THE COMMISSIONER OF INCOME TAX-I vs. CADILA HEALTHCARE LTD.

TAXAP/1420/2008HC GujaratGJHC24025773200821 December 2013Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.D.KOTHARI8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law is not res integra and is squarely covered against the Revenue by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works (290 ITR 667) and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. (2012) 25 Taxmann.Com 302 (SC). The Court reasoned that Section 80HHC is a beneficial provision intended to promote exports, and the formula for deduction is based on 'business profits' apportioned by 'export turnover' to 'total turnover'. The Supreme Court in Lakshmi Machine Works observed that 'turnover' should be interpreted schematically, and items like commission, interest, and rent, which do not involve an element of turnover, are not includible in 'total turnover'. Similarly, excise duty and sales tax, being indirect taxes collected on behalf of the government and not originating from the 'turnover' itself, should also be excluded. The Court found that even with the insertion of Section 145A, the ratio of the Supreme Court decisions remained applicable. Therefore, the Tribunal was correct in holding that excise duty and sales tax do not form part of the sale proceeds for the purpose of Section 80HHC.

What were the facts?

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated September 28, 2007, for Assessment Year 2003-04. The ITAT had directed the Assessing Officer to exclude excise duty and sales tax from the total turnover when computing the deduction under Section 80HHC. The assessee is Cadila Healthcare Ltd. The appeal was admitted to consider a substantial question of law regarding the inclusion or exclusion of excise duty and sales tax in the computation of deduction under Section 80HHC.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to exclude excise duty and sales tax from the total turnover when computing deduction under Section 80HHC? (Question of law) Assessee's Contention: The judgment does not explicitly record arguments made by the assessee. However, the ITAT's decision, which the High Court upholds, implies the assessee argued for the exclusion of excise duty and sales tax. Revenue's Contention: The Revenue argued that excise duty and sales tax should be included in the 'total turnover' for the purpose of computing the deduction under Section 80HHC. They contended that the word 'turnover' in its ordinary sense includes these items and that the legislature had expressly excluded freight and insurance but not sales tax and excise duty. They relied on a strict interpretation of the taxing statute and the formula in Section 80HHC. The Revenue also attempted to distinguish Supreme Court decisions by arguing that Section 145A of the Income Tax Act was not considered in those cases.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 145A,Section 28

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O/TAXAP/1420/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL  NO. 1420 of 2008 FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH ­ and HONOURABLE MR.JUSTICE R.D.KOTHARI ­ =============================================

1.

Whether   Reporters   of   Local   Papers   may   be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ============================================= THE COMMISSIONER OF INCOME TAX­I....Appellant(s) Versus CADILA HEALTHCARE LTD.....Opponent(s) ============================================= Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR. B.D. KARIA FOR MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.

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