ORDER
Satish Chandra, A.M.
This is an appeal against the order dated 14-10-1996 of the Commissioner (Appeals) XXV III Bombay pertaining to the assessment year 1992-93.
2. The assessee is a firm of two partners engaged in the business of importing rough diamonds, getting them cut and polished through outside agencies and exporting the polished diamonds. The assessee is also engaged in undertaking cutting and polishing of diamonds on commission basis wherein rough diamonds are taken from the principals and given to outside agencies for cutting and polishing. For assessment year 1992-93 the assessee filed return on 23-10-1992 declaring total income at Rs. 1,91,390. The assessee had, inter alia, claimed deduction of Rs. 6,62,618 under section 80HHC. The assessing officer completed the assessment on 8-2-1993 under section 143(3) on total income of Rs. 2,02,670 allowing the deduction under section 80HHC as claimed. The assessing officer, vide notice dated 17-8-1994 sought to rectify the assessment in so far as it related to deduction under section 80HHC, as while claiming the deduction, the assessee had not included receipts of Rs. 52,17,920 by way of labour charges in the total turnover of the business. Though the notice under section 154 was served on 15-8-1994, no compliance was made. The assessing officer, therefore, proceeded to compute the deduction under section 80HHC as follows:
“Dedn under section 80HHC
=
Export turnover
X
Profit of the business
+
90% of export
licence premium
X
ITO
Total turnover
=
35,77,292
X
6,64,291
+
2,08,498
X
35,77,292
87,95,212
87,95,212
=
2,70,188
+
84,802
=
3,54,996
”
He revised the total income accordingly. The assessee appealed but without success. This has brought the assessee before us. The assessee has challenged the confirmation of order under section 154 by the Commissioner (Appeals). In the grounds of appeal it is submitted that in his rectificatory order, the assessing officer has added gross labour charges of Rs. 52,17,920 (reimbursement by Principals of actual labour charges of Rs. 50,27,181 paid to outside cutters plus fixed amount of commission of Rs. 1,90,739 on quantity) into total turnover while computing the deduction under section 80HHC. By doing so, he ignored the formula specified in Explanation (baa) to section 80HHC and Circular No. 621 dated 19-12-1991 issued by the Central Board of Direct Taxes. It is also stated therein that inclusion of such item into total turnover gives distorted figure of export profit. It is further submitted therein that as par Explanation (baa) to section 80HHC, 90 per cent of the commission of Rs. 1,90,789 earned by the assessee and included in the profits and gains of the business is taxable after granting ad hoc 10 per cent deduction. It is urged therein that deduction as claimed originally on the basis of report in Form No. 10CCAC and allowed in original assessment be restored.
3. Before us, the learned counsel for the assessee argued that the rectificatory order passed by the assessing officer is bad in law as there was no mistake apparent from record. In the original assessment allowing the assessee’s claim of deduction under section 80HHC based on the audit report in Form No. 10CCAC. Referring to the decision of the Apex Court in TS. Balram, Income Tax Officer v. Volkart Bros. (1971) 82 ITR 50 (SC), it was argued that it was a debatable issue whether or not gross labour charges form part of total turnover and a decision by the assessing officer on a debatable point of law is not a mistake apparent from record. The learned counsel for the assessee invited our attention to the copy of profit and loss account appearing at page 35 of the paper-book and submitted that by crediting commission of Rs. 1,90,739 to the profit and loss account, the assessee included the same in the profit of the business. The learned counsel for the assessee submitted that rough diamonds aggregating 31,789.55 cts. belonging to the Principals were received by the assessee. These were given to outside agencies for cutting and polishing. Polished diamonds aggregating 10,076.49 cts. received from the cutters were returned to the Principals who made reimbursement of actual labour charges at Rs. 50,27,181 paid to outside cutters. The assessee charged commission @ Rs. 6 per- cent which aggregated to Rs. 1,90,739 which was credited to the profit and loss account. It is vehemently argued that reimbursement of labour charges amounting to Rs. 50,27,181 cannot form part of total turnover for the purpose of computing deduction under section 80HHC. In support of his arguments, reliance was placed on the following decisions:-
1. Salgaocar Mining Industries Ltd. v. Deputy CIT (1997) 61 ITD 105 (Pune-Trib)
2. Income Tax Officer v. Smt. Suman Goyal (1998) 99 Taxman 147 (Del-Trib.)
3. International Research Park Laboratories Ltd. v. Assistant CIT (1994) 50 ITD 37 (Del-Trib) (SB)
4. Pinkstar Mumbai v. Deputy CIT (IT Appeal No. 6031 (Mum) of 1997 dated 23-2-1999.)
4. The learned Departmental Representative on the other hand, supported the orders of the revenue authorities. He invited out attention to the findings of the Commissioner (Appeals) that job receipts from the Principals were the amount of total work done. This is supported by the bills raised by the assessee on the Principals. The learned Departmental Representative also pointed out that the assessee is not a commission agent who is engaged in doing labour job work and, therefore, the entire gross receipts on account of labour charges form part of the total turnover of the assessee. According to him, the revenue authorities were justified in taking the gross labour receipts for the purpose of computing deduction under section 80HHC as part of total turnover in rectificatory proceedings. There is no scope of any debate as the definition of total turnover and the Explanation in section 80HHC is quite clear.
5. We have given our careful thought to the rival submissions. We have also perused the orders of the revenue authorities as also the decisions relied upon by the assessee. The short question for our consideration is whether or not the gross labour receipt of Rs. 52,17,920 would form part of the total turnover of the assessee for the purpose of computing deduction under section 80HHC. The expression “total turnover” for the purpose of section 80HHC has been explained under clause (ba) of Explanation inserted by Finance (No. 2) Act 1991 with effect from 1-4-1987 which reads thus:
(ba) “total turnover” shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962):
Provided that in relation to any assessment year commencing on or after the 1-4-1991, the expression “total turnover” shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28.”
From the above explanation, it is obvious that the above explanation does not really explain the term “total turnover”. It merely states what items should not form part of the “total turnover”. These items are freight, or insurance attributable to the transport of the goods or merchandise beyond the customs station. According to the explanation, the export incentives are excluded from the expression “total turnover” from the assessment year 1991-92 and onwards. As stated earlier, the above explanation does not define the term “‘total turnover”. We have, therefore, to turn to the dictionary meaning of the expression “total turnover”. In Chamber’s 20th Century Dictionary (revised Edition 1976), the word “total” is defined to mean whole; complete; including all; coordinating every thing towards one end. The term “total turnover” has been defined to mean “to handle or to do business to the amount of”. In the new Shorter Oxford English Dictionary Vol. 2 1993 Edition, the term “total” has been defined as the “whole; entire; constituting or comprising a whole; complete in nature; invoking all resources or aspects; manifesting every characteristic or the whole nature of all activity person, etc. The term “turn over” has been defined to mean to do business to the amount of”.
From the above dictionary meaning, it is obvious that the total amount of money taken in a business will constitute the total turnover of the assessee. It is an admitted position that besides the business of imports and exports of diamonds, the assessee undertakes job work for cutting and polishing of diamonds, In the year of account, the assessee received total job work charge of Rs. 52,17,920. In the year of account, the assessee raised 11 bills on its principals for an aggregate amount of’ Rs. 52,17,920. According to the assessee, the said aggregate amount of bill of Rs. 52,17,920 comprises of Rs. 50,27,181 by way of reimbursement of labour charges and Rs. 1,90,739, being commission charged by the assessee @) Rs. 6 per ct. While claiming the deduction under section 80HHC, the assessee excluded the amount of labour charges of Rs. 50,27,181 from the total turnover on the ground that it was much reimbursement of actual labour charges paid to outside cutters allowed by the principals. On this basis deduction of Rs. 6,62,618 was claimed in the return which was allowed in the original assessment. However, in his rectificatory order, the assessing officer included the aggregate amount of the bill raised on the principals in the ‘total turnover’ of the assessee and allowed the deduction under section 80HHC on the said basis after inviting objection from the assessee. It may be stated here that during rectification proceedings, no objection was taken to the assessing officer’s proposal of including the receipt of Rs. 52,17,920 by way of labour charges credited to the profit and loss account in the total turnover of the assessee’s business. When the matter was taken to the Commissioner (Appeals), Commissioner (Appeals) observed that the assessee raised bills of Rs. 52,17,920 against the job work for cutting and polishing of diamonds. The entire job work receipts related only to labour. The Commissioner (Appeals) went on to observe further that the principals were not concerned as to how the assessee was getting the work done. These observations of the Commissioner (Appeals) could not be faulted by the assessee by bringing on record any material to the contrary. The assessee has charged, admittedly, commission from the principals @ Rs. 6 per ct. for the job work done. The copy of the agreement, if any, between the assessee and the principals has not been brought on record. The terms and conditions of the agreement are, therefore, not known. Who are the recipients of labour charges of Rs. 50,27,181, their names and addresses and the nature of services rendered by them have not been brought on record by the assessee. The observation of the Commissioner (Appeals) that the assessee used to maintain certain establishments for cutting and polishing diamonds have also not been controverted by the assessee before us. The finding of the Commissioner (Appeals) that receipt from the principals where the amount of total work done could also not be controverted by bringing on record any material to rebut the same. On the Contrary, the bills on the principals have been raised by the assessee for the aggregate amount of Rs. 52,17,920 including the amount of commission therein. From the language of the expression “total turnover” as extracted above, it is obvious that it merely states that freight or insurance attributable to the transport of goods or merchandise beyond the customs station shall not form part of the ‘total turnover’. Export incentives have also been excluded from the definition the term “total turnover” for and from the assessment year 1991-92 onwards. Having regard to the explanation in respect of the expression “total turnover”, we are of the view that the entire amount of the bills raised, inclusive of commission shall form part of “total turnover” of the assessee’s business. The assessing officer had commuted an apparent error in his order dated 8-2-1993 in not considering the aggregate amount of bill as part of total turnover raised by the assessee on principals in respect of job work done in allowing deduction under section 80HHC. On the face of the explanation of the term “total turnover” in section 80HHC, the question of any debate as to the includibility or otherwise of the aggregate amount of job work receipts in “total turnover” did not arise at all. We are, therefore, of the view that the assessing officer was perfectly justified in invoking the provisions of section 154 of the Act in amending the admissible deduction under section 80HHC by including the aggregate amount of bills of labour charges in total turnover of the business of the assessee. In this view of the matter, decision of the Apex Court in Volkart Bros’ case (supra) will not render any assistance to the assessee.
6. The learned counsel for the assessee relied on the decision of the Pune Bench of the Tribunal in Salgaocar Mining Industries Ltd.’s case (supra). In that case the assessee company was dealer in iron ore. It sold goods in the course of export as well as within the Indian territory. Relief under section 80HHC(3) in respect of export turnover was claimed. The assessing officer computed the total turnover by including all receipts on account of ore screening charges, barge hire charges, truck transport charges, tram shipper income, etc. On appeal, the Commissioner (Appeals) confirmed the computation keeping in view the definition of “total turnover” given in clause (bb) of Explanation (2) to section 80HHC. On second appeal before the Tribunal, the Tribunal noted that the meaning of “turnover” has not been defined. In commercial world, the “turnover” is understood as the sale proceeds of the goods. The Tribunal was of the view that the combined reading of clauses (b) and (ba) to the explanation does not show that it will include anything which has no nexus with the sale proceeds. For this reason, the Tribunal held that it would be too extreme to include service charges within the meaning of ‘turnover’. We are afraid, to our mind, two narrow a view of the expression ‘turnover’ has been taken. The expression ‘turnover’ has been defined in Stroud’s Judicial Dictionary of Words & Phrases, Fourth Edition (Vol. 5) at page 2848 as under :
“Turnover: (i) Semble a ‘business turnover’ is the aggregate amount of sales effected or work done, by a business during a stated period (Miller v. Oliver & Boyd 43 SC L.R. 270). It is, therefore, obvious that it is not only the sale proceeds of goods which constitute ‘turnover’; it is the aggregate amount of work done which also partakes the character of business turnover”.
7. Reliance was placed by the assessee on the decision in International Research Park Laboratories Ltd.’s case (supra). In that case the assessee was a Public Limited Co. engaged, inter alia, in the business of export of cosmetic goods and other products. In the year of account the assessee had received export fees of Rs. 2.04 crores on assignment of certain export orders to another exporter H.L.L. The assessee had claimed deduction under section 80HHC treating the commission received from HLL as profits derived from export business, eligible for apportionment on the basis of the export turnover to the total turnover. This was not acceptable to the assessing officer who declined to accept that the commission received from the other exporter was also the profit derived from exports. When the matter was taken up to the Tribunal by the assessee, the Tribunal held that the commission received on assignment of export orders is eligible for deduction under section 80HHC. Perusal of the decision (supra) will go to reveal that it was nobody’s case that commission forms part of turnover. It was in that context that an observation was made by the Tribunal (page 44 of the report) that it was no doubt that the commission was not turnover but it was a profit relatable to export. In the case before us, the issue for consideration is whether job receipt forms part of total turnover. In International Research Park Laboratories Ltd. (supra), it has been held that the expression ‘total turnover’ used in section 80HHC(3)(b) unambiguously refers to the total turnover of the entire business and not to the total turnover of the export business. It is, therefore, clear that this decision is of no help to the assessee. Even the Circular No. 621 dated 19-12-1991 only clarified what was meant by the ‘profit of the business’ for the purpose of section 80HHC. Hence even the said circular of the Board does not render any assistance to the assessee. During the course of arguments before us, it has not been explained by the earned counsel for the assessee as to how the inclusion of labour charges into total turnover distorted the export profit.
8. Support was also derived by the assessee from the decision in Smt. Suman Goyal’s case (supra). In that case, the assessee derived income from purchase and export of black pepper and commission on purchase and despatch of rubber and latex. She was an authorised buying agent of different principals for purchase of rubber/latex on fixed commission on the purchase price, besides reimbursement of related expenses. The assessing officer held the view that the total amount of transaction on which the commission had been earned should be taken into account for working out the total turnover, since the assessee was a pucca arhatiya. When the matter was taken by the revenue to the Tribunal, the Tribunal took into consideration the fact that the Rubber Board had registered the assessee as an authorised agent to purchase and despatch rubber on behalf of different principals and no sales as such had been effected by the assessee. The role of the assessee was that of an agent and not of a trader. Further the assessee had not made any sale of rubber or latex. It was held that the total transaction conducted towards commission could not be regarded as sale or turnover of the assessee. The facts of this case are not identical with the case on hand. In that case there was an agreement between the assessee and Rubber Board. The terms and conditions of the agreement were on record. This is not so in the case of the assessee before us. As stated earlier, no agreement between the assessee and the principals whose job work was undertaken by the assessee, has been brought on record. There is no evidence to show that the principals had agreed to reimburse the expenses as well in getting the job work done besides giving commission to the assessee which was the position in Smt Suman Goyal’s case (supra). Moreover, Smt. Suman Goyal was admittedly a commission agent, which is not the case with the assessee on hand. The assessee besides, being an exporter of polished diamonds, undertakes job work of cutting and polishing of diamonds and the commission earned by the assessee is incidental to the carrying on of the said job work. The fact that the assessee has raised bills on the principals for aggregate amount of job work done inclusive of commission cannot be ignored.
9. The decision in Pink Star’s case (supra) relied upon by the assessee is admittedly not directly on the issue involved in the case of the assessee before us.
In that case, the issue was whether the profits of the business have to be reduced by 90 per cent of gross labour charges or by 90 per cent of net labour charges received by the assessee. On the basis of facts in that case, it was held by the Tribunal that since the income from labour charges was nil, no reduction will take place. Before us the issue is whether the gross labour charges inclusive of commission received by the assessee would form part of total turnover of the assessee’s business.
10. For the reasons aforesaid, it is obvious that none of the decisions relied upon by the assessee renders assistance to it. We, therefore, uphold the orders of the revenue authorities and reject the appeal of the assessee.
11. In the result the appeal is dismissed.