COMMNR. OF INCOME TAX-VII, NEW DELHIversusPUNJAB STAINLESS STEEL INDUSTRIES

                    [2014) 8 S.C.R. 729


       COMMNR. OF INCOME TAX-VII, NEW DELHI                    A
                           v.
        PUNJAB STAINLESS STEEL INDUSTRIES
            (Civil Appeal No. 5592 of 2008)
                       MAY 5, 2014
                                                               B
         [ANIL R. DAVE AND DIPAK MISRA, JJ.]

   .· Income Tax Act, 1961:

     s. 80-HHC - Deduction - Sale proceeds of unused! c
unusable portion of steel scrap sold in local market by fbe
steel utensils manufacturer - Whether incltJdible in total
turnover for the purpose of calculating deduction u/s.80HHC
of the Act - Held: Not includible.

     s. 80-HHC - Object of - Discussed.                        D

     Turnover - Meaning of - Discussed.

     The respondent-assessee is a manufacturer and
exporter of stainless steel utensils. In the process of        E
manufacturing stainless steel utensils, some unused
portion of the steel was treated as scrap and disposed
of in the local market. The income arising from the said
sale was shown in the profit and loss account.

      The question which has arisen for consideration in       F
 the instant appeals was whether the sale proceeds of
·such scrap of steel is to be included in the total turnover
 'for the purpose of calculating the deduction under
  Section 80-HHC of the Income Tax Act, 1961.
                                                               G
     Dismissing the appeals, the Court
    HELD: 1. To ascertain whether the turnover would
also include sale proceeds from scrap, one has to know
                              729                              H
    730     SUPREME COURT REPORTS               [2014] 8 S.C.R.


A the meantng: of the term 'turnover'. The term 'turnover' has
  neither been defined in the Income Tax Act nor .has been
  explai.ned by any of the CBDT circulars. In such
  circumstances, one has to look at the meaning of the;
  term 'turnover' in ordinary accounting or commercia'
B parlance. Normally, the term 'turnover' would show the
  sale effe~ttd'. by· a bdsiness unit. It may happen that in the'
  course Of the busine·ss, in addition to the normal salesi
  the busfcaeSJ unit may also sell some other things such,
  as al'\ qld_alr conditioner or old furniture or somethinQ'
c which has outlived its utility. When such things. are"
  disposed, of, the question would· be whether the safe
  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
0
  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 include.d in the 'term
  'sales' when it is to be reflected in the Profit and Loss
E Account. [Paras 17 to 19] [737-F-H; 738-A-C]
       2. In ordinary accourtting parlance, as approved by
  all accountants and auditors, the term 'sales', when.:
  reflected in the Profit aild Loss Account, wou!d indicat~
  sale proceeds from sale of the articles or things in whicl\
F the business unit is dealing. When some other things like
  old furniture or a capital asset, in which the business unlf
  is not dealing are sold, the sale proceeds therefrom
  would not be included in 'sales' but it would be showri
  separately. In simple words, the word "turnover" would
G mean only the amount of sale proceeds received· in
  respect of the goods in which an assessee ·is dealing in.
  [Paras 20 and 21) [738-D-F]

        3. So far as the scrap is concerned, the. sale
    proceeds from the scrap may either be shown separately
H
 COMMNR. OF INCOME TAX-VII, NEW DELHI v. PUNJAB 741
         STAINLESS STEEL INDUSTRIES
  iri the Profit and Loss Account or may be deducted from A
  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 whicl:l utensils are
  manufactured. The raw material, which is not.capable of B
  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. ·1f it is not having such
  a plant, the manufacturer ·would dispose of the scrap ·of c
  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, the sale ·proceeds of the scrap cannot be
  included in the term 'turnover' fqr the reason that the
  respondent-unit is engaged primarily·· in the 0
  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
                                                                 E
  from the respondent-assessee and sells it to someone
  else. The sale proceeds for such a buyer would be
  treated as "turnover" for a s'imple reason that the buyer
  of the scrap is a person who is primarily dealing in scrap.
 'fn the case in hand, as the respondent-assessee is not
  primarily dealing in scrap but is a manufacturer of F
  stainless steel utensils, only sale proceeds from sale of
  utensils would be treated as his "turnover" [Paras 22, 24]
  {738-H; 739-A-E]

    4. So as to be more accurate about the word                 G
"turnover", one can either refer to dictionaries or to
materials which are published by bodies of Accountants.
The Institute of Chartered Accountants of India ( 'ICAI')
has published. some material under the head "Guidance
Note ·on Tax Audit Under Section 44AB of the Income Tax         H
    732     SUPREME COURT REPORTS              [201418 S.C.R.

A Act". The said material has been published so as to guide
  the members of the ICAI. 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",
B "turnover" an·d "gross receipts". The aforestated
  meaning given by the ICAI clearly denotes that in norm.al
  accounting parlance the word "turnover" would mean
  "total sales" as explained hereinabove. The said sales
  would definitely not include the scrap material which is
c either to be deducted from the cost of raw material or is
  to be shown separately under a different head. There is
  no reason for not accepting the meaning of the term
  "turnover" given by a body of Accountants, which is
  having a statutory recognition. [Para 25] [739-G-H; 740-
D A-B; 741-A-B]
         5. 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, there is no reason to take a
E   different view than the view normally taken by the
    persons who are concerned with the said term. The
    intention behind enactment of Section 80HHC of the Act
    was to encourage export so as to earn more foreign
    exchange. For the said purpose the Government wanted
F   to encourage businessmen, traders and manufacturers
    to increase the export so as to bring more foreign
    exchange in our country. If the purpose is to bring\more
    foreign exchange and to encourage export,' the
    legislature would surely like to give more benefit to
G   persons who are making an effort to help our nation in ·
    the process of bringing more foreign exchange. If a trader
    or a manufacturer is trying his best to increase his
    exports, even at the cost of his business in a local market,
    the Government would like to encourage such a person.
H   Once the Government decides to give some benefit to
COMMNR. OF INCOME TAX-VII, NEW DELHI v. PUNJAB 733
        STAINLESS-STEEL INDUSTRIES
someone who is ·helping the nation i/I bringing foreign          A
exchange, the Revenue should also make all possible
efforts to encourage such traders or manufacturers by
giving such business units more benefits as
contemplated under the provisions of law. The view
expressed by the High Court is in conformity with the            8
normal <tccounting practice followed by the trader~.
including the respondent-assessee and it was justified in
coming to a conclusion that the proceeds generated from
the sale of scrap would not be included in the 'total
turnover' [Paras 26 to 29] [741-C, E~H; 742-A-B]
                                                                 c
    Commissioner, Income Tax Thiruvananthapuram v. K.
Ravindranathan Nair(2007) 15 SCC 1: 2007 (11) SCR 1097
- referred to.
                     Case Law Reference:                         D
    2007 (11) SCR 1097            Referred to      Para 14
    CIVIL APPELLATE JURl.SDICTION : Civil Appeal No.
5592 of 2008.
                                                                 E
    From the. Judgment and order dated 19.01.2007 of the
High Court of Delhi at New Delhi in ITA No. 520 of 2006.

                              WITH
Civil Appeals Nos. 3283 and 4491 of 2009.                        F
Civil Appeal No. 4898 .of 2010.
    K. Radhakrishnan, Arijit Prasad, Sadhna Sandhu, Rashmi
Malhotra, Rajesh Mahana, Sahl Agarw\11. Bharvag V. Desai,
Shreyas Mehrotra, Sidharth Mittal, S. K. Satharwal, Dr. Rakesh   G
Gupta, Ashwani Taneja, Poonam Ahuja, Rani Kiyala, Rishabh
Kapoor, Salil Aggarwal, Ravi Pratap for the Appellant.
    M. S. Syali, S. Ganesh, S. Sethi, Rameshwar Prasad
Goyal, K. V. Mohan, R. K. Raghavan, K. V. Balakrishnan, P.       H
    734          SUPREME COURT REPORTS               (2014) 8 S.C.R.


A   B. Suresh, Vipin Nair, Udayaditya, Keshav Deve Ranjan,
    Siddharth S. Dev, Ravinder Adsure, Jay Savla, Renuka Sahu,
    F. V. Irani, Rustom B. Hathikhanawala, Pramod B. Agarwala,
    Prashant Mehra, Apoorv Garg, Nikhil Nayyar, Pritha Srikumar
    Iyer, Dhananjay Baijal for the Respondents.
B         The Judgment of the Court was delivered by
         ANIL R. DAVE, J. 1. Being aggrieved by the judgment
    delivered in ITA No. 520 of 2006 dated 19th January, 2007,
    by the High Court of Delhi, this Appeal has been filed by the
c   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
D 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.
E
       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
F several other conditions, incorporated in the Section, is
  determined as under:
          Profits of the Business X Export Turnover

          Total Turnover
G
         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
H
 COMMNR. OF INCOME TAX-VII, NEW DELHI v. PUNJAB 735
  STAINLESS STEEL INDUSTRIES [ANIL R. DAVE, J.]

       (!i)    E>eport turnover                                          A

       (iii)   Total turnover.

      5. In the instant case, the issue is with regard to the _term
 "Total turnover".
                                                                         B
        6. The assessee is a manufacturer and exporter of
 ..stainless steel utensils. In the process of manufacturing
   stainless ste·e1 utensils, some po~on of the steel, which can not
; be used or reused for manufacturing utensils, rem~ins unused,
  which is treated as scrap and the respondent-assessee                  c
   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.
                                                                         D
       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.
                                                                         E
      8. According to the Revenue, the sale proeeeds 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.
                                                                         F
      9. The assessee had objected to the aforestated
 suggestion of the Revenue because inclusion of the sale
 proceeds of scrap into the total turnover would reduce the
 amount deductible under the provisions of Section 80HHC of
 the Act.
                                                                         G
      10. One can very well see that if the total turnover
 increases, the advantage which the assessee would get under
 Section 80HHC would decrease because the amount
 deductible substantially depends upon the ratio between the
 export turnover and \otal turnover. If the export turnover is higher,   H
    736      SUPREME COURT REPORTS                 [2014] 8 S.C.R.


A comparatively the amount deductible under Section 80HHC
  would be more; or in other words, if compared to total turnover,
  export turnover is less, th~ amount deductible from the income
  under Section 80HHC would be reduced. By virtue of the
  impugned judgment delivered by the High Court, the accounting
B method followed by the respondent-assessee has been
  approved and therefore, this appeal is filed by the Revenue.

       11. The learned counsel appearing for the appellant-
  Revenue, had vehemently submitted that even the sale of scrap
C is sale and the proceeds which the respondent-assessee
  received from such sale should be included in the 'total turnover'.
  In the circumstances, the total turnover must include the amount
  received by the respondent-assessee from the sale of scrap.

          12. It had been submitted by him that the respondent-
D assessee was getting substantial amount from sale of scrap
  and the receipt from the sale of scrap was a regular feature of
  its business. In the aforestated circumstances, according to the
  learned counsel appearing for the appellant-Revenue, the view
  expressed by the High Court is incorrect because that would
E exclude substantial receipt of the respondent-assessee from
  the total turnover and therefore, according to him, the appeal
  should be allowed and the amount deductible should be re-
  assessed after inclusion of the amount received from the sale
  of scrap into the 'total turnover'.
F
          13. On the other hand, the learned counsel appearing for
  the respondent-assessee had submitted that the proceeds of
  sale of scrap can never be included in the 'total turnover'
  because the respondent-assessee is not dealing in scrap.
  According to him, scrap is ·generated in the proces~ of
G manufacturing and the scrap is nothing but the raw material
  which could not be used in the process of manufacturing and
  therefore, sale proceeds of such scrap would merely bring
  down the cost of raw material. Thus, the sale proceeds of the
  scrap can either be deducted from the cost of raw materia1 or
H
COMMNR. OF INCOME TAX-VII, NEW DELHI v. PUNJAB 737
 STAINLESS STEEL INDUSTRIES [ANIL R. ' DAVE, J.]

can be shown in the profit and loss account but the said amount         A
can never be treated as a part of 'sales' or 'turnover'.

     14. The 1earned counsel had also relied upon the judgment
delivered in the case of COMMISSIONER, INCOME TAX
THIRUVANANTHAPURAM v. K RAVINDRANATHAN NAIR
                                                                        B
[(2007) 15   sec     1], which deals with the term 'turnover'.
According to him, though the said issue has not been directly
discussed in the said judgment, from the meaning of the word
'turnover' given in the said judgment, it is very clear that the term
'turnover' would include only the sale proceeds of the articles
manufactured and sold and not other things which are sold by            C
a business unit. He had also referred to the definition of term
'business' given in the Act.

     15. According to him, had the respondent-assessee been
doing business of scrap, the sale proceeds of scrap would               D
have been treated as a part of 'total turnover' but as the
respondent is not dealing in scrap, the amount received from
the sale of scrap can never be treated as a part of the sale
proceeds and therefore, he had submitted that the view taken
by the High Court is absolutely correct.                                E

    16. We had heard the learned counsel appearing for both
the sides and also considered the relevant record and the
judgments referred ,to.

     17. To ascertain whether the turnover would also include           F
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.

    18. In the aforestated circumstances, one has to look at            G
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        H
                                                                       I
    738      SUPREME COURT REPORTS                  [2014] 8 S.C.R.

A 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 so(lle other things·
  like an old air conditioner or old furniture or something which
  has outlived its utility. When such things are disposed of, the
8 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
C 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
D Profit and Loss Account, would indicate sale proceeds from
  sale of the articles or things in which the 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
E 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
F manufacturer and seller of air-conditioners is asked to declare
  his 'turnover', the C!nswer given by him would show the sale
  proceeds of air-conqitioners 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
G 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
H
 COMMNR. OF INCOME TAX-VII, NEW DELHI v. PUNJAB 739
  STAINLESS STEEL INDUSTRIES [ANIL R. DAVE. J.)
 from the scrap may either be shown separately in the Profit and A
Ioss A~count 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 B
·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-          c
 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        D
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 ..
                                                                       E
      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 primaril9 dealing in scrap. In the        F
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 "turnover",          G
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          H
    740      SUPREME COURT REPORTS                  [2014) 8 S.C.R.

A 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 sam~.
  Para 5 of the said Note deals with "Sales", "turnover" and "gross
B receipts". Paras 5.2 and 5.3 of the said Note are reproduced
  hereinbelow, which pertain to the term "turnover".

          "5.2 In the "Gu!dance Note on Terms Used in Financial
          Statements" publisf1Pr! by ~he ICAi, the c,(pression "Sales
          Turnover" (Item 15.01) h8c: been defined as under:-
c
                 "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
D                the sales aggregate before and after deduction of
                 returns and trade discounts".

          5.3 The Guide to Company Audit issued by the ICAI in the
          year 1980, while discussing "sales", stated as follows:

E                "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 coAlpany and indicating the
                 quantities of such sales for each class separately.
F                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
G                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 added)
H
COMMNR. OF INCOME TAX-VII, NEW DELHI V. PUNJAB 741
 STAINLESS STEEL INDUSTRIES [ANIL R. DAVE, J.]

     The aforestated meaning given by the ICAI clearly denotes       A
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          B
for not accepting 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          C
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.

     27. In addition to the above factors, which we have             D
considered for understanding the meaning of the term
"turnover", we should not miss the purpose with which the said
term has been incorporated in Section 80 HHC of the Act.

     28. The intention behind enactment of Section 80HHC of          E
the Act was to encourage export so as to earn more foreign
exchange. For the said purpose the Government wanted to
encourage businessmen, traders and manufacturers to
increase the export so as to bring more foreign exchange in
our country. If the purpose is to bring more foreign exchange
                                                                     F
and to encourage export, we are of the view that the legislature
would surely like to give more benefit to persons who are
making an effort to help our nation in the process of bringing
more foreign exchange. If a trader or a manufacturer is trying
his best to increase his exports, even at the cost of his business
in a local market, we are sure that the Government would like        G
to encourage such a person. In our opinion, once the
Government decides to give some benefit to someone who is
helping the nation in bringing foreign exchange, the Revenue
should also make all possible efforts to encourage such traders
or manufacturers by giving such business units more benefits         H
    742     SUPREME COURT REPORTS                   [2014] 8 S.C.R.


A   as contemplated under the provisions of law.

         29. For the aforesaid reasons, we are of the view that the
    view expressed by the High Court is in conformity with the
    normal accounting practice followed by the traders, including
    the respondent-assessee and it was justified in coming to a
8
    conclusion that the proceeds generated from the sale of scrap
    would not be included in the 'total turnover'.

        30. For the aforesaid reasons, we dismiss the appeal with
    no order as to costs.
c
         31. In view of the order passed in the Civil Appeal No. 5592
    of 2008, Civil Appeal Nos. 3283 of 2009, 4491 of 2009 and
    4898 of 2010 are also dismissed with no order as to costs as
    the legal issues involved in these appeals are same.
D Devika Gujral                                    Appeals dismissed.