Madras High Court
Commissioner Of Income Tax vs M/S.Tweezerman (India) Pvt. Ltd on 10 August, 2021
TCA.No.1192 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 10.08.2021
CORAM :
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Ms.Justice SATHI KUMAR SUKUMARA KURUP
Tax Case Appeal No.1192 of 2015
Commissioner of Income Tax,
Pondicherry. ...Appellant
Vs
M/s.Tweezerman (India) Pvt. Ltd.,
No.C24, Industrial Estate,
Thattanchavady,
Pondicherry – 605 003. ...Respondent
APPEAL under Section 260A of the Income Tax Act, 1961 against the
order dated 24.04.2015 made in ITA.No.2400/Mds/2014 on the file of the
Income Tax Appellate Tribunal, 'B' Bench, Chennai for the assessment year
2007-2008.
For Appellant : Mr.J.Narayansasamy
For Respondent : Mr.Srinath Sridevan
Assisted by M/s.Jyotsna Sivakumar
1/11
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TCA.No.1192 of 2015
JUDGMENT
(Delivered by T.S.Sivagnanam,J)
This appeal by the revenue under Section 260A of the Income Tax
Act, 1961 ['the Act' for brevity] is directed against the order dated
24.04.2015 passed by the Income Tax Appellate Tribunal [hereinafter
referred to as “the Tribunal”], 'B' Bench in I.T.A.No.2400/Mds/2014 for the
assessment year 2007-2008.
2.The appeal was admitted on 04.01.2016 on the following substantial
question of law:
“Whether, on the facts and in the circumstances of
the case, the Tribunal was right in holding that the scrap
sales had to be excluded from the total turnover as well as
the export turnover while computing the exemption under
Section 10B?”
3.We have heard Mr.J.Narayanasamy, learned senior standing counsel
appearing for the appellant/revenue and Mr.Srinath Sridevan, learned
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TCA.No.1192 of 2015
counsel assisted by M/s.Jyotsna Sivakumar, learned counsel appearing for
the respondent/assessee.
4.The short question involved in the instant case is as how to compute
the total turnover while considering the claim for exemption under Section
10B of the Act.
5.The case of the revenue is that the sale of scrap should also be
included. Admittedly the assessee is engaged in the manufacture of certain
articles which are being exported and during the manufacturing process,
scrap is generated which is sold and the sale proceeds would go to reduce
the amount spent on the purchase of raw materials. The Tribunal took note
of the decisions in the case of CIT vs. Madras Motors Ltd. [257 ITR 60]
and CIT vs. NSC Shoes [258 ITR 749] and held that scrap sales cannot
form part of total turnover. Accordingly, the appeal filed by the revenue
before the Tribunal was dismissed holding that the Assessing Officer has
taken the scrap sales as part of the total turnover, however was not taken as
an export turnover and therefore, the total turnover and the export turnover
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TCA.No.1192 of 2015
shall of the same figure and since scrap sales did not form part of the total
turnover, the same cannot form part of the export turnover. By the
impugned order, the Tribunal accepted the finding recorded by the
Commissioner of Income Tax [Appeals]-VI [CIT(A)], Chennai while
reversing the assessment order.
6.The learned senior standing counsel for the revenue seeks to draw a
distinction with regard to the deduction claim under Section 80HHC and
would point out that the case on hand is a claim made under Section 10B of
the Act. However, the legal principle which is required to be considered is
as to what is the meaning of the word 'turnover'. The Hon'ble Supreme
Court in the case of Commissioner of Income Tax-VII, New Delhi vs.
Punjab Stainless Steel Industries [(2014) 46 Taxman 68 (SC)] considered
this issue and held as follows:
“17.To ascertain whether the turnover would also
include sale proceeds from scrap, one has to know the
meaning of the term ‘turnover’. The term ‘turnover’ has
neither been defined in the Act nor has been explained by
any of the CBDT circulars.
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TCA.No.1192 of 2015
18.In the aforestated circumstances, one has to look
at the meaning of the term ‘turnover’ in ordinary
accounting or commercial parlance.
19.Normally, the term ‘turnover’ would show the sale
effected by a business unit. It may happen that in the course
of the business, in addition to the normal sales, the business
unit may also sell some other things. For example, an
assessee who is manufacturing and selling stainless steel
utensils, in addition to steel utensils, the assessee might also
sell some other things like an old air conditioner or old
furniture or something which has outlived its utility. When
such things are disposed of, the question would be whether
the sale proceeds of such things would be included in the
‘turnover’. Similarly in the 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, the question is whether sale proceeds of such
scrap can be included in the term ‘sales’ when it is to be
reflected in the Profit and Loss Account.
20.In ordinary accounting parlance, as approved by
all accountants and auditors, the term ‘sales’, when
reflected in the Profit and Loss Account, would indicate sale
proceeds from sale of the articles or things in which the
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TCA.No.1192 of 2015
business unit is dealing. When some other things like old
furniture or a capital asset, in which the business unit is not
dealing are sold, the sale proceeds therefrom would not be
included in ‘sales’ but it would be shown separately.
21.In simple words, the word “turnover” would mean
only the amount of sale proceeds received in respect of the
goods in which an assessee is dealing in. For example- If a
manufacturer and seller of air-conditioners is asked to
declare his ‘turnover’, the answer given by him would show
the sale proceeds of air-conditioners during a particular
accounting year. He would not include the amount received,
if any, from the sale of scrap of metal pieces or sale
proceeds of old or useless things sold during that
accounting year. This clearly denotes that ordinarily a
businessman by word “turnover” would mean the sale
proceeds of the goods (the things in which he is dealing)
sold by him.
22.So far as the scrap is concerned, the sale proceeds
from the scrap may either be shown separately in the Profit
and Loss Account or may be deducted from the amount
spent by the manufacturing unit on the raw material, which
is steel in the case of the respondent-assessee, as the
respondent assessee is using stainless steel as raw material,
from which utensils are manufactured. The raw material,
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TCA.No.1192 of 2015
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 the form of sheets of stainless steel, if the
manufacturing unit is also having its re-rolling plant. If it is
not having such a plant, the manufacturer would dispose of
the scrap of steel to someone who would re-cycle the said
scrap into steel so that the said steel can be re-used.
23.When such scrap is sold, in our opinion, the sale
proceeds of the scrap cannot be included in the term
‘turnover’ for the reason that the respondent-unit is
engaged primarily in the manufacturing and selling of steel
utensils and not scrap of steel. Therefore, the proceeds of
such scrap would not be included in ‘sales’ in the Profit and
Loss Account of the respondent-assessee.
24.The situation would be different in the case of the
buyer, who purchases scrap from the respondent-assessee
and sells it to someone else. The sale proceeds for such a
buyer would be treated as “turnover” for a simple reason
that the buyer of the scrap is a person who is primarily
dealing in scrap. In the case on hand, as the respondent-
assessee is not primarily dealing in scrap but is a
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 the word
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TCA.No.1192 of 2015
“turnover”, one can either refer to dictionaries or to
materials which are published by bodies of Accountants.
The Institute of Chartered Accountants of India
( hereinafter referred to as the ‘ICAI’) has published some
material under the head “Guidance Note on Tax Audit
Under Section 44AB of the Income Tax Act”. The said
material has been published so as to guide the members of
the ICAI. In our opinion, when a recognized body of
Accountants, after due deliberation and consideration
publishes certain material for its members, one can rely
upon the same. Para 5 of the said Note deals with “Sales”,
“turnover” and “gross receipts”. Paras 5.2 and 5.3 of the
said Note are reproduced hereinbelow, which pertain to the
term “turnover”.
“5.2 In the “Guidance Note on Terms Used in
Financial Statements” published by the ICAI, the
expression “Sales Turnover” (Item 15.01) has been
defined as under:-
“The aggregate amount for which sales are effected
or services rendered by an enterprise. The term
`gross turnover’ and `net turnover’ (or `gross sales’
and `net sales’) are sometimes used to distinguish
the sales aggregate before and after deduction of
returns and trade discounts”.
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TCA.No.1192 of 2015
5.3 The Guide to Company Audit issued by the ICAI
in the year 1980, while discussing “sales”, stated as
follows:
“Total turnover, that is, the aggregate amount for
which sales are effected by the company, giving the
amount of sales in respect of each class of goods
dealt with by the company and indicating the
quantities of such sales for each class separately.
Note (i) The term ‘turnover’ would mean the total
sales after deducting therefrom goods returned,
price adjustments, trade discount and cancellation of
bills for the 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, the corresponding
amount should be distinctly shown as a debit item in
the profit and loss account.” (emphasis supplied)
The aforestated meaning given by the ICAI clearly
denotes that in normal accounting parlance the word
“turnover” would mean “total sales” as explained
hereinabove. The said sales would definitely not include the
scrap material which is either to be deducted from the cost
of raw material or is to be shown separately under a
different head. We do not see any reason for not accepting
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TCA.No.1192 of 2015
the meaning of the term “turnover” given by a body of
Accountants, which is having a statutory recognition.
26.If all accountants, auditors, businessmen,
manufacturers etc. are normally interpreting the term
‘turnover’ as sale proceeds of the commodity in which the
business unit is dealing, we see no reason to take a different
view than the view normally taken by the persons who are
concerned with the said term.”
7.Thus, by taking note of the above legal position as well as the
findings recorded by the Tribunal we find that there is no error in the
conclusion arrived at by the Tribunal.
8.For the reasons stated above, the tax case appeal is dismissed and
the substantial question of law is answered against the revenue. No costs.
(T.S.S.,J.) (S.S.K,J.)
10.08.2021
Index: Yes/No
Internet:Yes/No
Speaking Judgment/Non speaking Judgment
cse
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TCA.No.1192 of 2015
T.S.SIVAGNANAM,J.
AND
SATHI KUMAR SUKUMARA KURUP,J.
cse
To
The Income Tax Appellate Tribunal,
'B' Bench, Chennai.
TCA.No.1192 of 2015
10.08.2021
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