DUTRON PLASTICS PVT. LTD. vs. DY. C.I.T. (ASSESSMENT)

The assessee has challenged judgment of Income Tax Appellate Tribunal ('The Tribunal' for short) dated

Upon perusal of the documents on record and hearing the learned counsel appearing for the parties, we find that the question framed has two elements. The first is whether while computing the deduction under Section 80HHC of the Income Tax Act, 1961 (for short 'The Act') sales tax collected by the assessee and paid to the Government should form part of the total turnover. The second question is whether the turnover discount offered by the assessee to its dealers should form part of the total turnover for the purpose of computing deduction under Section 80HHC of the Act.

We may notice facts in brief:

1 The appellant-assessee is a company engaged in the business of production and sale of Plastic Hose Pipes used in agriculture operations. During the year relevant to assessment year 1992-93, the assessee made net sales of Rs. 11,62,61,934/-. The assessee also had made certain exports during the said period. In terms of the provisions contained in Section 80HHC as it stood at the relevant time, the assessee was entitled to deduction on such exports sales in terms of the formula provided in said section. It is well known that Section 80HHC of the TAXAP/259/2000 3/13 Act provided for deduction in respect of profits retained for export business. Under sub-section (1) of Section 80HHC of the Act, as it stood at the relevant time an assessee who was engaged in the business of export of goods or merchandise to which a section applied was entitled to deduction in computing of total income of the assessee of the profit derived from the export of such goods or merchandise. In case of a manufacturer exporter to which category, the assessee belonged, such deduction was to be worked out as per the formula provided in sub-section (3) of Section 80HHC. As per such formula, export profit would be the amount which bares to the profit of the business the same proportion as the export turnover in respect of such goods bares to the total turnover of the business carried on by the assessee. In other words, Expert Profit = Total Profit x Expert Turnover/Total Turnover.

In this context computation of total turnover of the assessee assumes significance. The case of the assessee is that while computing such total turnover, the sales tax collected by the assessee from its consumer and paid over to the Government should be excluded. It is also the case of the assessee that the trade discounts which the assessee offered to its dealers can also not form part of the total turnover.

We will deal with both these aspects separately. Insofar as the inclusion of sales tax in the total turnover is concerned, our task has been made easy by virtue of decision of the Apex Court in case Commissioner of TAXAP/259/2000 4/13 Income Tax Vs. Lakshmi Machine Works reported in 290 ITR 667 in which the Apex Court held that the excise duty and sales tax cannot form part of “turnover” under Section 80 HHC(3) of the Act. It was further held that sale tax and excise duty do not have any element of turnover. The Apex Court observed that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under Section 80HHC of the Act would become unworkable.

The contested question before us is with respect to inclusion of the turnover discount offered by the assessee. During the year under consideration, the assessee had offered turnover discount of total of Rs. 49,47,812/- to its dealers. Before the Assessing Officer, the assessee contended that in the formula contained under Section 80 HHC(3) of the Act, such amount cannot form part of the total turnover. The Assessing Officer, however, did not accept the contention. The matter went- up to the Tribunal. The Tribunal dealt with the issue in the following manner: “ The assessee's claim of turnover discount comes to Rs. 49,47,812/-. This is the amount of discount allowed to the declare on their turnover which they have done with the assessee during the year. Hence, it is termed as “turnover discount”. According to the assessee, it is not discount from the assessee's turnover. We are unable to agree with this submission given by the assessee. As rightly observed by the learned CIT(A), sales takes place at the first instance and discount is given at the later stage. Therefore, the terms “total turnover” has to be understood with respect to the amount shown on the sale

Learned counsel Mr. Karia for the appellant submitted that the Tribunal committed serious error in not taking into consideration the nature of discount offered. He submitted that under scheme framed by the assessee, the dealers who exceeded certain level of performance were granted weighted discounts. Such amount, which the assessee never received from the dealers, cannot form part of the turnover. He submitted that the turnover did not define under the Act, must be understood as in the common parlance in the trade.

Counsel further submitted that looking to the nature of the trade discount, the nature of such discount was such that the total sale receipts of the assessee would get reduced by such an extent that is how the assessee had accounted for such discount in the books. The assessee's total receipts, therefore, were minus the discount offered. Their total turnover, therefore, would not exclude the trade discount.

In support of his contentions, counsel relied on the following decisions:

The scheme further provided that such discount will be allowed only on such bills which were paid strictly within 30 days from the date of the bill and further that outstanding bills including supplies made during March if not cleared within 31st March will not be considered for TOD. 13.In terms of such scheme therefore, the dealers of the assessee would receive a certain incentive calculated on the basis of the total turnover achieved by them. Such incentive was in the form of discount. Such discount would be directly proportionate to the sales affected by the concerned dealer. One of the conditions ofcourse was that on any bill outstanding beyond period of 30 days, no discount would be paid. Thus, the scheme framed by the assessee related the discount to two factors viz. the sales effected by the dealer and to the prompt payments of periodical bills. 14.Keeping the above background in mind, we may try to ascertain whether such discount should form part of the total turnover. The term turnover has not been defined under the Income Tax Act or for that matter under Section 80HHC of the Act. The Central Sales Tax Act, 1956 defines term “turnover” in Section 2 (j) of the Act as under: Section 2(h) in turn defines term “sales price” as under: (h) “sale price” mean the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum