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CASE NO.: Appeal (civil)  5173 of 2007

PETITIONER: Commissioner, Income Tax,Thiruvananthapuram

RESPONDENT: K. Ravindranathan Nair

DATE OF JUDGMENT: 13/11/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.   5173        OF 2007 (Arising out of S.L.P. (C) No24617 of 2003) With Civil Appeal No.   5174  of 2007 arising out of S.L.P.(C) No.5647 of 2004, Civil Appeal No.   5175  of 2007 arising out of S.L.P.(C) No.6267 of 2004,  Civil Appeal No.   5176  of 2007 arising out of S.L.P.(C) No.12609 of 2004,  Civil Appeal No.   5178  of 2007 arising out of S.L.P.(C) No.13747 of 2004,  Civil Appeal No.   5179  of 2007 arising out of S.L.P.(C) No.13748 of 2004 ,  Civil Appeal No.   5181  of 2007 arising out of S.L.P.(C) No.12325 of 2004, Civil Appeal No.3687 of 2005 and Civil Appeal No.3167 of 2006.

KAPADIA, J.

Processing Civil Appeal No.   5173 of 2007 arising out of S.L.P.(C) No.24617 of 2003, Civil Appeal No.   5174 of 2007 arising out of S.L.P.(C) No.5647 of 2004,  Civil Appeal No.   5175 of 2007 arising out of S.L.P.(C) No.6267 of 2004, Civil Appeal No.   5181 of 2007 arising out of S.L.P.(C) No.12325 of 2004.

Leave granted.   2.      This is a batch of civil appeals filed by the Department.  For  the sake of convenience we state the facts occurring in Civil  Appeal No.          of 2007 arising out of S.L.P.(C) No.24617 of  2003 - Commissioner, Income Tax, Thiruvananthapuram v. K.  Ravindranathan Nair.  Assessee-respondent has a factory in  which he processes cashew nuts which are grown in his farm.   Thereafter he exports the cashew nuts as an exporter.  For  processing, the assessee has complete infrastructure.  He has  plant and machinery in his factory.  At the same time, the  assessee processes cashew nuts which are supplied to him by the  exporters on job-work basis.  After processing, the assessee  returns the processed cashew nuts to the exporters.  He earns  processing charges.  Therefore, the assessee is an exporter and a  job worker.

3.      Computation of Export Incentive under Section 80HHC(3) of  the Income Tax Act, 1961 ("I.T. Act", for short), is the issue for  determination in this batch of civil appeals.    

4.      The assessee made a claim for Export Incentive under  Section 80HHC(3) in his returns filed for the assessment year  1993-94.  The assessee did not include processing charges  (receipts) in his total turnover.  In his return, he indicated his  business profits at Rs.1,94,08,220.  The figure of Rs.1,94,08,220  included the processing  charges (receipts) amounting to  Rs.1,54,68,811.  However, the assessee did not include the

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processing charges amounting to Rs.1,54,68,811 in his total  turnover.  He contended that although the processing  charges(receipts) amounting to Rs.1,54,68,811 constituted part  of business profits as computed under Section 28 of the I.T. Act,  since Section 80HHC (3) was the formula to work out export  incentive, the said figure of Rs.1,54,68,811 was not includible in  the total turnover in the formula under the said Section  80HHC(3) of the I.T. Act.  According to assessee, Section  80HHC(3) provided for computation of export  incentive/concession to be computed by allocating business  profits in the ratio of export turnover w by total turnover.  This  argument was not accepted by the Department.   

5.      The narrow dispute which arises for determination is:  whether the Department was right in including processing  charges, amounting to Rs.1,54,68,811, in the total turnover   while arriving at export profits under Section 80HHC(3) of the  Act, as it stood at the material time.

6.      According to A.O., the gross total income of the assessee  was Rs.1,94,08,220 from which an amount of Rs.1,74,13,200  (90%) was deducted in terms of clause (baa) to the Explanation to  Section 80HHC to arrive at the Business Profits (See: page 52 of  the S.L.P. paper book).     

7.      Shri T.L.V. Iyer, learned senior counsel appearing on behalf  of respondent-assessee, submitted that Section 80HHC(3) of the  I.T. Act provided for export incentives.  According to learned  counsel, the object behind enactment of the said sub-section was  to encourage exports.  He, therefore, submitted that the above  formula should be read to exclude processing charges from the  total turnover in the above formula even though such charges  constituted part of the business profits required to be calculated  in terms of the provisions of Section 28 to 44D of the I.T. Act.   According to learned counsel, the word "turnover" includes all  receipts from sale of goods and not from sale of services.   According to learned counsel, the assessee had two independent  businesses, in one case he processed and exported his own  products and in the other he processed the raw material (cashew  nuts) supplied by third parties which he processed for earning  process charges.  According to learned counsel, income from  works contract by way of processing charges were not includible  in the denominator, in the above formula, namely, total turnover.   According to learned counsel, if processing charges were to be  included in total turnover then the export incentives would stand  reduced and that would defeat the very object behind enactment  of Section 80HHC(3) of the I.T. Act.  Further, according to learned  counsel, Section 80HHC(3) had granted export incentives only in  respect of receipts in foreign exchange from sale of goods and  from processing provided such processing was done to goods  which the taxpayer exported.  That, he was not the exporter of  goods which were only processed for third parties and, therefore,  such processing charges were not includible in the total turnover  even though, such charges were includible in the "business  profits" under clause (baa) to the said Explanation.  In this  connection, learned counsel contended that such processing  charges had no nexus with the activity of exports and, therefore,  such charges were not includible in the total turnover.  In this  connection, reliance was placed on the judgment of this Court in  the case of Commissioner of Income Tax, Coimbatore v. M/s.  Lakshmi Machine Works  - 2007(6) Scale 168.

8.      Mr. Vikas Singh, learned Addl. Solicitor General appearing  on behalf of the Department, contended that in view of  Explanation (ba) read with Explanation (baa) to Section 80HHC of

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the I.T. Act when the said processing charges were includible in  the business profits the same were also simultaneously includible  in total turnover in the above formula.  According to learned  counsel, Section 80HHC provided for export profits; that, in order  to compute the quantum of eligible deduction under Section  80HHC of the I.T. Act, the Department was right in including the  processing charges in the Business Profits and if such charges  constituted part of Business Profits then such charges cannot be  excluded from total turnover.  That, Business Profits, under the  above formula, was required to be calculated in accordance with   clause (baa) to the said Explanation.  According to learned  counsel, keeping in mind the provisions of Explanation (ba) and  Explanation (baa) it is clear that what was includible in the  Business Profits in the above formula had to be included also in  the total turnover.  Therefore, according to learned counsel, the  Tribunal as well as High Court had erred in holding that  processing charges were not includible in the total turnover.  In  this connection, learned counsel placed heavy reliance on the  judgment of the Rajasthan High Court in the case of  Commissioner of Income-Tax v. Sharda Gum and Chemicals \026  (2007) 288 ITR 116 (Raj). 9.      For the sake of convenience we quote hereinbelow Section  80HHC as it stood at the material time which reads as follow:    "Deduction in respect of profits retained for export business 80HHC. (1) Where an assessee, being an Indian company or a  person (other than a company) resident in India, is engaged in the  business of export out of India of any goods or merchandise to  which this section applies, there shall, in accordance with and  subject to the provisions of this section, be allowed, in computing  the total income of the assessee, a deduction of the profits derived  by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House  Certificate or a Trading House Certificate (hereafter in this  section referred to as an Export House or a Trading House, as the  case may be,) issues a certificate referred to in clause (b) of sub- section (4A), that in respect of the amount of the export turnover  specified therein, the deduction under this sub-section is to be  allowed to a supporting manufacturer, then the amount of  deduction in the case of the assessee shall be reduced by such  amount which bears to the  total profits derived by the assessee  from the export of trading goods, the same proportion as the  amount of export turnover specified in the said certificate bears to  the total export turnover of the assessee in respect of such trading  goods.  (1A) Where the assessee, being a supporting manufacturer, has  during the previous year, sold goods or merchandise to any  Export House or Trading House in respect of which the Export  House or Trading House has issued a certificate under the proviso  to sub-section (1), there shall, in accordance with and subject to  the provisions of this section, be allowed in computing the total  income of the assessee, a deduction of the  profits  derived by the  assessee from the sale of goods or merchandise to the Export  House or Trading House in respect of which the certificate has  been issued by the Export House or Trading House.  (2)(a) This section applies to all goods or merchandise, other than  those specified in clause (b), if the sale proceeds of such goods or  merchandise exported out of India are  received in, or brought  into, India  by the assessee  (other than the supporting  manufacturer)  in convertible foreign exchange  , within a period  of six months from the end of previous year or, where the Chief  Commissioner or Commissioner is satisfied (for reasons to be  recorded in writing) that the assessee is, for reasons beyond his  control, unable to do so within the said period of six months,  within such further period as the Chief Commissioner or  Commissioner may allow in this behalf.

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(b) This section does not apply to the following goods or merch- andise, namely:-- (i) mineral oil; and (ii) minerals and ores  (other than processed minerals and ores  specified in the Twelfth Schedule) .  Explanation 1.\027The sale proceeds referred to in clause (a) shall  be deemed to have been received in India where such sale process  are credited to a separate account maintained for the purpose by  the assessee with any bank outside India with the approval of the  Reserve Bank of India. Explanation 2.\027For the removal of doubts, it is hereby declared  that where any goods or merchandise are transferred by an asses- see to a branch, office, warehouse or any other establishment of  the assessee situate outside India and such goods or merchandise  are sold from such branch, office, warehouse or establishment,  then, such transfer shall be deemed to be export out of India of  such goods and merchandise and the value of such goods or  merchandise declared in the shipping bill or bill or export as I- ferred to in sub-section (1) of section 50 of the Customs Act,  1962 (52 of 1962), shall, for the purposes of this section, be  deemed to be the sale proceeds thereof.  (3) For the purposes of sub-section (1),-- (a) where the export out of India is of goods or merchandise  manufactured  or processed  by the assessee, the profits derived  from such export shall be the amount which bears to the profits of  the business, the same proportion as the export turnover in respect  of such goods bears to the total turnover of the business carried  on by the assessee; (b) where the export out of India is of trading goods, the profits  derived from such export shall be the export turnover in respect  of such trading goods as reduced by the direct costs and indirect  costs attributable to such export ; I where the export out of India is of goods or merchandise  manufactured  or processed  by the assessee and of trading goods,  the profits, derived from such export shall,-- (i) in respect of the goods or merchandise manufactured  or  processed  by the assessee, be the amount which bears to the  adjusted profits of the business, the same proportion as the  adjusted export turnover in respect of such goods bears to the  adjusted total turnover of the business carried on by the assessee;  and (ii) in respect of trading goods, be the export turnover in respect  of such trading goods as reduced by the direct and indirect costs  attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b)  or clause (c) of this sub-section shall be further increased by the  amount which bears to ninety per cent of any sum referred to in  clause (iiia) (not being profits on sale of a licence acquired from  any other person), and clause (iiib) and (iiic) of section 28, the  same proportion as the export turnover bears to the total turnover  of the business carried on by the assessee. Explanations. \027 For the purposes of this sub-section,-- (a) ’adjusted export turnover’ means the export turnover as  reduced by the export turnover in respect of trading goods; (b) ’adjusted profits of the business’ means the profits of the  business as reduced by the profits derived from the business of  export out of India of trading goods as computed in the manner  provided in clause (b) of sub-section (3); I ’adjusted total turnover’ means the total turnover of the business  as reduced by the export turnover in respect of trading goods; (d) ’direct costs’ means costs directly attributable to the trading  goods exported out of India including the purchase price of such  goods; (e) ’indirect costs’ means costs, not being direct costs, allocated  in the ratio of the export turnover in respect of trading goods to

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the total turnover; (f) ’trading goods’ means goods which are not manufactured  or  processed  by the assessee.    (3A) For the purposes of sub-section (1A), profits derived by a  supporting manufacturer from the sale of goods or merchandise  shall be,-- (a) in a case where the business carried on by the supporting  manufacturer consists exclusively of sale of goods or merch- andise to one or more Export Houses or Trading Houses, the  profits of the business [***]; (b) in a case where the business carried on by the supporting  manufacturer does not consist exclusively of sale of goods or  merchandise to one or more Export Houses or Trading Houses,  the amount which bears to the profits of the business [***] the  same proportion as the turnover in respect of sale to the  respective Export House or Trading House bears to the total  turnover of the business carried on by the assessee.  (4) The deduction under sub-section (1) shall not be admissible  unless the assessee furnishes in the prescribed form, along with  the return of income, the report of an accountant, as defined in the  Explanation below sub-section (2) of section 288, certifying that  the deduction has been correctly claimed  in accordance with the  provisions of this section.   (4A) The deduction under sub-section (1A) shall not be admis- sible unless the supporting manufacturer furnishes in the pre- scribed form along with his return of income,--  (a) the report of an accountant, as defined in the Explanation  below sub-section (2) of section 288, certifying that the deduction  has been correctly claimed on the basis of the  profits  or the  supporting manufacturer in respect of his sale of goods or  merchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading House  containing such particulars as may be prescribed and verified in  the manner prescribed that in respect of the export turnover  mentioned in the certificate, the Export House or Trading House  has not claimed the deduction under this section : Provided that the certificate specified in clause (b) shall be duly  certified by the auditor auditing the accounts of the Export House  or Trading House under the provisions of this Act or under any  other law.  Explanation.\027For the purposes of this section,-- (a) ’convertible foreign exchange’ means foreign exchange which  is for the time being treated by the Reserve Bank of India as  convertible foreign exchange for the purposes of the Foreign  Exchange Regulation Act, 1973 (46 of 1973), and any rules made  thereunder; (aa) ’export out of India’ shall not include any transaction by way  of sale or otherwise, in a shop, emporium or any other  establishment situate in India, not involving clearance at any  customs station as defined in the Customs Act, 1962 (52 of  1962);  (b) ’export turnover’ means the sale proceeds, received in, or  brought into, India  by the assessee in convertible foreign  exchange  in accordance with clause (a) of sub-section (2)  of any  goods or merchandise to which this section applies and which are  exported out of India, but does not include freight or insurance  attributable to the transport of the goods or merchandise beyond  the customs station as defined in the Customs Act, 1962 (52 of  1962);  (ba) ’total turnover’ shall not include freight or insurance  attributable to the transport of the goods or merchandise beyond  the customs station as defined in the Customs Act, 1962 (52 of  1962) : Provided that in relation to any assessment year commencing on  or after the 1st day of April, 1991, the expression total turnover

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shall have effect as if it also excluded any sum referred to in  clauses (iiia), (iiib) and (iiic) of section 28;  (baa) ’profits of the business’ means the profits of the business as  computed under the head Profits and gains of business or  profession as reduced by\027 (1) ninety per cent of any sum referred to in clauses (iiia), (iiib)  and (iiic) of section 28 or of any receipts by way of brokerage,  commission, interest, rent, charges or any other receipt of a  similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other  establishment of the assessee situate outside India;   [***]  [***] I  ’Export House Certificate’ or ’Trading House Certificate’  means a valid Export House Certificate or Trading House  Certificate, as the case may be, issued by the Chief Controller of  Imports and Exports Government of India; (d)  ’supporting manufacturer’ means a person being an Indian  company or a person (other than a company) resident in India,   manufacturing (including processing) goods  or merchandise and  selling such goods or merchandise to an Export House or a  Trading House for the purposes of export."

10.     Section 80HHC has been the subject-matter of frequent  amendments.  The said section was inserted in 1983.  It was  substituted in 1985.  Thereafter, it was amended in 1986, 1988,  1989, 1990, 1991, 1992, 1994, 1999, 2000, 2003 and 2005.   Therefore, while considering the applicability of Section 80 HHC,  it is very important to keep in mind the working of the said  section as applicable in a given assessment year.   

11.     In this civil appeal we are concerned with the assessment  year 1993-94.

12.     At this stage, we may mention that, according to High  Court, in order to include any amount in the total turnover the  said amount must either be the purchase price or the sale price  or an item incidental to the transfer of the goods dealt with by the  assessee.  According to High Court, the assessee had processed  raw cashew nuts belonging to third parties in his factory for  which he received the said charges; that, the purpose behind the  said formula was to find out the profits attributable to export  turnover i.e. profit on export sales.  Further, according to High  Court, in the above formula business income was to be computed  in order to determine the quantum of eligible deduction.  That, in  the said formula, business income in the context of total turnover  was income generated on purchase and sales.  That, in the  context of Section 80HHC the total turnover referred to sales and  purchase turnover and it did not include receipts in the nature of  income which income was not attributable to sales.  Further,  according to High Court, even under the Circulars (Circular  No.621 dated 19.12.91) issued by CBDT a clarification was  issued to the effect that to arrive at the quantum of eligible  deduction under Section 80HHC, in the case of an assessee  having export and domestic business, a fraction of export  turnover to total turnover had to be applied to Business Profits  computed under Section 28 of the I.T. Act.  According to High  Court, such processing charges with which we are concerned had  no connection with the word "sale", therefore, they were not liable  to be included in the total turnover.   

13.     Being aggrieved by the impugned judgments holding that  the said charges were not includible in the total turnover, the  Department has come to this Court by way of civil appeals.

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14.     This batch of civil appeals pertains to assessment year  1993-94, therefore, we have quoted the said section at it stood on  the material date.   

15.     Section 80 HHC of the I.T. Act was not a charging section.   It was an incentive provision.  Its object was not to ascertain real  income.  Section 80HHC(3) provided for the following formula: Profits of the business x export turnover         total turnover  16.    Section 80HHC had a Head Note.  That Head Note said  "deduction in respect profits retained for export business".   The said Head Note was inserted by Finance Act, 1985 w.e.f.  1.4.86.  Under the original section as inserted by Finance Act,  1983, the Head Note stated "deduction in respect of export  turnover".  Therefore, the very basis shifted from "export  turnover" to "retention of profits for export business".   

17.     Under Section 80HHC(1) of the I.T. Act it was inter alia  provided that in computing the "total income" a deduction of the  profits derived by the assessee from the export of goods shall be  made.  That, that the words "profits derived from exports" in the  said sub-section was substituted for the words "whole of income"  by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1.4.89.  The  expression "derived from" in the said sub-section is narrower  than the expression "attributable to", therefore, it is only "profits  derived from exports" which become the basis for working out the  said formula in Section 80HHC(3) of the Act.  Similarly, by  Finance Act, 1991 w.e.f. 1.4.92, for the first time, the expression  "profits of the business" stood defined to mean the "profits of the  business" as computed under the head "profits and gains of  business" under Sections 28 to 44D of the I.T. Act.  Therefore,  before giving Deduction, under Section 80HHC(3)(a), (b) or (c) of  the I.T. Act, the gross total income of the assessee being profits  from business had to be arrived at in terms of clause (baa) to the  said Explanation.  However, one point needs to be noted, namely,  while calculating "Business Profits" the same had to be done in  terms of Section 28 to Section 44D of the I.T. Act alone.  Other  provisions like Sections 70 and 71 of the I.T. Act were excluded.   Therefore, in our view, if the said processing charges were a part  of gross total income of the taxpayer being profits from business  then it had to be included in the total turnover in the above  formula. It is important that deduction has to be from profits as  understood in the commercial sense.  Moreover, under clause  (baa)(1), 90% of any amount referred to in clause (iiia), (iiib) and  (iiic) of Section 28 of the I.T. Act or any receipts by way of  brokerage, commission, interest, rent, charges or any other  receipt of a similar nature included in such profits.  The said  expression "included in such profits" indicated that the said  processing charges formed part of the gross total income being  business profits.  This has been clarified by clause (baa) to the  said Explanation which inserted the definition of "profits from  business" in the said Section 80HHC(3) of the I.T. Act.  

18.     In the present case the A.O. had worked out Business  Profits of Rs.1,94,08,220 as gross total income on the basis of  income received from cashew business (See: pages 50 and 52 of  the SLP Paper book).  Even according to assessees, in the above  formula his Business Profits included the above-mentioned  processing charges.  However, according to assessees, the said  charges were not to be included in the total turnover.  We are not  inclined to accept the contention of the assessees.  The above  discussion indicates that the formula in Section 80HHC(3) of the  I.T. Act provided for a fraction of export turnover divided by total  turnover to be applied to Business Profits calculated after  deducting 90% of the sums mentioned in clause (baa) to the said

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Explanation.  That, profit incentives and items like rent,  commission, brokerage, charges etc. though formed part of gross  total income had to be excluded as they were "independent  incomes" which had no element of export turnover.  That, the  said items distorted the figure of export profits.

19.     In our view, for the above reasons,  the said processing  charges, which was part of gross total income, was an  independent income like rent, commission, brokerage etc. and,  therefore, 90% of the said sum had to be reduced from the gross  total income to arrive at the Business Profits and since the said  processing charge was an important component of Business  Profits, it also had to be included in the total turnover in the said  formula to arrive at business profits in terms of clause (baa) to  the said Explanation.   

20.     One point still remains for consideration.  On behalf of  assessees it has been vehemently urged that the above- mentioned processing charges, earned by the assessees by  processing raw cashew nuts for third parties, had no nexus with  the export business and, therefore, such charges were not  includible in the total turnover.  It was also further argued that  export incentives were admissible only in respect of profits on  export sales.  In this connection, it was submitted that the  assessees earned processing charges from an activity which had  no connection with exports.  According to assessees, no export  turnover arose from processing of raw material by the assessees  for third parties and, therefore, the said receipts did not  constitute an element of total turnover.  Therefore, according to  assessees, the A.O. had erred in including the said charges in the  total turnover.  According to assessees, profits derived from local  sales were includible in Business Profits but not in the total  turnover.   

21.     At the outset, we may state that, in the present case, we are  dealing with the law as it stood during assessment year 1993-94.   At that time Section 80HHC(3) of the I.T. Act constituted a Code  by itself.  Subsequent amendments have imposed  restrictions/qualifications by which the said provision has ceased  to be a code by itself.  In the above formula there existed four  variables, namely, business profits, export turnover, total  turnover and 90% of the sums referred to in clause (baa) to the  said Explanation.  In the computation of deduction under Section  80HHC all four variables had to be taken into account.  All four  variables were required to be given weightage.  The substitution  of Section 80HHC(3) secures profits derived from the exports of  eligible goods.  Therefore, if all the four variables are kept in  mind, it becomes clear that every receipt is not income and every  income would not necessarily include element of export turnover.   This aspect needs to be kept in mind while interpreting clause  (baa) to the said Explanation.  The said clause stated that 90% of  incentive profits or receipts by way of brokerage, commission,  interest, rent, charges or any other receipt of like nature included  in Business Profits, had to be deducted from Business Profits  computed in terms of Sections 28 to 44D of the I.T. Act.  In other  words, receipts constituting independent income having no nexus  with exports were required to be reduced from Business Profits  under clause (baa).  A bare reading of clause (baa)(1) indicates  that receipts by way of brokerage, commission, interest, rent,  charges etc. formed part of gross total income being Business  Profits.  But for the purposes of working out the formula and in  order to avoid distortion of arriving export profits clause (baa)  stood inserted to say that although incentive profits and  "independent incomes" constituted part of gross total income,  they had to be excluded from gross total income because such

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receipts had no nexus with the export turnover.  Therefore, in the  above formula, we have to read all the four variables.  On reading  all the variables it becomes clear that every receipt may not  constitute sale proceeds from exports.  That, every receipt is not  income under the I.T. Act and every income may not be  attributable to exports.  This was the reason for this Court to  hold that indirect taxes like excise 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 (See:   Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi  Machine Works  - 2007(6) Scale 168).

22.     In the present case, the processing charges were included in  the gross total income from cashew business.  That, even  according to assessee the said charges constituted an important  component of gross total income from cashew business.  This is  not disputed.  Therefore, in terms of clause (baa), 90% of the  "independent income" had to be deducted from gross total income  to arrive at Business Profits to which the fraction had to be  applied.  Since, the processing charges constituted independent  income similar to rent, commission, etc., which formed part of  the gross total income, the same had to be reduced by 90% as  contemplated in clause (baa) to arrive at Business Profits.   Therefore, the said processing charges were includible in the total  turnover in the formula under Section 80HHC(3) of the I.T. Act.

23.     Before concluding we state that the nature of every receipt  needs to be ascertained in order to find out whether the said  receipt forms part of/or that it has an attribute of an export  turnover.  When an indirect tax is collected by the taxpayer on  behalf of the government the tax recovered is for the government.   It may be an income in the conceptual sense or even under the  I.T. Act but while working out the formula under Section  80HHC(3) of the I.T. Act and while applying the four variables one  has to ascertain whether the receipt has an attribute of export  turnover.  An indirect tax like excise duty does not have that  element of export turnover as understood in the above formula.   As stated above, it is recovered by the taxpayer on behalf of the  government.  Therefore, in the present cases, our judgment in  Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi  Machine Works  - 2007(6) Scale 168, has no application.   

24.     Accordingly, the impugned judgments of the High Court and  the Tribunal are set aside and the above civil appeals filed by the  Department are accordingly allowed with no order as to costs.

Loss (Negative Profits) Civil Appeal No.              of 2007 arising out of S.L.P.(C) No.13747 of 2004,  Civil Appeal No.               of 2007 arising out of S.L.P.(C) No.13748 of 2004 ,  Civil Appeal No.3687 of 2005.

25.     Leave granted.

26.     A short question which arises for determination in this  batch of civil appeals filed by the Department is: "Whether in the matter of computation of deduction,  under Section 80HHC(3)(c) of the I.T. Act, losses  suffered by the taxpayer in the export of trading  goods can be set off/adjusted against profits from  export of manufactured goods and vice versa and  whether the assessee would be entitled to deduction  if after such adjustments/set off the net figure is a  loss."

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27.     In a recent judgment of this Court in the case of A.M.  Moosa v. Commissioner of Income-tax \026 [2007] 294 ITR 1(SC),  this Court vide para 11 has ruled as follows: "A plain reading of section 80HHC makes it clear  that in arriving at the profits earned from export of  both self-manufactured goods and trading goods,  the profits and losses in both the trades have to be  taken into consideration.  If after such adjustments  there is a positive profit, the assessee would be  entitled to deduction under section 80HHC(1).  If  there is a loss he will not be entitled to any  deduction."  

28.     Accordingly, civil appeals filed by the Department stand  allowed, the impugned judgments of the High Court are set aside  and the matters are remitted to A.O. for fresh disposal of the  cases in accordance with the judgment of this Court in A.M.  Moosa (supra). No order as to costs.

Processing and Negative Profits (loss) Civil Appeal No.                of 2007 arising out of S.L.P.(C) No.12609 of 2004.

29.     Leave granted.

30.     Assessee is a company engaged in cashew business.   

31.     For the assessment year 1993-94 assessee did not include  processing charges in its total turnover for computing deduction  under Section 80HHC of the I.T. Act.

32.     Assessee adjusted its losses from export of trading goods  against profits from export of manufacturing goods for  determining its export profits.

33.     Therefore, two following questions arise for determination: "Whether processing charges were includible in the  "total turnover" in the formula in Section 80HHC(3),  as it stood at the material time, for computing  deduction under Section 80HHC of the I.T. Act."

"Whether in the matter of computation of deduction,  under Section 80HHC(3)(c) of the I.T. Act, losses  suffered by the taxpayer in the export of trading  goods can be set off/adjusted against profits from  export of manufactured goods and vice versa and  whether the assessee would be entitled to deduction  if after such adjustments/set off the net figure is a  loss."

34.     For the reasons given hereinabove, we answer both the  above questions in favour of the Department and against  assessee.  Accordingly civil appeal filed by the Department is  allowed, the impugned judgment of the High Court is set aside  and the matter is remitted to A.O. for fresh disposal of the case in  accordance with law declared hereinabove on both the points. No  order as to costs.       

Civil Appeal No.3167 of 2006 35.     In view of the Judgment in Commissioner of Income Tax,  Coimbatore v. M/s. Lakshmi Machine Works  - 2007(6) Scale  168, Civil Appeal No.3167 of 2006 filed by the Department is  accordingly dismissed with no order as to costs.