In the High Court of Judicature at Madras Dated : 09.07.2008 Coram :- The Honourable Mr.Justice K.RAVIRAJA PANDIAN and The Honourable Mr.Justice P.P.S.JANARTHANA RAJA Tax Case (Appeal) Nos.896 to 900 of 2008 Commissioner of Income Tax Coimbatore. .. Appellant in all T.Cs Vs. M/s.Crafts Man Automation Pvt.Ltd., No.15, LML Colony Amman Kulam Road Coimbatore – 641 037. .. Respondent in all T.Cs TAX CASE (APPEALS) in T.C.(A) Nos.896 to 900 of 2008 filed under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal Madras 'D' Bench dated 17.2.2006 in I.T.A.Nos.151 to 155/Mds/2005 for the assessment years 1998-99 to 2002-2003. Against the order of the Commissioner of Income -Tax (Appeals-I), Coimbatore in P.A.No.AABCC 2461K date of order 21.10.2004, Appeal Nos. 155 to 159/04-05 for the assessment year 1998-1999,1999-2000, 2000- 2001,2001-2002 and 2002-2003 and Against the order of the Deputy Commissioner of Income-Tax, Company Circle -IV (1), Coimbatore in PAN/GIR No.AABCC 2461K date of orders 30.3.2004, 31.3.2004, 31.3.2004, 31.3.2004 and 31.3.2004 for the assessment year 1998-99,1999-2000, 2000-2001,2001-2002, 2002- 2003. For Appellant : Mr.N.Muralikumaran JUDGMENT JUDGMENT OF THE COURT WAS DELIVERED BY K.RAVIRAJA PANDIAN,J The revenue came up on appeal against the order of the Income Tax Appellate Tribunal Madras 'D' Bench dated 17.2.2006 in I.T.A.Nos.151 https://hcservices.ecourts.gov.in/hcservices/ to 155/Mds/2005. The relevant assessment years are 1998-99 to 2002- 2003. The common substantial questions of law formulated in these appeals are as follows:- "1. For the purpose of computing deduction under Section 80HHC whether or not for the profits derived from explanation to "bba" to Section 80HHC is applicable? 2. Whether the Income Tax Appellate Tribunal was right in law in holding that the excise duty and sales tax are to be excluded from the turnover for the purpose of deduction under Section 80HHC of the Income Tax Act 1961? 2. As the issue involved in these appeals is one and the same, these appeals are taken together and are disposed of by this common order. The Tax Case (Appeal) No.896 of 2008 is taken as a typical case, the facts of which are as follows: The revenue put in issue the exclusion of profits from labour charges while computing adjusted business profit. The assessing officer excluded the profits from labour charges while computing adjusted business profit by invoking the provisions of explanation ("baa") to Section 80HHC for the purpose of computation of deduction under Section 80HHC. The other issue relates to exclusion of excise duty and sales tax from the total turnover while computing the deduction under Section 80HHC. On an appeal being filed by the assessee, the Commissioner has held both the issues in favour of the assessee. The revenue in its turn has taken the matter on further appeal to the Income-tax Appellate Tribunal in respect of the above said two issues. The Tribunal has dismissed the appeal filed by the revenue, thereby confirmed the order of the Commissioner of Income-tax (appeals). The correctness of the same is put in issue in these appeals by formulating the above said questions of law. 3. Learned counsel for the revenue fairly submits that the first question of law is covered by the decision of this Court in the case of K.R.M.MARINE EXPORTS LIMITED VS. ASSISTANT COMMISSIONER OF INCOME- TAX reported in (2007) 288 ITR 151 and the second question of law is covered by the decision of the Supreme Court in the case of COMMISSIONER OF INCOME-TAX VS. LAKSHMI MACHINE WORKS, (2007) 290 ITR 667. 4. In the case of K.R.M.MARINE EXPORTS LIMITED VS. ASSISTANT COMMISSIONER OF INCOME-TAX reported in (2007) 288 ITR 151, which was rendered by us, it was held thus: "the export profits are required to be computed in the https://hcservices.ecourts.gov.in/hcservices/ ratio of export turnover to total turnover as contemplated in the formula i.e., export profit = business profit x export turnover/total turnover. The business of the assessee was manufacturing and processing and export of marine products. The income derived from freezing and processing of marine products – but for that operation the export could not be made – was an income earned by using the entire undertaking of the company i.e., machinery and power and other manufacturing and administrative set up. The sum so received could be regarded as business profit. In these circumstances, the freezing and processing charges would definitely form part of the components of business profits, as the activity of freezing and processing would have a direct and immediate nexus to the activity of export. The freezing and processing charges were eligible for the special deduction under Section 80HHC." 5. The Supreme Court in the case of COMMISSIONER OF INCOME-TAX VS. LAKSHMI MACHINE WORKS, (2007) 290 ITR 667 has held that "Section 80HHC of the Income-tax 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 purposes of section 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 section 80HHC(3)." Hence the second question of law formulated in this appeal has to be held against the revenue. 6. As the questions of law now raised in these appeals have already been decided against the revenue in the above said judgments, following the said judgements, these appeals are dismissed. Consequently, the connected M.P.Nos.1 of 2008 are closed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ To 1.Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records five copies). 2.The Secretary, Central Board of Revenue, New Delhi (3 copies). 3. The Commissioner of Income Tax (Appeals)-I, Coimbatore 4. The Deputy Commissioner of Income-tax, Company Circle-IV(I), Coimbatore 5. The Commissioner of Income Tax, Coimbatore +5cc to Mr.N.Muralikumaran, SSC for IT SR 36280 to 36284 SS(CO) km/25.7. Tax Case (Appeal) Ns.896 to 900 of 2008 https://hcservices.ecourts.gov.in/hcservices/