAT (RS.42 28 998) WERE NOT DERIVED FROM THE EXPORT BUSINESS OF THE AS SESSEE THE AO EXCLUDED 90% OF THESE RECEIPTS WHILE WORKING OUT PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION(BAA) TO SEC. 80HH C OF THE ACT RELYING INTER ALIA ON THE DECISIONS IN THE CASE OF NATHAN STEELS LTD. 57 ITD 584(MUMBAI) HINDUSTAN LEVER LTD. VS. CIT 239 ITR 29 7(SC) STERLING FOODS VS. CIT 237 ITR 579(SC) AND PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278(SC) ITA.NO.793/AHD/2007 -4- 7. ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLA IM OF THE ASSESSEE IN RESPECT OF RECEIPTS ON ACCOUNT OF INTEREST SERVICI NG & COMMISSIONING PACKING AND FORWARDING AND GST SET OFF FOLLOWING THE ORDER OF THE CIT(A) FOR A.Y.2001-02 AND THE ORDER OF THE TRIBUNAL IN ITA NO .612/AHD/2001 FOR A.Y.1997-98 AS ALSO IN ITA NO. 728/AHD/2005 FOR THE AY 2001-02 THEREBY DIRECTING THE AO TO INCLUDE THESE RECEIPTS TOWARDS BUSINESS PROFITS WHILE COMPUTING THE DEDUCTION U/S.80HHC OF THE ACT. SINCE THE EXCISE MODVAT GOES TO REDUCE THE COST OF PURCHASE OF MATERIALS THE LD . CIT(A) DIRECTED THE AO TO INCLUDE THE SAME IN THE BUSINESS PROFITS FOR THE PU RPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDER OF THE LD. CIT(A) THERE I S NOTHING TO SUGGEST THAT THE SAID RECEIPTS ON ACCOUNT OF INTEREST SERV ICING & COMMISSIONING PACKING AND FORWARDING AND GST SET OFF OR EVEN EXCI SE MODVAT HAVE ANY NEXUS OR RELATION WITH THE EXPORTS MADE BY THE ASSE SSEE . THE LD. CIT(A) DID NOT RECORD HIS SPECIFIC FINDINGS ON THE NATURE OF THESE RECEIPTS OR THEIR RELATION WITH THE EXPORTS BUSINESS OF THE ASSESSEE .THE LD. CIT(A) DID NOT EVEN ADVERT TO THE DECISIONS IN THE CASE OF HINDUST AN LEVER LTD.(SUPRA) STERLING FOODS (SUPRA) OR PANDIAN CHEM ICALS LTD.(SUPRA) REFERRED TO BY THE AO IN HIS ORDER NOR MENTIONED AS TO HOW THE AFORESAID RECEIPTS WERE DERIVED FROM THE EXPORT BUSINESS OF THE ASSESS EE. THE LD. DR APPEARING BEFORE US RELIED UPON THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF CIT V. K. RAVINDRANATHAN NAIR 295 ITR 228(SC) A ND CONTENDED THAT THE ISSUE IS NOW SETTLED BY THE SAID DECISION. WE FIND THAT IN THEIR DECISION ON THE INTERPRETATION OF EXPLANATION (BAA) TO SECTION 80HH C OF THE ACT HONBLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) HELD THAT THE FORMULA IN SECTION 80HHC(3) PROVIDED FOR A FRACTION OF EXPORT TURNOVER DIVIDED BY THE TOTAL TURNOVER TO BE APPLIED TO BUSINESS PRO FITS CALCULATED AFTER DEDUCTING 90 PER CENT OF THE SUMS MENTIONED IN CLAU SE (BAA) OF THE EXPLANATION. PROFIT INCENTIVES LIKE RENT COMMISSIO N BROKERAGE CHARGES ETC. ITA.NO.793/AHD/2007 -5- THOUGH THESE FORMED PART OF THE GROSS TOTAL INCOME HAD TO BE EXCLUDED AS THESE WERE INDEPENDENT INCOMES WHICH HAD NO ELEME NT OF EXPORT TURNOVER. ALL THE FOUR VARIABLES IN THE SECTION ARE REQUIRED TO BE KEPT IN MIND. IF ALL THE FOUR VARIABLES ARE KEPT IN MIND IT BECOMES CLEAR T HAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NECESSARILY INCLU DE THE ELEMENT OF EXPORT TURNOVER. CLAUSE (BAA) OF THE EXPLANATION STATES TH AT 90 PER CENT. OF THE INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDE D IN BUSINESS PROFITS HAVE TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 TO 44D. IN OTHER WORDS RECEIPTS CONSTITUTING INDEPENDENT INCO ME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE DEDUCTED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). HONBLE SUPREME COURT FURTHER OBSERVED THAT A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAG E COMMISSION INTEREST RENT CHARGES ETC. FORMED PART OF THE GROSS TOTAL INCOME BEING BUSINESS PROFITS. BUT FOR THE PURPOSE OF WORKING OUT OF FORMULA AND I N ORDER TO AVOID DISTORTION IN ARRIVING AT THE EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOMES CONSTITUTED PART OF THE GROSS TOTAL INCOME THESE HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEI PTS HAD NO NEXUS WITH THE EXPORT TURNOVER. HONBLE APEX COURT FURTHER HELD THAT PROCESSING CHARGES WHICH ARE PART OF GROSS TOTAL INCOME FORM AN ITEM OF INDEPENDENT INCOME LIKE RENT COMMISSION BROKERAGE ETC. AND THEREFORE 90 PERCENT OF THE PROCESSING CHARGES HAVE ALSO TO BE REDUCED FROM THE GROSS TOTAL INCOME TO ARRIVE AT THE BUSINESS PROFITS AND THEREFORE I T HAS ALSO TO BE INCLUDED IN THE TOTAL TURNOVER IN THE FORMULA FOR ARRIVING AT THE B USINESS PROFITS IN TERMS OF THE CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC(3) . IT WAS FURTHER HELD BY THE HONBLE SUPREME COURT THAT IN THE ABOVE FORMULA THERE EXISTED FOUR VARIABLES NAMELY BUSINESS PROFITS EXPORT TURNOVER TOTAL TURNOVER A ND 90 PER CENT. OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANATION. IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC AL L FOUR VARIABLES HAD TO BE TAKEN INTO ACCOUNT. ALL FOUR VA RIABLES WERE REQUIRED TO BE GIVEN WEIGHTAGE. THE SUBSTITUTION OF SECTION 80HHC(3) SECURES PROFITS DERIVED FROM THE EXPORTS O F ELIGIBLE GOODS. THEREFORE IF ALL THE FOUR VARIABLES ARE KEP T IN MIND IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME ITA.NO.793/AHD/2007 -6- WOULD NOT NECESSARILY INCLUDE ELEMENT OF EXPORT TUR NOVER. THIS ASPECT NEEDS TO BE KEPT IN MIND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 9 0 PER CENT. OF INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF LIK E NATURE INCLUDED IN BUSINESS PROFITS HAD TO BE DEDUCTED FROM BUSINE SS PROFITS COMPUTED IN TERMS OF SECTIONS 28 TO 44D OF THE INCO ME-TAX ACT. IN OTHER WORDS RECEIPTS CONSTITUTING INDEPENDENT I NCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE REDUCED F ROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUS E (BAA)(1) INDICATES THAT RECEIPTS BY WAY OF BROKERAGE COMMIS SION INTEREST RENT CHARGES ETC. FORMED PART OF GROSS TOTAL INC OME BEING BUSINESS PROFITS. BUT FOR THE PURPOSES OF WORKING O UT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARRIVING AT THE EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY THAT ALTHOUGH IN CENTIVE PROFITS AND 'INDEPENDENT INCOMES' CONSTITUTED PART OF GROSS TOTAL INCOME THEY HAD TO BE EXCLUDED FROM GROSS TOTAL IN COME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE IN THE ABOVE FORMULA WE HAVE TO READ AL L THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPOR TS. THAT EVERY RECEIPT IS NOT INCOME UNDER THE INCOME-TAX AC T AND EVERY INCOME MAY NOT BE ATTRIBUTABLE TO EXPORTS. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES LIKE EXC ISE 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. BEFORE CONCLUDING WE STATE THAT THE NATURE OF EVER Y RECEIPT NEEDS TO BE ASCERTAINED IN ORDER TO FIND OUT WHETHE R THE SAID RECEIPT FORMS PART OF/OR THAT IT HAS AN ATTRIBUTE O F AN EXPORT TURNOVER. WHEN AN INDIRECT TAX IS COLLECTED BY THE TAXPAYER ON BEHALF OF THE GOVERNMENT THE TAX RECOVERED IS FOR T HE GOVERNMENT. IT MAY BE AN INCOME IN THE CONCEPTUAL S ENSE OR EVEN UNDER THE INCOME-TAX ACT BUT WHILE WORKING OUT THE FORMULA UNDER SECTION 80HHC(3) OF THE INCOME-TAX ACT AND WH ILE APPLYING THE FOUR VARIABLES ONE HAS TO ASCERTAIN WH ETHER THE RECEIPT HAS AN ATTRIBUTE OF EXPORT TURNOVER . 8.1 HONBLE GUJARAT HIGH COURT IN THE CASE OF AL EMBIC CHEMICAL WORKS LTD. VS. DCIT [ 266 ITR 47](GUJ) IN THE CONTEXT OF EXPLANATION (BAA) HAVE HELD THAT (D) WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDI NG THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 8 0HHC 90 PER CENT. OF THE INCOME RELATABLE TO RENT COMPUTER CHARGES SERVICE CHARGES MISCELLANEOUS INCOME AND INSURANCE CLAIM WAS REQUIRED TO BE DEDUCTED FROM THE PROFITS UNDER EXPL ANATION (BAA) ITA.NO.793/AHD/2007 -7- TO SECTION 8OHHC(4A) IGNORING USE OF THE WORD OR BETWEEN REFERENCE TO CLAUSES (IIIA) (IIIB) AND (IIIC) OF S ECTION 28 IN CLAUSE (1) OF THE SAID EXPLANATION AND OTHER ITEMS ABOVE R EFERRED TO AND FURTHER ERRED IN READING THE WORD OR AS AND ? . IV. DEDUCTION UNDER SECTION 80HHC OF THE ACT ON A PLAIN READING OF THE PROVISION AS IT STANDS IT IS APPARENT THAT WHAT THE PROVISION STIPULATES IS THAT PROFITS OF T HE BUSINESS FOR THE PURPOSE OF SECTION 80HHC OF THE ACT MEAN THE PR OFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION. WHILE COMPUTING SUCH PROFI TS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IF ANY SUM REFERRED TO IN CLAUSE (IIIA) (IIIB) OR (IIIC) OF S ECTION 28 OF THE ACT HAS BEEN INCLUDED IN SUCH PROFITS THE SAME HAS TO B E REDUCED BY 90 PER CENT. FROM THE PROFITS COMPUTED AS AFORESAID . SIMILARLY IF ANY RECEIPT BY WAY OF BROKERAGE COMMISSION INTERE ST RENT CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE I S INCLUDED IN SUCH PROFITS I.E. PROFITS OF THE BUSINESS SUCH PR OFITS HAVE TO BE REDUCED BY THE SAID FIGURE I.E. BY 90 PER CENT. W HILE COMPUTING (PROFITS OF THE BUSINESS) FOR THE PURPOSE OF SECTIO N 8OHHC OF THE ACT. THEREFORE ONCE THE SUMS OR THE RECEIPTS OF TH E NATURE SPECIFIED IN SUB- CLAUSE (1) OF CLAUSE (BAA) OF THE EXPLANATION ARE INCLUDED WHILE COMPUTING THE PROFITS AND GAINS OF B USINESS THEN SUCH SUMS OR RECEIPTS ARE TO BE REDUCED TO THE EXTE NT OF 90 PER CENT. FROM THE PROFITS OF THE BUSINESS. ONCE THE LA NGUAGE EMPLOYED BY THE PROVISION IS CLEAR IT IS NOT NECESS ARY FOR THE COURT TO READ ANYTHING INTO THE SAID LANGUAGE NOR GO BEHI ND THE LANGUAGE EMPLOYED BY THE LEGISLATURE SO AS TO ASCER TAIN THE INTENTION OF THE LEGISLATURE. THIS WOULD BECOME NEC ESSARY ONLY WHEN THE LANGUAGE EMPLOYED BY THE STATUTE IS AMBIGU OUS IN ANY MANNER. IN THE PRESENT CASE THAT CANNOT BE TERMED T O BE THE SITUATION. THEREFORE THE GROUND RAISED ON BEHALF O F THE APPELLANT AS REGARDS THE INTERPRETATION TO BE PLACED ON CLAUS E (BAA) OF THE EXPLANATION TO SECTION 8OHHC OF THE ACT DOES NOT ME RIT ACCEPTANCE AND FAILS. 8.2 IN VIEW OF THE AFORESAID JUDGMENT OF THE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR(SUPRA) IT IS EVIDENT THAT ANY INDEPENDENT INCOME WHICH IS NOT DERIVED FROM THE EXPORT ACTIVITIES IN TERMS OF SECTION 80HHC(2) OF THE ACT BUT IS OTHERWISE ASSESSED AS BUSINESS INCOME 90% OF SUCH RECEIPTS HAVE TO BE REDUCED FROM THE PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT. ITA.NO.793/AHD/2007 -8- 8.3 MOREOVER HONBLE PUNJAB AND HARYANA HIGH CO URT IN THE CASE OF LIBERTY FOOTWEAR COMPANY VS. CIT 283 ITR 398 HELD THAT 90 PER CENT OF RECEIPTS FROM RENT AND HIRE CHARGES BE EXCLUDED FROM THE PRO FITS OF BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. 8.4 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS S.G.JHAVERI CONSULTANCY LTD. 245 ITR 854 HELD THAT LABOUR CHAR GES AND SERVICE CHARGES CAN NOT BE INCLUDED IN THE BUSINESS PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT AS THESE ITEMS DO NOT HAVE ANY LI NKAGE WITH THE EXPORT ACTIVITIES. IN CIT VS. DEODHAR ELECTRO DESIGN (P) L TD. 300 ITR 103(BOM.) HONBLE HIGH COURT HELD THAT RECEIPTS BY WAY OF DEV ELOPMENT & SERVICE CHARGES WOULD NOT BE ENTITLED TO THE BENEFIT U/S 80 HHC(3) OF THE ACT AND IT HAD TO BE COMPUTED BASED ON 90% OF THEIR EXCLUSION. 8.5 IN PARRY AGRO INDUSTRIES VS. JCIT(ASSESSME NT) 292 ITR 542 (KERALA) HONBLE HIGH COURT HELD THAT DUTY DRAWBACK SERVI CE CHARGES RECEIPTS ETC. ARE MISCELLANEOUS INCOME AND THESE HAVE NO NEXUS WI TH THE ASSESSEE'S BUSINESS OF EXPORT AND THEREFORE SUCH RECEIPTS SH OULD NOT BE INCLUDED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT . 8.6 SIMILARLY IN KRM MARINE EXPORTS LTD. VS. ACI T 288 ITR 151(MAD) HONBLE HIGH COURT HELD THAT THAT THE SER VICE CHARGES OR THE INCENTIVE RECEIVED AT 3.5 PER CENT. OF THE INVOICE VALUE BY THE ASSESSEE CANNOT BE CONSIDERED AS EXPORT TURNOVER AS IT HAS NOT BEEN RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AS REQUIRED IN THE SECTION. HENCE THAT PART OF THE SUM IS NOT ELIGIBLE FOR THE BENEFIT GRANTED UNDER SECTION 80HH C AND REDUCTION BY 90 PER CENT. AS PROVIDED UNDER CLAUSE (BAA) IS CORRECT. 8.7 AS REGARDS INTEREST ON DEPOSITS KEPT WIT H THE BANK BY WAY OF MARGIN MONEY FROM A BARE PERUSAL OF PROVISI ONS OF SEC. 80HHC OF THE ACT IT IS APPARENT THAT THE INCOME WHICH IS UN DERSTOOD TO BE COMPUTED UNDER THIS PROVISION MUST HAVE BEEN DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDISE. ADMITTEDLY THE INTERE ST INCOME WAS NOT DERIVED BY EXPORT OF GOODS OR MERCHANDISE. A DIVISI ON BENCH OF THE HONBLE ITA.NO.793/AHD/2007 -9- KERALA HIGH COURT IN NANJI TOPANBHAI AND CO. V. ASS T. CIT [2000] 243 ITR 192 WAS CONSIDERING THE QUESTION AS TO WHETHER THE INT EREST EARNED ON FIXED DEPOSIT WAS INCOME ARISING OUT OF EXPORT OR INCOME FROM OTHER SOURCES. THE HONBLE HIGH COURT HELD (HEADNOTE): 'UNDER SECTION 80HHC OF THE INCOME-TAX ACT 1961 T HE ASSESSEE WHO IS ENGAGED IN EXPORT BUSINESS IS ALLOWED IN COMPUTING THE TOTAL INCOME A DEDUCTION OUT OF THE INCOME DERIVED FROM THE EXPORT OF SUCH GOODS. UNLESS THE ASSESSEE IS ABLE TO SHOW THAT THE INCOME RECEIV ED BY WAY OF INTEREST FROM THE FIXED DEPOSIT IS DERIVED FROM THE EXPORT BUSINE SS IT WILL NOT BE ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80HHC IN RESPECT OF I T'. 8.71 IN ANOTHER JUDGMENT REPORTED IN CIT V. COCHI N REFINERIES LTD. [1985] 154 ITR 345 HONBLE KERALA HIGH COURT HELD: 'PROFITS AND GAINS ARE WELL UNDERSTOOD TO MEAN ONLY THE BUSINESS INCOME AND NOT ANY OTHER INCOME. SO LONG AS THE COMPANY HAS NO BUSINESS OF LENDING MONEY AND SO LONG AS THE ADMITTED CASE OF THE COMP ANY IS THAT THE INCOME DERIVED IS ONLY ON ACCOUNT OF THE PECULIAR SITUATIO N ARISING FROM THE TIME SCHEDULE FOR REPAYMENT OF THE LOANS IT CANNOT BE S TATED THAT THE INCOME YIELDED BY THE DEPOSITS OR INVESTMENTS WAS RECEIVED IN THE COURSE OF THE COMPANY'S BUSINESS SO AS TO BE TREATED AS A BUSINES S PROFIT' 8.72 WE FIND THAT IN URBAN STANISLAUS CO. [2003] 263 ITR 10 (KER) WHERE THE ASSESSEE HAD CONTENDED THAT AS A CONDITION FOR OBTAINING A LOAN FROM THE BANK 29 PER CENT. OF THE SALE RECEIPTS HAD TO BE D EPOSITED BY WAY OF SECURITY. IT WAS CLAIMED THAT THE INTEREST EARNED ON SUCH DEP OSIT WAS BUSINESS INCOME FOR THE PURPOSE OF SECTION 80HHC. THIS WAS NEGATIVE D BY THE HONBLE KERALA HIGH COURT BY OBSERVING THAT: 'THE ASSESSEE CAN CLAIM DEDUCTION IN RESPECT OF THE PROFITS DERIVED FROM THE EXPORT OF GOODS ONLY WHEN IT IS ESTABLISHED THAT TH E INCOME IS SOLELY RELATED TO THE EXPORT. THE OBVIOUS INTENTION BEHIND THE PROVIS ION IN SECTION 80HHC IS TO PROMOTE EXPORTS. HOWEVER THE INCOME EARNED BY WAY OF INTEREST FROM FIXED DEPOSIT IS NOT AN INCOME FROM EXPORTS. THUS IT WAS RIGHTLY TAKEN INTO ACCOUNT AS INCOME FROM OTHER SOURCES'. 8.73 THIS DECISION HAS BEEN AFFIRMED BY THE HON'B LE SUPREME COURT BY THE DISMISSAL OF THE SPECIAL LEAVE PETITION. IN K. RAVI NDRANATHAN NAIR [2003] 262 ITR 669 (KER) IN DEALING WITH A SIMILAR ISSUE THE HONBL E KERALA HIGH COURT HELD: ITA.NO.793/AHD/2007 -10- 'THE INTEREST FROM SHORT-TERM DEPOSITS RECEIVED BY THE APPELLANT IS NOT THE DIRECT RESULT OF ANY EXPORT OF ANY GOODS OR MERCHAN DISE. THE FIXED DEPOSIT WAS MADE ONLY FOR THE PURPOSE OF OPENING LETTERS OF CREDIT AND FOR GETTING OTHER BENEFITS WHICH ARE NECESSARY REQUIREMENTS TO ENABLE THE APPELLANT TO MAKE THE EXPORT. FROM THE ABOVE IT IS CLEAR THAT TH E INTEREST INCOME RECEIVED ON THE SHORT-TERM DEPOSITS THOUGH IT CAN BE ATTRIBU TED TO THE EXPORT BUSINESS CANNOT BE TREATED AS INCOME WHICH IS DERIVED FROM T HE EXPORT BUSINESS. IN THE ABOVE CIRCUMSTANCES EVEN ASSUMING THAT THE BANK HA S INSISTED FOR MAKING SHORTTERM DEPOSITS FOR OPENING LETTERS OF CREDIT AN D FOR OTHER FACILITIES IT CANNOT BE SAID THAT THE INCOME IS DERIVED FROM THE EXPORT BUSINESS.' 8.74 THE ABOVE DECISION IN K. RAVINDRANATHAN NAIR [2003] 262 ITR 669 (KER) HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT BY T HE DISMISSAL OF THE SPECIAL LEAVE PETITION. TO THE SAME EFFECT IS THE J UDGMENT OF THE SAME HIGH COURT IN SOUTHERN CASHEW EXPORTERS V. DEPUTY CIT [2 003] 130 TAXMAN 203 (KER) WHICH HAS BEEN AFFIRMED BY THE HON'BLE SUPREM E COURT ON ACCOUNT OF THE DISMISSAL OF THE SPECIAL LEAVE PETITION. THE RE SULTANT POSITION IS THAT ON THREE OCCASIONS THE HON'BLE SUPREME COURT HAS AFFI RMED THE JUDGMENTS OF THE KERALA HIGH COURT THAT HAS CONSISTENTLY HELD TH AT INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING OF CREDIT FAC ILITIES FROM THE BANK DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AN D THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. IN CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC) THE HON'BLE SUPREME COURT REITERATED THE NEXUS THEORY AND DECLINED TO TREAT S UCH INTEREST EARNED AS BUSINESS INCOME. AN ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF EXPORTS AND INVESTS THE SURPLUS FUNDS IN FIXED DEPOSITS WILL NO T BE ABLE TO TREAT THE INTEREST EARNED THEREON AS BUSINESS INCOME SINCE IT DOES NOT BEAR ANY DIRECT NEXUS WITH THE EXPORT BUSINESS OF THE ASSESSEE. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GASKETS & RADIATORS DI STRIBUTORS 296 ITR 440(GUJ) RELYING INTER ALIA ON THE DECISION O F THE HONBLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [20 03] 262 ITR 278 HELD THAT RECEIPTS ON ACCOUNT OF INTEREST ON DEPOSITS I S NOT REQUIRED TO BE CONSIDERED FOR DEDUCTION U/S 80HHC OF THE ACT. H ONBLE HIGH COURT HELD IN FOLLOWING TERMS: ITA.NO.793/AHD/2007 -11- IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE HON'BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 AND THE QUESTION WHICH WAS POSED FOR CONSIDERATION BEFORE THE APEX COURT W AS WHETHER THE INTEREST ON DEPOSITS WITH THE TAMIL NADU ELECTRICITY BOARD S HOULD BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPO SE OF SECTION 80HH OR NOT AND THE HON'BLE SUPREME COURT HAS OBSERVED THAT SEC TION 80HH OF THE INCOME-TAX ACT GRANTS DEDUCTION IN RESPECT OF PROFI TS AND GAINS 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING AND THE WORDS 'DERIVED FR OM' IN SECTION 80HH OF THE INCOME-TAX ACT 1961 MUST BE UNDERSTOOD AS SOMETHI NG WHICH HAS A DIRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE'S INDUSTRIAL UNDE RTAKING. THE SUPREME COURT HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE TAMIL NADU ELECTRICITY BO ARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE S AID DEDUCTION UNDER SECTION 80HH. IN G.T.N. TEXTILES LTD. V. DY. CIT [2005] 279 ITR 72 THE KERALA HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS NOT P ROFIT DERIVED FROM EXPORT OF GOODS. THE KERALA HIGH COURT HAS FURTHER HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS COMMISSION RECEIVED ON SALE OF MACHINERY ETC. WERE NOT BUSINESS INCOME AND CONSEQUENTLY THE ASSES SEE WAS NOT ENTITLED TO COMPUTATION OF ELIGIBLE DEDUCTION UNDER SECTION 80H HC OF THE ACT BY INCLUDING THOSE RECEIPTS UNDER BUSINESS INCOME. THEREFORE CO NSIDERING THE AFORESAID TWO DECISIONS WE MUST HOLD THAT THE TRIBUNAL AS WE LL AS THE COMMISSIONER OF INCOME-TAX (APPEALS) BOTH COMMITTED AN ERROR IN TR EATING THE INTEREST ON DEPOSITS AS 'BUSINESS INCOME' AND GRANTING THE ASSE SSEE THE DEDUCTION UNDER SECTION 80HHC OF THE ACT . 8. 75 IN CIT VS. RAKESH RAKHEJA 166 TAXMAN 50(DE LHI) HONBLE HIGH COURT HELD THAT THE INCOME EARNED BY THE ASSESSEE F ROM FDRS IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE SAID INCOME IS THEREFORE OUTSIDE THE PURVIEW OF SECTION 80HHC OF THE ACT AND 100 PER CENT OF THE INTEREST IS REQUIRED TO BE EXCLUDED FROM THE PROFIT S OF THE BUSINESS IN TERMS OF EXPLANATION ( BAA ) TO SECTION 80HHC OF THE ACT. 8.76 IN CIT VS. KRAFT LAND INDIA 162 TAXMAN 123 (DEL) HONBLE DELHI HIGH COURT HELD THAT INTEREST RECEIVED ON FDRS PLEDGED F OR SHIPPING LOAN/DEPOSITORY LOAN WAS NOT BUSINESS INCOME AND T HEREFORE INTEREST PAID BY THE ASSESSEE COULD NOT BE REDUCED FROM THE INTEREST RECEIVED WHILE CALCULATING DEDUCTION U/S 80HHC READ WITH EXPLANATI ON (BAA) THERETO. 8.77 IN CIT VS. MALWA COTTON SPINNING MILLS LTD. 166 TAXMAN 457(PB. & HARYANA) HONBLE HIGH COURT HELD THAT ITA.NO.793/AHD/2007 -12- 6. CLAUSE (BAA) AS REFERRED TO ABOVE TALKS OF PR OCEDURES AS TO HOW PROFITS OF BUSINESS ARE TO BE COMPUTED. IT PROVIDES THAT IN CASE INCOMES OF THE KIND INCLUDING INTEREST ARE INCLUDED IN THE PROFITS OF B USINESS 90 PER CENT THEREOF SHALL BE REDUCED THEREFROM. IT DOES NOT MAKE ANY DI STINCTION BETWEEN THE INTEREST EARNED FROM SOURCE 'A' OR SOURCE 'B'. INTE REST FROM WHEREVER IT IS EARNED RETAINS THE CHARACTER OF INTEREST. BE IT AN INTEREST FROM THE CUSTOMER ON DELAYED PAYMENT OF DUES. 8.8 RECENTLY HONBLE BOMBAY HIGH COURT IN THEIR DECISION DATED 8.4.2010 IN ITA NO. 2186 OF 2009 IN THE CASE OF M/S DRESSER RAND INDIA PVT. LTD. WHILE FOLLOWING THE AFORESAID DECISION OF HONBLE APEX CO URT IN THE CASE OF K. RAVINDRANATHAN NAIR(SUPRA) AND DISTINGUISHING THE D ECISION IN BANGALORE CLOTHING(SUPRA) CONCLUDED THAT RECOVERY OF FREIGHT INSURANCE AND PACKING RECEIPTS SALES TAX REFUND AND SERVICE INCOME BEIN G INDEPENDENT INCOMES 90% OF THESE RECEIPTS HAVE TO BE REDUCED FROM THE B USINESS PROFITS IN TERMS OF EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT. 8.9. DURING THE COURSE OF HEARING OF THE A PPEAL THE LD. AR WAS POINTED OUT A RECENT DECISION DATED 18/19/3/2010 OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. IN ITA N O. 200 OF 2009 WHEREIN IT WAS HELD THAT EXPLANATION (BAA) TO S. 80HHC REQUIR ES THAT NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE HAVE TO BE REDUCED FROM THE PROFITS. THE REASON WHY ITEMS LIKE BROKERAGE ETC HAVE TO BE EXCLUDED IS BECAUSE THEY DO NOT POSSESS ANY NEXUS WITH EXPORT TURNOVER AND THEIR IN CLUSION IN PROFITS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROF ITS. HOWEVER AS SOME EXPENDITURE MIGHT HAVE BEEN INCURRED IN EARNING THE SE INCOMES AN ADHOC DEDUCTION OF TEN PER CENT FROM SUCH INCOME IS ALLOW ED. IT WAS FURTHER OBSERVED BY THE HONBLE HIGH COURT THAT ONCE PARLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NATURE OF THE EXCLUSION AND THE EXTENT OF TH E EXCLUSION IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE BY REWRITING T HE LEGISLATIVE PROVISION. THE TASK OF INTERPRETATION IS TO FIND OUT THE TRUE INTE NT OF A LEGISLATIVE PROVISION AND IT IS CLEARLY NOT OPEN TO THE COURT TO LEGISLATE BY SUBSTITUTING A FORMULA OR PROVISION OTHER THAN WHAT HAS BEEN LEGISLATED BY PA RLIAMENT. IT IS NOT OPEN TO SAY THAT SOMETHING MORE THAN THE 10% STATUTORILY PR OVIDED SHOULD ALSO BE ALLOWED. HONBLE HIGH COURT FURTHER HELD THAT IN SHRI RAM HONDA POWER ITA.NO.793/AHD/2007 -13- EQUIP 289 ITR 475 THE DELHI HIGH COURT HAS NOT ADEQUAT ELY EMPHASIZED THE ENTIRE RATIONALE FOR CONFINING THE DEDUCTION ONLY T O THE EXTENT OF NINETY PER CENT OF THE EXCLUDIBLE RECEIPTS AND IT CANNOT BE FOLLOWE D; AS REGARDS THE JUDGEMENT OF THE SPECIAL BENCH IN LALSONS ENTERPRISES HONBLE HIGH COURT HELD THAT WE ARE AFFIRMATIVELY OF THE VIEW THAT THE TRIBU NAL HAS TRANSGRESSED THE LIMITATIONS ON THE EXERCISE OF JUD ICIAL POWER AND . HAS IN EFFECT LEGISLATED BY PROVIDING A DEDUCTION ON THE G ROUND OF EXPENSES OTHER THAN IN THE TERMS WHICH HAVE BEEN ALLOWED BY PARLIA MENT. THAT IS IMPERMISSIBLE. 9. AS ALREADY MENTIONED ABOVE SINCE THE LD. CI T(A) DID NOT RECORD HIS SPECIFIC FINDINGS AS TO HOW THE AFORESAID RECEIPTS HAVE ANY NEXUS OR RELATION WITH THE EXPORT BUSINESS OF THE ASSESSEE AND WERE NOT INDEPENDENT INCOMES NOR DID HE CONSIDER THE DECISIONS REFERRED TO BY TH E AO IN HIS ORDER OR HAD THE BENEFIT OF AFORESAID DECISION OF HONBLE APEX COURT IN THE CASE OF K. RAVINDRANATHAN NAIR(SUPRA) OR OF HONBLE BOMBAY HIG H COURT IN ASIAN STAR CO. LTD. (SUPRA) & DRESSER RAND INDIA PVT. LTD. (SU PRA) WE FIND MERIT IN THE CONTENTIONS OF BOTH THE PARTIES AND ACCORDINGLY V ACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE LD . CIT(A) WITH THE DIRECTIONS TO ASCERTAIN AS TO WHETHER OR NOT THE AFORESAID RECEIP TS ON ACCOUNT OF INTEREST SERVICING & COMMISSIONING PACKING AND FORWARDING GST SET OFF AND EXCISE MODVAT WERE INDEPENDENT INCOME OR WERE IN ANY MANN ER RELATED TO EXPORT ACTIVITIES OF THE ASSESSEE AND THEREAFTER ADJUDICA TE THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO T HE ASSESSEE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THOSE RE FERRED TO ABOVE. WITH THESE DIRECTIONS GROUND NOS. 2 &3 IN THE APPEAL AR E DISPOSED OF. 10. GROUND NO.4 IN THE APPEAL RELATES TO THE EXCLUSION OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURP OSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. THE ASSESSEE WHILE CALCULATING TOTAL TURNOVER EXCLUDED EXCISE DUTY OF RS.1 64 34 268/- AND SALES-TAX OF RS.60 61 333/- FOR THE PURPOSE OF DEDUCTION U/S 80H HC OF THE ACT. HOWEVER THE AO WHILE RELYING ON THE PROVISIONS OF SECTION 145A OF THE ACT AND A ITA.NO.793/AHD/2007 -14- NUMBER OF DECISIONS HELD THAT THE EXCISE DUTY AND S ALES TAX SHOULD FORM PART OF TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UND ER SECTION 80HHC OF THE ACT. 11. ON APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF MILTON LAMINATES LTD. VS. ITO ITA NO.3939/AHD/2004 WHEREIN THE TRIBUNAL HELD THAT THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC WOUL D EXCLUDE SALES-TAX AND EXCISE DUTY IF ANY INCLUDED THEREIN. THE LEARNE D CIT(A) ACCORDINGLY DIRECTED THE AO TO EXCLUDE THE EXCISE DUTY AND SALE S TAX FROM THE CALCULATION OF THE TOTAL TURNOVER. 12. THE REVENUE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSE SSEE RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS LAKSHMI MACHINE WORKS 290 ITR 667 (SC) WHILE THE LD. DR SUP PORTED THE ORDER OF THE AO. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE. WE ARE NOT INCLINED TO ACCEPT THE FINDINGS OF THE LOWER AUTHORITIES THAT THE PROVISIONS OF SEC. 145A WERE APPLICABLE TO THE CONCEPT OF TOTAL TURNOVER EVEN WHILE DETERMINING THE DEDUCTION U/S 80HHC OF THE ACT IN VIEW OF THE FOLLOWING OBSERVATIONS OF THE HONBLE APEX COURT I N THE CASE OF LAXMI MACHINE WORKS(SUPRA) WHEREIN IT WAS HELD AS UNDER: WE HAVE TO READ THE WORDS 'TOTAL TURNOVER' IN SECTI ON 80HHC AS PART OF THE FORMULA WHICH SOUGHT TO SEGREG ATE THE 'EXPORT PROFITS' FROM THE 'BUSINESS PROFITS'. THEREFORE WE HAVE TO READ THE FORMULA IN ENTIRETY. IN THAT FORMULA THE ENTIRE BUS INESS PROFITS IS NOT GIVEN DEDUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCED BY THE ABOVE FRACTION/RATIO OF EXPORT TURNO VER + TOTAL TURNOVER WHICH CONSTITUTES SECTION 80HHC CONCESSION (DEDUCTI ON). INCOME IN THE NATURE OF 'BUSINESS PROFITS' WAS THEREFORE AP PORTIONED. THE ABOVE FORMULA FIXED A RATIO IN WHICH 'BUSINESS PROFITS' U NDER SECTION 28 OF THE ACT HAD TO BE APPORTIONED. THEREFORE ONE HAS TO GI VE WEIGHTAGE NOT ONLY TO THE WORDS 'TOTAL TURNOVER' BUT ALSO TO THE WORDS 'EXPORT TURNOVER' 'TOTAL EXPORT TURNOVER' AND 'BUSINESS PR OFITS'. THAT IS THE REASON WHY WE HAVE QUOTED HEREINABOVE EXTENSIVELY T HE ILLUSTRATION ITA.NO.793/AHD/2007 -15- FROM THE DIRECT TAXES (INCOME-TAX) READY RECKONER O F THE RELEVANT WORD. IN THE CIRCUMSTANCES WE CANNOT INTERPRET THE WORDS 'TOTAL TURNOVER' IN THE ABOVE FORMULA WITH REFERENCE TO TH E DEFINITION OF THE WORD 'TURNOVER' IN OTHER LAWS LIKE CENTRAL SALES TA X OR AS DEFINED IN ACCOUNTING PRINCIPLES. GOODS FOR EXPORT DO NOT INCU R EXCISE DUTY LIABILITY. AS STATED ABOVE EVEN COMMISSION AND INT EREST FORMED A PART OF THE PROFIT AND LOSS ACCOUNT HOWEVER THEY WERE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. THEY WERE NOT ELIGIB LE EVEN WITHOUT THE CLARIFICATION INTRODUCED BY THE LEGISLATURE BY VARIOUS AMENDMENTS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF TURNOVE R. FURTHER IN ALL OTHER PROVISIONS OF THE INCOME-TAX ACT PROFITS AND GAINS WERE REQUIRED TO BE COMPUTED WITH REFERENCE TO THE BOOKS OF ACCOU NT OF THE ASSESSEE. HOWEVER AS CAN BE SEEN FROM THE INCOME-T AX RULES AND FROM THE ABOVE FORM NO. 10CCAC IN THE CASE OF DEDUC TION UNDER SECTION 80HHC A REPORT OF THE AUDITOR CERTIFYING DE DUCTION BASED ON EXPORT TURNOVER WAS SUFFICIENT. THIS IS BECAUSE THE VERY BASIS FOR COMPUTING SECTION 80HHC DEDUCTION WAS 'BUSINESS PRO FITS' AS COMPUTED UNDER SECTION 28 A PORTION OF WHICH HAD T O BE APPORTIONED IN TERMS OF THE ABOVE RATIO OF EXPORT TURNOVER TO T OTAL TURNOVER. SECTION 80HHC(3) WAS A BENEFICIAL SECTION. IT WAS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSIN ESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS THE LE GISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROF ITS BY APPORTIONING THE TOTAL BUSINESS PROFITS ON THE BASIS OF TURNOVER S. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. THIS METHOD EARLIER EXISTED UNDER T HE EXCESS PROFITS TAX ACT IT EXISTED IN THE BUSINESS PROFITS TAX ACT. TH EREFORE JUST AS COMMISSION RECEIVED BY AN ASSESSEE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF 'TURNOVER' EXCISE DUTY AND SAL ES TAX ALSO CANNOT FORM PART OF THE 'TURNOVER'. SIMILARLY 'INTEREST' EMANATES FROM EXPORTS AND YET 'INTEREST' DOES NOT INVOLVE AN ELEMENT OF T URNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80HHC OF THE ACT WAS TO CONFER A BENEFIT ON PROFITS ACCRUING WITH REFERENCE TO EXPOR T TURNOVER. THEREFORE 'TURNOVER' WAS THE REQUIREMENT. COMMISSION RENT I NTEREST ETC. DID NOT INVOLVE ANY TURNOVER. THEREFORE 90 PER CENT. OF SU CH COMMISSION INTEREST ETC. WAS EXCLUDED FROM THE PROFITS DERIVED FROM THE EXPORT. THEREFORE EVEN WITHOUT THE CLARIFICATION SUCH ITEM S DID NOT FORM PART OF THE FORMULA IN SECTION 80HHC(3) FOR THE SIMPLE REAS ON THAT THEY DID NOT EMANATE FROM THE' EXPORT TURNOVER' MUCH LESS ANY T URNOVER. EVEN IF THE ASSESSEE WAS AN EXCLUSIVE DEALER IN EXPORTS TH E SAID COMMISSION WAS NOT INCLUDIBLE AS IT DID NOT SPRING FROM THE' T URNOVER'. 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. COMMISSION INTEREST RENT ETC. DO YIELD PROFITS BUT THEY DO NOT PARTAKE OF THE CHARACTER OF TURNOVER AN D' THEREFORE THEY WERE NOT INCLUDIBLE IN THE 'TOTAL TURNOVER'. THE AB OVE DISCUSSION SHOWS THAT INCOME FROM RENT COMMISSION ETC. CANNOT BE C ONSIDERED AS PART ITA.NO.793/AHD/2007 -16- OF BUSINESS PROFITS AND THEREFORE THEY CANNOT BE HELD AS PART OF THE TURNOVER ALSO. IN FACT IN CIVIL APPEAL NO. 4409 OF 2005 THE ABOVE PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFI CER IF SO THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TOTAL TURNOVER' UNDER SECTION 80HHC(3) OTHERWISE THE FORMULA BECOM ES UNWORKABLE. IN OUR VIEW SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF 'TURNOVER' WHICH IS THE POSITION EVEN IN THE CASE O F 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 A SSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE IF THEY ARE MADE RELATAB LE TO EXPORTS THE FORMULA UNDER SECTION 80HHC WOULD BECOME UNWORKABLE . THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMEN TS MADE TO SECTION 80HHC FROM TIME TO TIME. 13.1 SECTION 80HHC OF THE INCOME-TAX ACT 1961 IS A BENE FICIAL SECTION AND WAS INTENDED TO PROVIDE INCENTIVE TO PROMOTE E XPORTS. THE INTENTION WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. AS OBSERVE D BY THE HONBLE APEX COURT ONE CANNOT INTERPRET THE WORDS TOTAL TURNOV ER WITH REFERENCE TO THE DEFINITION OF THE WORD TURNOVER IN OTHER LAWS LIK E THE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. THE WORDS 'TOTAL TURNOVER' IN SECTION 80HHC HAVE TO BE READ AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE 'EXPORT PROFITS' FROM THE 'BUSINESS PROFITS . THEREFORE W E ARE OF THE OPINION THAT EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) OF THE ACT. 13.2 IN THE CASE OF SONY INDIA PVT. LTD. VS. DC IT IN ITA NO. 1181/DEL/2005 DATED 23/9/2008 FOR THE AY 2001-02 ITAT DELHI BENC H FOLLOWING THE AFORESAID DECISION OF THE HONBLE SUPREME COURT DIR ECTED TO EXCLUDE EXCISE DUTY WHILE WORKING OUT TOTAL TURNOVER FOR THE PURPO SE OF DEDUCTION U/S 80HHC OF THE ACT. 13.3. IN VIEW OF AFORESAID DECISION OF THE HON BLE SUPREME COURT WE HAVE NO HESITATION IN UPHOLDING THE CONCLUSION OF THE LD . CIT(A) DIRECTING THE AO TO EXCLUDE EXCISE DUTY AND SALES TAX WHILE WORKING OUT TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THUS GR OUND NO.4 IN THE APPEAL IS DISMISSED. ITA.NO.793/AHD/2007 -17- 14. GROUND NOS. 5 & 6 BEING MERE PRAYER DO NOT R EQUIRE ANY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED. 15. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 6 -8-2010 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 6 -8-2010 COPY OF THE ORDER FORWARDED TO: 1. MAZDA LTD. 650/1 MAZDA HOUSE PANCHVATI SECOND L ANE AMBAWADI AHMEDABAD. 2. DCIT CIRCLE-4 ASHRAM ROAD AHMEDABAD. 3. CIT CONCERNED 4. CIT(A)-VII AHMEDABAD 5. DR BENCH-A ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD