COMMISSIONER OF INCOME TAX, COIMBATORE versus M/S. LAKSHMI MACHINE WORKS

Citation: [2007] 5 S.C.R. 622 · Decided: 25-04-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX, COIMBATORE 
f 
v. 
MIS. LAKSHMI MACHINE WORKS 
APRIL 25, 2007 
B 
(S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
Income Tax Act, 1961: 
" 
" 
c 
Section 80HHC-AY 1993-94-Profits retained for export business-
Deduction in respect of-Schematic interpretation-"Turnover "-Elements 
in-Assessee filed its return of its income for AY 1993-94-A notice under S. 
I 43(2) was issued in which one of the items was the quantum of deduction 
under S. 80HHC-The assessee was asked to explain why the total turnover 
should not be recomputed by including sales tax and excise duty-The 
D Assessing Officer held that under S. 80HHC(ba) deduction from "total 
turnover" was restricted only to three items, namely, profit on sale of import 
licence, duty drawback and CCS-However, the appellate authority held 
,, 
that sales tax and excise duty were liabilities of the assessee to the Government 
and were not liable to be included in the "total turnover" for working out 
E 
the deduction under S. 80HHC-The Tribunal and the High Court dismissed 
the appeals filed by the Department--Held: in the formula under S. 80HHC 
there are three concepts, namely, "'business profit", "export turnover" and 
"total turnover"-Jn order to make the formula workable a schematic 
interpretation has to be given to S. 80HHC-Therefore, just as commission 
received by an assessee is relatable to exports and yet it cannot form part 
F of "turnover", excise duty and sales tax also cannot form part of the 
"turnover"-Jncome from rent, commission etc. cannot be considered as part 
of business profits and, therefore, they cannot be held as part of the "turnover" 
a/so---Sa/es 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.-They 
are recovered by the assessee on behalf of the Government-Hence, sales tax 
G and excise duty are not includible in the ''turnover''. 
x_ ..-
Words & Phrases: 
"Turnover"-Meaning of-In the context of Section 80HHC of the 
H 
622 
COMMR OF INCOME TAX, COIMBATORE v. LAKSHMI MACHINE WORKS 
623 
' \ 
Income Tax Act, 1961. 
A 
For the assessment year 1993-94, the respondent-assessee filed its 
return of income. Intimation under Section 143(1)(a) of the Income Tax Act, 
1961 was sent by the appellant accepting the returned income. Later on a 
notice was issued under Section 143(2) of the Act in which one of the items 
B 
was the quantum of deduction under Section 80HHC of the Act. 
The respondent-assessee had computed the allowable deduction under 
• 
Section 80HHC without taking into account in the total turnover the sales 
" 
tax and exci~e duty. The assessee was asked to explain why the total turnover 
should not be recomputed by including sales tax and excise duty. 
c 
The Assessing Officer held that under Section 80HHC(ba) of the Act 
deduction from "total turnover" was restricted only to three items, namely, 
profit on sale of import licence, duty drawback and CCS. The Assessing 
Officer further held that from the profits of business, the assessee was entitled 
to deduct the above three items and also brokerage, commission, interest, rent, D 
charges or any other receipt of similar nature. 
Ali 
The appellate authority held that sales tax and excise duty were 
liabilities of the assessee to the Government and were not liable to be included 
in the "total turnover" for working out the deduction under Section 80HHC. 
The Tribunal and the High Court dismissed the appeals filed by the appellant. E 
Hence the appeal. 
The following question arose before the Court:-
Whether excise duty and sales tax were includible in the "total 
• 
turnover", which was the denominator in the formula contained in Section F 
80HHC(3)diploma-holder 
Dismissing the appeal, the Court 
HELD: 1.1. Under Section SOHHC of the Income Tax Act, 1961, the 
exporters were allowed, in the computation of their total income, a deduction G 
. ,.)I 
of the entire profits derived from exports. During the relevant year, there 
existed a dual system for computation of export profits. The first method 
operated in cases where the export was of goods manufactured by the tax payer. 
In those cases the export profit had to be computed on the basis of the ratio of 
"export turnover" to "total turnover". [Para 7) (635-E-F] 
H 
624 
SUPREME COURT REPORTS 
(2007] 5 S.C.R. 
A 
1.2. Where the export consisted of goods purchased from third parties 
(trading goods) there was a second meth

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