REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5592 OF 2008 Commnr. of Income Tax-VII, New Delhi Appellant Versus Punjab Stainless Steel Industries Respondent WITH Civil Appeal Nos. 3283 and 4491 of 2009 and 4898 of 2010 JUDGMENT ANIL R. DAVE, J. 1. Being aggrieved by judgment delivered in ITA No. 520 of 2006 dated 19 th January, 2007, by High Court of Delhi, this Appeal has been filed by Commissioner of Income Tax. Page 1 2 2. facts giving rise to present appeal, in nutshell, are as under: So as to encourage export for purpose of earning foreign exchange, Section 80 HHC has been enacted in Income Tax Act, 1961 (hereinafter referred to as Act ). By virtue of provisions of said section, subject to certain conditions, exporter gets certain deduction from income, which is derived from profits from export of goods, while computing taxable income. 3. For purpose of calculating deduction, according to provisions of Section 80HHC of Act, one has to take into account profits from business of assessee, export turnover and total turnover. deduction, subject to several other conditions, incorporated in Section, is determined as under: Profits of Business X Export Turnover Total Turnover Page 2 3 4. Thus, to determine amount of deduction, assessee and Revenue must be aware of following three ingredients: (i) Profits of business (ii) Export turnover (iii) Total turnover 5. In instant case, issue is with regard to term Total turnover . 6. assessee is manufacturer and exporter of stainless steel utensils. In process of manufacturing stainless steel utensils, some portion of steel, which can not be used or reused for manufacturing utensils, remains unused, which is treated as scrap and respondent-assessee disposes of said scrap in local market and income arising from said sale is also reflected in profit and loss account. respondent-assessee not only sells utensils in local market but also exports utensils. Page 3 4 7. For purpose of availing deduction under Section 80HHC of Act for relevant Assessment Year, assessee was not including sale proceeds of scrap in total turnover but was showing same separately in Profit and Loss Account. 8. According to Revenue, sale proceeds from scrap should have been included in total turnover as respondent-assessee was also selling scrap and that was also part of sale proceeds. 9. assessee had objected to aforestated suggestion of Revenue because inclusion of sale proceeds of scrap into total turnover would reduce amount deductible under provisions of Section 80HHC of Act. 10. One can very well see that if total turnover increases, advantage which assessee would get under Section 80HHC would decrease because amount deductible substantially depends upon ratio between export turnover and total turnover. If export turnover is higher, Page 4 5 comparatively amount deductible under Section 80HHC would be more; or in other words, if compared to total turnover, export turnover is less, amount deductible from income under Section 80HHC would be reduced. By virtue of impugned judgment delivered by High Court, accounting method followed by respondent- assessee has been approved and therefore, this appeal is filed by Revenue. 11. learned counsel appearing for appellant-Revenue, had vehemently submitted that even sale of scrap is sale and proceeds which respondent-assessee received from such sale should be included in total turnover . In circumstances, total turnover must include amount received by respondent-assessee from sale of scrap. 12. It had been submitted by him that respondent-assessee was getting substantial amount from sale of scrap and receipt from sale of scrap was regular feature of its Page 5 6 business. In aforestated circumstances, according to learned counsel appearing for appellant-Revenue, view expressed by High Court is incorrect because that would exclude substantial receipt of respondent- assessee from total turnover and therefore, according to him, appeal should be allowed and amount deductible should be re-assessed after inclusion of amount received from sale of scrap into total turnover . 13. On other hand, learned counsel appearing for respondent-assessee had submitted that proceeds of sale of scrap can never be included in total turnover because respondent-assessee is not dealing in scrap. According to him, scrap is generated in process of manufacturing and scrap is nothing but raw material which could not be used in process of manufacturing and therefore, sale proceeds of such scrap would merely bring down cost of raw material. Thus, sale Page 6 7 proceeds of scrap can either be deducted from cost of raw material or can be shown in profit and loss account but said amount can never be treated as part of sales or turnover . 14. learned counsel had also relied upon judgment delivered in case of COMMISSIONER, INCOME TAX THIRUVANANTHAPURAM v. K RAVINDRANATHAN NAIR [(2007) 15 SCC 1], which deals with term turnover . According to him, though said issue has not been directly discussed in said judgment, from meaning of word turnover given in said judgment, it is very clear that term turnover would include only sale proceeds of articles manufactured and sold and not other things which are sold by business unit. He had also referred to definition of term business given in Act. 15. According to him, had respondent-assessee been doing business of scrap, sale proceeds of scrap would have Page 7 8 been treated as part of total turnover but as respondent is not dealing in scrap, amount received from sale of scrap can never be treated as part of sale proceeds and therefore, he had submitted that view taken by High Court is absolutely correct. 16. We had heard learned counsel appearing for both sides and also considered relevant record and judgments referred to. 17. To ascertain whether turnover would also include sale proceeds from scrap, one has to know meaning of term turnover . term turnover has neither been defined in Act nor has been explained by any of CBDT circulars. 18. In aforestated circumstances, one has to look at meaning of term turnover in ordinary accounting or commercial parlance. 19. Normally, term turnover would show sale effected by business unit. It may happen that in course of Page 8 9 business, in addition to normal sales, business unit may also sell some other things. For example, assessee who is manufacturing and selling stainless steel utensils, in addition to steel utensils, assessee might also sell some other things like old air conditioner or old furniture or something which has outlived its utility. When such things are disposed of, question would be whether sale proceeds of such things would be included in turnover . Similarly in process of manufacturing utensils, there would be some scrap of stainless steel material, which cannot be used for manufacturing utensils. Such small pieces of stainless steel would be sold as scrap. Here also, question is whether sale proceeds of such scrap can be included in term sales when it is to be reflected in Profit and Loss Account. 20. In ordinary accounting parlance, as approved by all accountants and auditors, term sales , when reflected in Profit and Loss Account, would indicate sale proceeds Page 9 10 from sale of articles or things in which business unit is dealing. When some other things like old furniture or capital asset, in which business unit is not dealing are sold, sale proceeds therefrom would not be included in sales but it would be shown separately. 21. In simple words, word turnover would mean only amount of sale proceeds received in respect of goods in which assessee is dealing in. For example- If manufacturer and seller of air-conditioners is asked to declare his turnover , answer given by him would show sale proceeds of air-conditioners during particular accounting year. He would not include amount received, if any, from sale of scrap of metal pieces or sale proceeds of old or useless things sold during that accounting year. This clearly denotes that ordinarily businessman by word turnover would mean sale proceeds of goods (the things in which he is dealing) sold by him. Page 10 11 22. So far as scrap is concerned, sale proceeds from scrap may either be shown separately in Profit and Loss Account or may be deducted from amount spent by manufacturing unit on raw material, which is steel in case of respondent-assessee, as respondent- assessee is using stainless steel as raw material, from which utensils are manufactured. raw material, which is not capable of being used for manufacturing utensils will have to be either sold as scrap or might have to be re-cycled in form of sheets of stainless steel, if manufacturing unit is also having its re-rolling plant. If it is not having such plant, manufacturer would dispose of scrap of steel to someone who would re-cycle said scrap into steel so that said steel can be re-used. 23. When such scrap is sold, in our opinion, sale proceeds of scrap cannot be included in term turnover for reason that respondent-unit is engaged primarily in manufacturing and selling of steel utensils and not scrap Page 11 12 of steel. Therefore, proceeds of such scrap would not be included in sales in Profit and Loss Account of respondent-assessee.. 24. situation would be different in case of buyer, who purchases scrap from respondent-assessee and sells it to someone else. sale proceeds for such buyer would be treated as turnover for simple reason that buyer of scrap is person who is primarily dealing in scrap. In case on hand, as respondent-assessee is not primarily dealing in scrap but is manufacturer of stainless steel utensils, only sale proceeds from sale of utensils would be treated as his turnover . 25. So as to be more accurate about word turnover , one can either refer to dictionaries or to materials which are published by bodies of Accountants. Institute of Chartered Accountants of India ( hereinafter referred to as ICAI ) has published some material under head Guidance Note on Tax Audit Under Section 44AB of Page 12 13 Income Tax Act . said material has been published so as to guide members of ICAI. In our opinion, when recognized body of Accountants, after due deliberation and consideration publishes certain material for its members, one can rely upon same. Para 5 of said Note deals with Sales , turnover and gross receipts . Paras 5.2 and 5.3 of said Note are reproduced hereinbelow, which pertain to term turnover . 5.2 In Guidance Note on Terms Used in Financial Statements published by ICAI, expression Sales Turnover (Item 15.01) has been defined as under:- aggregate amount for which sales are effected or services rendered by enterprise. term `gross turnover and `net turnover (or `gross sales and `net sales ) are sometimes used to distinguish sales aggregate before and after deduction of returns and trade discounts . 5.3 Guide to Company Audit issued by ICAI in year 1980, while discussing sales , stated as follows: Total turnover, that is, aggregate amount for which sales are effected by company, giving amount of sales in Page 13 14 respect of each class of goods dealt with by company and indicating quantities of such sales for each class separately. Note (i) term turnover would mean total sales after deducting therefrom goods returned, price adjustments, trade discount and cancellation of bills for period of audit, if any. Adjustments which do not relate to turnover should not be made e.g. writing off bad debts, royalty etc. Where excise duty is included in turnover, corresponding amount should be distinctly shown as debit item in profit and loss account. (emphasis added) aforestated meaning given by ICAI clearly denotes that in normal accounting parlance word turnover would mean total sales as explained hereinabove. said sales would definitely not include scrap material which is either to be deducted from cost of raw material or is to be shown separately under different head. We do not see any reason for not accepting meaning of term turnover given by body of Accountants, which is having statutory recognition. Page 14 15 26. If all accountants, auditors, businessmen, manufacturers etc. are normally interpreting term turnover as sale proceeds of commodity in which business unit is dealing, we see no reason to take different view than view normally taken by persons who are concerned with said term. 27. In addition to above factors, which we have considered for understanding meaning of term turnover , we should not miss purpose with which said term has been incorporated in Section 80 HHC of Act. 28. intention behind enactment of Section 80HHC of Act was to encourage export so as to earn more foreign exchange. For said purpose Government wanted to encourage businessmen, traders and manufacturers to increase export so as to bring more foreign exchange in our country. If purpose is to bring more foreign exchange and to encourage export, we are of view that legislature would surely like to give more benefit to persons who are making effort to help our nation in Page 15 16 process of bringing more foreign exchange. If trader or manufacturer is trying his best to increase his exports, even at cost of his business in local market, we are sure that Government would like to encourage such person. In our opinion, once Government decides to give some benefit to someone who is helping nation in bringing foreign exchange, Revenue should also make all possible efforts to encourage such traders or manufacturers by giving such business units more benefits as contemplated under provisions of law. 29. For aforesaid reasons, we are of view that view expressed by High Court is in conformity with normal accounting practice followed by traders, including respondent-assessee and it was justified in coming to conclusion that proceeds generated from sale of scrap would not be included in total turnover . 30. For aforesaid reasons, we dismiss appeal with no order as to costs. Page 16 17 31. In view of order passed in Civil Appeal No. 5592 of 2008, Civil Appeal Nos. 3283 of 2009, 4491 of 2009 and 4898 of 2010 are also dismissed with no order as to costs as legal issues involved in these appeals are same. ....... J (ANIL R. DAVE) ..... J (DIPAK MISRA) New Delhi May 5, 2014. Page 17 Commissioner of Income-tax-VII, New Delhi v. Punjab Stainless Steel Industrie