JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. Leave granted.

2. Challengein this appeal is to the order passed by a Division Bench of the Bombay High Court relating to the question whether sales tax and excise duty form part of the total turnover. Dispute relates to the Assessment year 1997-98.

3. Background facts in a nutshell are as follows:

While making assessment under Section 143(3) of the Income Tax Act, 1961 (in short the Act), assessing officer included excise duty and sales tax on the total turnover for computing the deduction under Section 80 HHC (3)(b) of the Act. The Commissioner of Income Tax (Appeals), Special Range 1, Nasik (in short the CIT (A), held that while calculating deduction under Section 80 HHC amounts of excise duty and sales tax collected by the assessee, are not to be included in the total turnover for the purpose of computing deductions under Section 80HHC. Revenue preferred an appeal before the Income Tax Appellate Tribunal, Pune Bench, Pune, (in short the Tribunal"). The appeal was dismissed following a decision of the Bombay High Court in CIT v. Sudarshan Chemical Industries Ltd. [(2000) 245 ITR 769 (Bom.)]. Appeal was preferred by the Revenue before the High Court which by the impugned order dismissed the appeal answering the question raised in the appeal in favour of the assessee and against the revenue. plain meaning of the word "turnover" in the formula applied for computation. It was urged that there was no need to call for any rule of interpretation or external aid to interpret the said word. In essence, it was urged that having regard to the plain words of the Section excise duty and sales tax ought to have been included in the "total turnover". It is to be noted that a similar plea was raised in Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi Machine Works [JT 2007(6) SC 236. In para 18 it was noted as follows:

"We do not find any merit in the above contentions advanced on behalf of the Department. It is important to note that tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under Section 2(24) of the Act the word "income" includes profits and gains. The charge is not on gross receipts but on profits and gains properly so-called. Gross receipts or sale proceeds, however, include profits. According to The Law and Practice of Income Tax by Kanga and Palkhivala, the word "profits" in Section 28 should be understood in normal and proper sense. However, subject to special requirements of the income tax, profits have got to be assessed provided they are real profits. Such profits have to be got to be ascertained on ordinary principles of commercial trading and accounting. However, the income tax has laid down certain rules to be applied in deciding how the tax should be assessed and even if the result is to tax as profits what cannot be construed as profits, still the requirements of the income tax must be complied with. Where a deduction is necessary in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act {SEE page 455 of The Law and Practice of Income Tax by Kanga and Palkhivala]. Therefore, schematic interpretation for making the formula in Section 80H HC workable cannot be ruled out. Similarly, purposeful interpretation of Section 8OHHC which has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that the legislature intended to exclude items like commission and interest from deduction on the ground that they did not possess any element of "turnover" even though commission and interest emanated from exports. We have to read the words "total turnover" in Section 8OHHC as part of the formula which sought to segregate the "export profits" from the "business profits". Therefore, we have