Commissioner of Income Tax vs Adyar Gate Hotel Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the 1 order of the Income Tax Appellate Tribunal dated June 27, 2005, in I. T. A. No. 725/Mds/1999 for the assessment year 1994-95.

The brief facts are as follows :

The relevant assessment year is 1994-95. The assessee is a company 3 engaged in hotel business. The assessee excluded expenditure tax, luxury tax and sales tax in the business receipts for the purpose of computation of deduction u/s 80HHD and also claimed refund of expenditure tax. According to the assessee the reason for non-inclusion of the above amounts was that these collections were not routed through the profit and loss account. The assessing officer held that (i) since the liability to pay these taxes arose on account of the assessee carrying on the business, the receipts form part of the total turnover ; and (ii) with regard to the refund of expenditure tax, since the assessee had been following the mercantile system of accounting, the excess collection was made assessable on accrual basis. Thus, the assessing officer has also taken the refund as the asses-see''s income to form part of the total turnover.

Aggrieved by the order of the assessing officer, the assessee preferred an appeal before the Commissioner (Appeals), who upheld the order of the assessing officer with regard to the inclusion of sales tax, luxury tax and expenditure tax in the total income following the decision in the case of Sriram Transport Finance Co. Ltd. v. Asst. CIT (1997) 63 ITD 336 (Mad). With regard to the issue of refund of expenditure tax, the Commissioner (Appeals) directed the assessing officer to verify the figures given by the assessee and the actual date of refund and tax it in the relevant assessment year.

Hence, the assessee preferred further appeal before the Income Tax Appellate Tribunal. The Tribunal following the ratio laid down in the case of Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Ltd., Rathi Engineering Works and Klockner Windsor (I) Ltd., , held that expenditure tax, luxury tax and sales tax should not be included in the total business receipts of the assessee for the purpose of computation of deduction u/s 80HHD. With regard to the treating of refund of expenditure tax as income of the assessee, the Tribunal finding that the refund was granted a long period after finalisation of accounts of the assessee, held that the refund of expenditure tax will not form part of the current year''s income and allowed the appeal.

Not satisfied with the order of the Tribunal dated June 27, 2005, the revenue has preferred the present appeal raising the following substantial questions of law :

(i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that expenditure tax, luxury tax and sales tax should not be included in the total business receipts of the assessee for the purpose of computation of deduction u/s 80HHD ?

(ii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the refund of expenditure tax will not form part of the income of the current year ?

Issue No. 1 :

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that expenditure tax, luxury tax and sales tax should not be included in the total business receipts of the assessee for the purpose of computation of deduction u/s 80HHD

In this regard, it is apt to refer to the decision of this Court in The Commissioner of Income Tax, Tamilnadu-I, Madras Vs. Wheels India Limited, , wherein a Division Bench of this Court, in which one of us (P. D. Dinakaran J.) was party, held as follows (headnote) :

The object of Section 80HHC is required to be kept in mind while considering that section. The general definition of the word ''turnover'' or the definition under the sales tax laws or the case law dealing with the definition of turnover under the State levy cannot be imported into Section 80HHC of the Act, particularly, when such expressions are incorporated and explained in the provision itself. Sales tax and excise duty are not to be included in the total turnover while computing the deduction u/s 80HHC." In the abovesaid decision, the decision of the Bombay High Court reported in Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Ltd., Rathi Engineering Works and Klockner Windsor (I) Ltd., was also referred to, wherein it has been held as follows (page 326 of (2005) 275 ITR) :

That the total turnover cannot include the sales tax and the excise duty and total turnover should be restricted only to such receipts which have an element of profit in it and it would be only the sale price which should be the relevant figure.

Similar view has been taken by a Division Bench of this Court in the case of The Commissioner of Income Tax Vs. Sundaram Fasteners Ltd., , wherein it has been held as follows (page 656) :

It is a settled law that though the ''total turnover'' may include the receipts of excise duty and sales tax, etc., in its general parlance and under specific statutes, because of its wider coverage in the definitions given thereunder, it has to be given a restrictive meaning while computing the ''export profit'' for the purposes of Section 80HHC, namely, only that part of the receipt for sale consideration is to be taken as part of the total turnover which has an element of profit therein, and, accordingly, the receipts of excise duty and sales tax which do not include an element of profit should be excluded from the ''total turnover''.

Issue No. 2 :

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the refund of expenditure tax will not form part of the income of the current year ?

On a perusal of the records, it is seen that based on the materials available on record, the Tribunal found that the assessing officer failed to take into account the actual date of refund, which admittedly falls during the next assessment year and therefore, the same is not taxable for the assessment year 1994-95.

In view of the above factual finding, we do not see any reason to interfere with the order of the Tribunal on this issue.

In view of the foregoing conclusion, we do not see any question of law much less a substantial question of law arises for consideration in this appeal. Accordingly, the appeal stands dismissed.