Court excludes sales tax from total turnover for deduction under section 80HHC.

The court ruled in favor of the assessee, holding that sales tax should not be included in the total turnover for computing deduction under section 80HHC of the Income Tax Act, 1961. Additionally, the turnover discount offered by the assessee to its dealers was also excluded from the total turnover for the purpose of deduction under section 80HHC. The Tribunal's decision was overturned, and the judgment favored the assessee against the revenue department.

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Issues Involved:

1. Inclusion of sales tax in the total turnover for computing deduction u/s 80HHC.
2. Inclusion of turnover discount in the total turnover for computing deduction u/s 80HHC.

Summary:

Issue 1: Inclusion of Sales Tax in Total Turnover

The first issue was whether sales tax collected by the assessee and paid to the Government should form part of the total turnover while computing the deduction u/s 80HHC of the Income Tax Act, 1961. The court referred to the decision of the Apex Court in Commissioner of Income Tax Vs. Lakshmi Machine Works, where it was held that excise duty and sales tax cannot form part of "turnover" u/s 80HHC(3) of the Act. The Apex Court observed that excise duty and sales tax are indirect taxes recovered by the assessee on behalf of the Government and do not have any element of turnover. Therefore, the court concluded that sales tax should not be included in the total turnover for the purpose of computing deduction u/s 80HHC.

Issue 2: Inclusion of Turnover Discount in Total Turnover

The second issue was whether the turnover discount offered by the assessee to its dealers should form part of the total turnover for the purpose of computing deduction u/s 80HHC of the Act. The assessee argued that the turnover discount, which was never received from the dealers, should not form part of the total turnover. The Tribunal, however, did not accept this contention, stating that sales take place at the first instance and discount is given at a later stage. The Tribunal held that the term "total turnover" should be understood with respect to the amount shown on the sale bills, and the subsequent discount allowed can only be treated as an item to be debited to the P & L A/c.

The court examined the discount scheme framed by the assessee, which provided that the dealers would receive a certain incentive calculated on the basis of the total turnover achieved by them. The discount was directly proportionate to the sales effected by the concerned dealer and was contingent upon prompt payment of bills. The court referred to the definition of "turnover" under the Central Sales Tax Act, 1956, and noted that turnover is the aggregate of the sale prices received and receivable by the dealer. The court also referred to the decision in The Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) Vs. M/s. Advani Coorlikon (P.) Ltd., where it was held that trade discount cannot form part of the total turnover since the net amount that the dealer receives is the sale price.

The court concluded that the turnover discount offered by the assessee should not form part of the total turnover for the purpose of computing deduction u/s 80HHC. The Tribunal's decision was reversed, and the question was answered in the negative, in favor of the assessee and against the revenue.

Conclusion:

The appeal was allowed, and the judgment of the Tribunal was reversed to the extent that trade discount should not form part of the total turnover for computing deduction u/s 80HHC of the Act.

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