Madras High Court
M/S.Lucas Tvs Ltd vs The Asst. Commmissioner Of Income Tax on 4 March, 2015
Bench: R.Sudhakar, S.Vimala
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 04.03.2015 CORAM THE HONOURABLE MR. JUSTICE R.SUDHAKAR AND THE HONOURABLE MRS. JUSTICE S.VIMALA T.C.A. NO. 541 OF 2008 M/s.Lucas TVS Ltd. 11, Pattulos Road Chennai 600 002. .. Appellant - Vs - The Asst. Commmissioner of Income Tax Company circle II (4) Chennai 600 034. .. Respondent Appeal filed under Section 260-A of the Income Tax Act against the order dated 16.11.07 passed by the Income Tax Appellate Tribunal, 'B' Bench, Chennai, made in ITA No.2130/Mds/2006. For Appellant : Mr. R.Venkatanarayanan for M/s.Subbaraya Aiyar Padmanabhan For Respondents : Mr.T.R.Senthil Kumar JUDGMENT
(DELIVERED BY R.SUDHAKAR, J.) Aggrieved by the order of the Tribunal in allowing the appeal filed by the Revenue, the assessee is before this Court by filing the present appeal.
2. This Court, vide common order dated 3.7.08, the following substantial question of law has been framed in both the appeals, viz., TCA Nos.541 and 542/08 :-
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the relief under Section 80IA should be deducted from profits and gains of business before computing relief u/s 80HHC?
3. However, it is seen from the records, that in both the cases, the question of law raised is different. However, due to inadvertence, the same substantial question of law has been framed in both the appeals, though the said question of law framed vide order dated 3.7.08 relates only to TCA No.542/08. Accordingly, this tax case (appeal) filed by the assessee is ADMITTED on the following substantial question of law :-
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that scrap sales should be included in the Total Turnover while computing deduction under 80HHC?
4. The short facts, in a nutshell, are as hereunder :-
The appellant is engaged in the business of manufacture of Auto Electrical Components. For the assessment year 2002-2003, the appellant filed its return of income on 25.10.02 admitting an income of Rs.26,65,95,389/=. The return was processed u/s 143 (1) of the Income Tax Act on 8.3.03 raising a demand of Rs.5,52,311/=. Subsequently, on completion of scrutiny assessment u/s 143 (3) on 17.3.05, the total income was determined at Rs.27,24,80,740/=. However, while computing the deduction u/s 80HHC, the assessing officer excluded 90% of the scrap sales from the profits of business, but included the same in the total turnover.
5. Aggrieved against the said assessment, the appellant preferred appeal to the CIT (Appeals). On consideration of the submissions as made by the assessee, following the Tribunal's order for the earlier years, the CIT (Appeals) held that scrap should not be excluded from the profits of the business and also scrap sales should not be included in the total turnover for the purpose of computing deduction u/s 80HHC and, thereby, allowed in part the appeal filed by the appellant/assessee.
6. The Revenue, aggrieved by the said order, preferred appeal to the Tribunal, while the assessee did not choose to prefer any appeal. The Tribunal, on the second ground raised before it, passed the following order :-
5. As regards the second ground, after hearing the rival parties, we find that this issue is squarely covered against the assessee by the decision of the Chennai Bench of the Tribunal in the case of JCIT Vs Virudhunagar Textile Mills Ltd. (97 ITD 306) wherein it was held that wherever there is an element of profit, then such items has to be included in the total turnover. Following that decision, we set aside the order of CIT (Appeals) and direct the Assessing Officer to include the scrap sales in the total turnover for the purpose of determining deduction under Sec. 80HHC of the Act. Aggrieved by the said order of the Tribunal in allowing the appeal filed by the Revenue, the appellant/assessee is before this Court by filing the present appeal raising the above question of law.
7. The learned counsel for the parties were put on notice and were heard on the above substantial question of law. Heard Mr.Venkatnarayanan, learned counsel appearing for the appellant/assessee and Mr.Senthil Kumar, learned standing counsel appearing for the respondent.
8. It is brought to the notice of this Court by the learned counsel appearing on either side that the issue in the present case stands resolved by the judgment of the Supreme Court in Commissioner of Income Tax-VII Vs Punjab Stainless Industries (2014 (364) ITR 144 (SC)). In the said case, the contention of the rival parties before the Supreme Court, is extracted hereunder for better clarity :-
7. For the purpose of availing of 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. Insofar as the scope of the provision, viz., Section 80HHC, the same was dealt with by the Supreme Court in para-10 of the said judgment, wherein it was held as follows :-
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 the total turnover. If the export turnover is higher, comparatively the amount deductible under section 80HHC would be more ; or, in other words, if compared to the total turnover, export turnover is less, the amount deductible from the income under section 80HHC would be reduced. By virtue of the impugned judgment delivered by the High Court, the accounting method followed by the respondent-assessee has been approved and, therefore, this appeal is filed by the Revenue.
10. Accordingly, the Supreme Court, while interpreting the abovesaid provision, held as hereinbelow :-
26. 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, 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 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 80HHC of the Act.
28. The intention behind the 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 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, 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 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 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 conclusion that the proceeds generated from the sale of scrap would not be included in the "total turnover".
11. Accordingly, following the judgment of the Supreme Court stated above, the substantial question of law is answered in favour of the appellant/assessee and against the Revenue.
12. In the result, the appeal is allowed. However, in the circumstances of the case, there shall be no order as to costs.
(R.S.J.) (S.V.J.)
04.03.2015
Index : Yes/No
Internet : Yes/No
GLN
To
1. The Asst. Commmissioner of Income Tax
Company circle II (4)
Chennai 600 034.
2. The Income Tax Appellate Tribunal
'B' Bench, Chennai.
R.SUDHAKAR, J.
AND
S.VIMALA, J.
GLN
T.C.A. NO. 541 OF 2008
04.03.2015