2013 (3) TMI 308 - HC - Income Tax

Interpretation of provision of Section 80HHC with special reference to the phrase total turnover - whether trade discount offered by the assessee to its dealers be included for the purpose of computing deduction u/s 80HCC - Held that - Turnover for the purpose of the said Act is an aggregate of the sale prices received and receivable by dealer in respect of sales of goods in course of inter-State trade or commerce made during the prescribed period. In turn, the term sale price in Section 2(h) of the said Act means the amount payable to a dealer as consideration for sale of any goods as reduced by any sum allowed as cash discount according to the prevailing practice in the trade, but inclusive of certain specified items. As per the decision The Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) Vs. M/s. Advani Coorlikon (P.) Ltd. 1979 (10) TMI 194 - SUPREME COURT even in absence of any specific exclusion of trade discount from the sale price, it was held that the same cannot form part of the total turnover since the net amount that the dealer receives is the sale price and it is that net amount which is entered as amount realizable.It would thus appear that such amount which the dealer would never receive could not form part of the turnover. Thus as in the present case discount the assessee offered to its dealer was in cash but proportionate to the total sales effected by an individual dealer. The amount of discount depended on such total sales. In view of the decision of the M/s. Advani Coorlikon (P.) Ltd. (supra), such discount would not form part of the sale price that the assessee would receive. It is not in dispute that in the books of accounts also the assessee had shown the reduced amount as total sale price - the Tribunal committed an error in holding that trade discount made to the assessee should form part of total turnover for the purpose of computing deduction under Section 80HHC of the Act - in favour of the assessee.

Summary

Issues:
Interpretation of provision of Section 80HHC of the Act with special reference to the interpretation of the phrase "total turnover."

Analysis:
The primary issue in this case revolves around the inclusion of trade discount offered by the assessee to its dealers for computing deduction under section 80HHC of the Act. The Tribunal's decision, based on a previous order, was challenged by the appellant. The Court referred to a circular by the assessee outlining a discount scheme for dealers based on turnover achieved and timely payments. The Court noted that the term "turnover" was not defined under the Income Tax Act or Section 80HHC. It examined the definitions under the Central Sales Tax Act, highlighting the distinction between cash discount and trade discount. The Court cited a Supreme Court case emphasizing that trade discounts, unlike cash discounts, are not deducted from the sale price, and the net amount received by the dealer constitutes the sale price. Thus, the Court concluded that trade discounts should not form part of the total turnover for computation purposes.

Another significant aspect considered was the decision in the case of India Pistons Ltd. vs. State of Tamil Nadu, where a different scenario involving dealer discounts was discussed. In this case, the discount offered by the assessee was in cash and linked to individual dealer sales. The Court reiterated the distinction between trade and cash discounts and emphasized that the reduced amount was reflected as the total sale price in the books of accounts. The Court also referred to a Rajasthan High Court case and a Supreme Court case related to excise valuation, supporting the exclusion of trade discounts from the sale price for computation purposes.

In conclusion, the Court held that the Tribunal erred in including trade discounts in the total turnover for computing deductions under Section 80HHC of the Act. The judgment favored the assessee, reversing the Tribunal's decision and allowing the appeals based on the reasoning and decision of a previous judgment. The questions were answered in favor of the assessee, and the impugned judgment of the Tribunal was reversed accordingly.