Whether proceeds from sale of scrap constitutes turnover for Section 80HHC of Income Tax Act, 1961?

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5592  OF 2008

Commissioner 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

Before

HON’BLE JUSTICE ANIL R. DAVE and

JUSTICE DIPAK MISRA

Date of Judgement: 5th May 2014

Judgement and facts of the case

1. Being aggrieved by the judgment delivered in ITA  No.  520  of  2006dated 19th January, 2007, by the High Court of  Delhi,  this  Appealhas been filed by the Commissioner of Income Tax.

2. The facts giving rise to the present appeal, in a nutshell,  are  as under:

So as to encourage export for the  purpose  of  earning  foreign exchange, Section 80 HHC has been enacted in the  Income  Tax  Act,1961 (hereinafter referred to as ‘the  Act’). By virtue of  the provisions of the said section, subject to certain conditions,  the exporter gets certain deduction from the income, which  is  derived from the profits from export  of  goods,  while  computing  taxable income.

3. For the purpose of  calculating  the  deduction,  according  to  the provisions of Section 80HHC of the Act, one has to take into account the profits from the business of the assessee, export  turnover  and total turnover. The deduction, subject to several other  conditions, incorporated in the Section, is determined as under:

Profits of the Business  X Export Turnover

           Total Turnover

4. Thus, to determine the amount of deduction,  the assessee  and  the Revenue must be aware of the following three ingredients:

i) Profits of the business

ii) Export turnover

iii) Total turnover

5. In the instant case, the issue is with regard  to  the  term  “Total turnover”.

6. The assessee is a  manufacturer  and  exporter  of  stainless  steel utensils.  In the process of manufacturing stainless steel utensils, some portion of the steel, which cannot  be  used  or  reused  for manufacturing utensils, remains unused, which is  treated  as  scrap and the respondent-assessee disposes of the said scrap in the  local market and the income arising from the said sale is  also  reflected in the profit and loss account.  The  respondent-assessee  not  only sells utensils in the local market but also  exports  the  utensils.

7. For the purpose of availing deduction under Section 80HHC of the Act for the relevant Assessment Year, the assessee was not including the sale proceeds of scrap in the total turnover  but  was  showing  the same separately  in the Profit and Loss Account.

8. According to the Revenue, the sale proceeds from  the  scrap  should have been included  in  the  ‘total  turnover’  as  the  respondent-assessee was also selling scrap and that was also part of  the  sale proceeds.

9. The assessee had objected  to  the  aforestated  suggestion  of  the Revenue because inclusion of the sale proceeds  of  scrap  into  thetotal  turnover  would  reduce  the  amount  deductible  under   theprovisions of Section 80HHC of the Act.

To read the full judgement, please find the attached file.

Attached File: http://judis.nic.in/supremecourt/imgs1.aspx?filename=41507