Case: Commr.Of Income Tax-Xvii,New Delhi Vs. Punjab Stainless Steel Industries

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 Income Tax Act, 1961 (hereinafter referred to as ‘theBy 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.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 several other conditions, incorporated in the Section, is determined as under:Profits of the Business X Export TurnoverTotal Turnover4. Thus, to determine the amount of deduction, the assessee and the Revenue must be aware of the following threeProfits of the businessii) Export turnoveriii) TotalIn the instant case, the issue is with regard to the term. The assessee is a manufacturer and exporter of stainless steel utensils. In the process of manufacturing stainless steel utensils, some portion of the steel, which can not be used or reused for manufacturing utensils, remains unused, which is treated as scrap and the respondent-assessee 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.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.8. According to the Revenue, the sale proceeds from the scrap should have been included in the ‘totalas the respondent-assessee was also selling scrap and that was also part of the sale proceeds.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.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 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 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.

Court's reasoning:
21. In simple words, the wordwould mean only the amount of sale proceeds received in respect of the goods in which an assessee is dealing in.When such scrap is sold, in our opinion, the sale proceeds of the scrap cannot be included in the termfor the reason that the respondent-unit is engaged primarily in the manufacturing and selling of steel utensils and not scrap of steel. Therefore, the proceeds of such scrap would not be included inin the Profit and Loss Account of theaforestated meaning given by the ICAI clearly denotes that in normal accounting parlance the wordas 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 for not accepting the meaning of the termgiven by a body of Accountants, which is having a statutory recognition.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 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