Madras High Court says Scrap Sales Cannot Form Part Of Total Turnover

Madras High Court says Scrap Sales Cannot Form Part Of Total Turnover

The Court upheld Income Tax Appellate Tribunal's decision by relying on a Supreme Court judgment while dismissing the appeal

The Madras High Court upheld the order of the Income Tax Appellate Tribunal rejecting the Revenue Authority's appeal by holding that the scrap sales could not form part of total turnover.

The matter titled Commissioner of Income Tax v M/s Tweezerman (India) Pvt Ltd was placed before the Division Bench of the High Court of Madras, comprising Justices T.S. Sivagnanam and Sathi Kumar Sukumara Kurup.

The present tax case appeal was filed by the Appellant – Revenue Authorities challenging whether the Income Tax Appellate Tribunal was right in holding that the scrap sales had to be excluded from the total turnover as well as the export turnover while computing the exemption u/S 10B of the Income Tax Act, 1961.

The Court in order to deal with this issue had to compute the total turnover while considering the claim for exemption u/S 10B of the Act.

It was noted that the Respondent – Company was engaged in the manufacture of certain articles which were being exported in which scrap was generated during the manufacturing process, which was sold and these sale proceeds were used to reduce the amount spent on the purchase of raw materials. Therefore, the Appellant – Revenue Authorities contended that the sale of scrap would be included in the total turnover. The Authorities further drew a distinction with regards to the deduction claim u/S 80HHC of the Act and pointed out that the case on hand was a claim made under Section 10B of the Act which raised the question of what would be the meaning of the word 'turnover'.

In order to deal with this question, the Court considered the judgment of the Supreme Court which is cited as (2014) 46 Taxman 68 (SC), wherein it was held that the term 'turnover' would mean the 'total sales' but the said sales would definitely not include the scrap material which was either to be deducted from the cost of raw material or was to be shown separately under a different head.

The Court, therefore, upheld the decision of the Appellate Tribunal by relying on this judgment of the Supreme Court and dismissed the appeal.