2021 (8) TMI 676 - HC - Income Tax

Computation of exemption u/s 10B - exclusion of scrap sales from the total turnover as well as the export turnover while computing the exemption - how to compute the total turnover while considering the claim for exemption under Section 10B - HELD THAT - As decided in PUNJAB STAINLESS STEEL INDUSTRIES 2014 (5) TMI 238 - SUPREME COURT 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, 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. 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. 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 . 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 the meaning of the term turnover given by a body of Accountants, which is having a statutory recognition. Thus we find that there is no error in the conclusion arrived at by the Tribunal. - Decided against revenue.

Summary

Issues:
- Interpretation of turnover for exemption under Section 10B of the Income Tax Act, 1961.

Analysis:
The High Court of Madras heard an appeal by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the computation of total turnover for exemption under Section 10B of the Income Tax Act. The main issue was whether scrap sales should be included in the total turnover. The revenue argued that scrap sales should be included as part of turnover, while the Tribunal, referencing previous cases, held that scrap sales cannot form part of total turnover. The Tribunal's decision was based on the principle that turnover typically includes sale proceeds of goods the business unit deals in, excluding items like scrap. The High Court referred to a Supreme Court case which emphasized that turnover generally refers to sales of goods a business deals in, excluding unrelated items like scrap. The Court also cited guidance notes by the Institute of Chartered Accountants of India, which clarified that turnover typically refers to total sales after deductions, excluding items like scrap. The Court concluded that the Tribunal's decision aligns with legal principles and upheld the dismissal of the revenue's appeal, answering the substantial question of law against the revenue.