TMI Blog2010 (10) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002, 42 of 2003, 5 of 2004 and 92 of 2005 as common questions of law are involved therein. However, the facts are being extracted from I. T. A. No. 31 of 2002. 2. The Revenue has preferred this appeal under section 260A of the Income-tax Act, 1961 (in short "the Act"), against the order dated July 19, 2001, passed by the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short "the Tribunal"), in I. T. A. Nos. 1244/Chd/93, I. T. A. Nos. 623 and 624/Chandi/94 for the assessment years 1991-92, 1989-90 and 1990-91 respectively. The Revenue has claimed the following substantial questions of law for consideration in this appeal : "(i) Whether, on the facts and in the circumstances of the case, the hon'ble Income-tax Appellate Tribunal was right in law in holding that sale of scrap in India is not a part of total turnover of the respondent-firm for the purposes of calculation of deduction under section 80HHC ? (ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in ignoring the sale of scrap in computing the total turnover, when such generation was a by-product of manufacturing process ? (iii) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover as the assessee was not dealing in purchase/sale of scrap. 8. We have heard learned counsel for the parties and perused the record. 9. Learned counsel for the Revenue submitted that, according to the provisions of 80HHC of the Act read with the Explanation thereto, the Assessing Officer had rightly disallowed the claim partially by taking the sale of scrap forming part of the total turnover of the respondent-assessee and thereafter applying the formula noticed above. Learned counsel for the Revenue placed reliance upon the judgment of the Karnataka High Court in CIT v. Motor Industries Co. Ltd. [2010] 326 ITR 358 (Karn) to buttress his submission. Support was also gathered from the decision of the Kerala High Court in CIT v. Kar Mobiles Ltd. [2011] 333 ITR 478 (Ker), I. T. A. No. 773 of 2009, decided on January 15, 2010. 10. On the other hand, controverting the submission made by the learned counsel for the Revenue, learned counsel for the assessee laid stress on the judgments in CIT v. Madras Motors Ltd./M. M. Forgings Ltd. [2002] 257 ITR 60 (Mad), CIT v. Wheels India Ltd. [2005] 275 ITR 319 (Mad), CIT v. Sundaram Clayton Ltd. [2006] 281 ITR 425 (Mad), CIT v. Shiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression 'total turnover' shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28." 13. "Export turnover" means the amount received in India or brought into India in convertible foreign exchange on account of sale proceeds of any goods or merchandise which are exported out of India. However, it does not include freight or insurance. Total turnover has been described in negative form so as to exclude freight or insurance. A conjoint reading of both the clauses leads to one conclusion that they include anything which has nexus with the sale proceeds. In other words, they exclude everything which has no nexus with the sale proceeds. 14. Having examined the provision relating to "export turnover" and "total turnover", it is apt to refer to the judicial enunciation on the point and interpretation placed by various pronouncements. (i) The Division Bench of the Madras High Court in Madras Motors Ltd.'s case [2002] 257 ITR 60 was seized of the matter relating to two deductions, i.e., one under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted during the manufacture of goods which were entirely for export, affirmed the view of the Tribunal by holding that it was not incidental to the export activity and could not be treated to be business income and not includible for purposes of computation for deduction under section 80HHC. (v) The issue before the Bombay High Court in CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769 was as to whether excise duty and sales tax could be included in the total turnover so as to increase the dominator in the formula for ascertaining the actual deduction admissible to the assessee under section 80HHC on export turnover. It was observed thus (pages 773-774) : "Under section 80HHC, the Legislature intends that the profits from exports should not be taxed. For this purpose, a formula has been introduced whereby if the business is of composite nature then the proportionate profit relatable to the export business is to be found out by multiplying the profits of a business by the export turnover and dividing the product by the total turnover. This formula finds place in section 80HHC(3) as it stood at the relevant time. Under clause (b) of the Explanation to section 80HHC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business. In fact, the earlier section 80HHC(3) consisted of two parts, namely, whether the assessee carried on a business as 100 per cent. exporter and, secondly, whether the assessee carried on a composite business. In the latter case, it was provided that the profits derived from exports shall be the amount which bears to the profits of the business as computed under the head 'Profits and gains of business', the same proportion as the export turnover to the total turn-over. The emphasis is on the words 'profits derived from the exports'. Therefore, weightage must be given to such profits. Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have an element of profit in it. It is only the actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of turnover for the purpose computing the deduction under sections 80HHC and 80HHE. He further relied upon the judgment of the Madras High Court in CIT v. Shiva Distilleries Ltd. [2007] 293 ITR 108. Relying upon the these two decisions, he contends that if the value of the scrap is taken into consideration under the head total turnover the cost of the raw materials would artificially go up. According to him, while computing the total turnover, the value of the scrap received by the assessee cannot be taken into consideration since it is not an export sale. He further contends that the Madras High Court in CIT v. Madras Motors Ltd./M. M. Forgings Ltd. [2002] 257 ITR 60 has fairly held that for the purpose of computing section 80HHC, only the turnover relating to export business of the assessee shall be taken into account and not the turnover relating to the other business of the assessee. Relying upon these two decisions, he requests the court to answer the question of law against the Revenue and in favour of the assessee. Having heard the counsel for the parties, we have to consider whether the value received by the assessee by selling scrap in a domestic market has to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 17. Having examined the provisions of section 80HHC and the judgments noted above, we are of the opinion that the excise duty, sales tax, interest or commission received cannot be characterized as turnover and, there-fore, shall not form part of "total turnover". However, the sale of scrap would be on a different pedestal. Once an element of sale is involved in the case of scrap, it would fall in a separate category and cannot be excluded from "total turnover" which shall increase the denominator of the formula for determining the extent of the benefit admissible to an assessee under section 80HHC of the Act. In other words, the sale of scrap in the domestic market shall form part of the total turnover whereas excise duty, sales tax, commission and miscellaneous income shall not be part of the total turnover for calculating the benefit of deduction under section 80HHC of the Act. Accordingly, we express our concurrence with the view expressed by the Karnataka and the Kerala High Courts and dissent with the judgments taking the contrary view of the Madras and the Delhi High Courts. 18. It is not disputed that in the case in hand the scrap which had resulted from the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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