G. Sivarajan, J.

1. Income Tax Appeals Nos. 72 and 105 of 2000 are filed by the same assessee for the assessment years 1990-91 and 1993-94. I. T. A. No. 30 of 2000 is filed by a different assessee in respect of the assessment year 1992-93. I. T. A. No. 86 of 2000 is filed by yet another assessee for the assessment year 1991-92. In all these cases common questions of law arise for consideration and therefore we are disposing of all these appeals by a common judgment.

2. In all the appeals the following two questions of law arise for consideration:

"1. Whether, on the facts and in the circumstances of the case, while computing the relief under Section 80HHC of the Income Tax Act, 1961, the processing charges could be excluded from the turnover of the business

2. Whether, on the facts and in the circumstances of the case and in view of Explanation (ba) to Section 80HHC and Clauses (iiia), (iiib) and (iiic) of Section 28, will not turnover take into account all other receipts other than the excluded items of receipts "

3. In I. T. A. Nos. 30 and 72 of 2000 these are the only two questions raised whereas in I. T. A. Nos. 86 and 105 of 2000 the first two questions raised are the same as extracted earlier. However, in those two cases the following two questions also arise :

"3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that interest on the deposit accounts made not for the purpose of the business alone would be assessable separately as income under the head Other sources and is such a distinction drawn by the Tribunal in accordance with law

4. Whether, on the facts and in the circumstances of the case, the Tribunal is right in taking the above view in view of the decision of the Kerala High Court in the cases of Collis line Pvt. Ltd. v. ITO : [1982]135ITR390(Ker) ; CIT v. Cochin Refineries Ltd. : [1985]154ITR345(Ker) and Nanji Topanbhai and Co. v. Asst. CIT : [2000]243ITR192(Ker) "

4. Though in I. T. A. No. 105 of 2000 one more question is there it is a facet of the two questions which are extracted above, which reads as follows :

"Whether, on the facts and in the circumstances of the case and in the light of Nanji Topanbhai and Co.s case : [2000]243ITR192(Ker) does the character of interest income change or does the interest income become business income if the assessee is required to maintain margin money for the purpose of the assessees imports "

5. It is conceded by learned counsel appearing for the parties that questions Nos. 3 and 4 in I. T. A. No. 86 of 2000 and questions Nos. 3 to 5 in I. T. A. No. 105 of 2000 are covered by the judgment dated November 8, 2002, in I. T. A. No. 291 of 2002 (K. Ravindranathan Nair v. Deputy CIT (Asstt.) : [2003]262ITR669(Ker) ) and the judgment dated February 7, 2003, in I. T. A. No. 102 of 2000 (CIT v. G. Satheesh Nair : [2003]264ITR377(Ker) ) against the assessee and in favour of the Revenue. Hence, in view of the decision in the aforesaid two cases, the said question has only to be answered in favour of the Revenue and against the assessee.

6. Now we will deal with the two questions raised in I. T. A. No. 30 of 2000 and extracted earlier which are common for all the cases. The question is as to whether the processing charges received by the assessee for processing cashew kernels belonging to third parties in the factory of the assessee is liable to be included in the total turnover for the purpose of relief under Section 80HHC of the Income Tax Act, 1961.

7. The brief facts necessary for adjudication of these questions are ; The assessee is an individual deriving income mainly from the business as a cashew exporter. The assessee was collecting charges from other concerns for processing their raw nuts in his factories. The assessees claim was that though the processing charges formed part of the income, the same cannot be included in the total turnover while working out the deduction under Section 80HHC. The Assessing Officer did not accept this as he was of the view that the processing charges should be included in the turnover when the same was includible in the business profit. This was confirmed in appeal by the Commissioner of Income Tax (Appeals). However, in further appeal by the assessee the Income Tax Appellate Tribunal accepted the contention of the assessee and directed the Assessing Officer to exclude the processing charges from the total turnover. Hence, the Department is in appeal before this court.

8. We have heard Sri P. K. R. Menon, Senior Central Government Standing Counsel for Taxes appearing for the applicant and Sri P. Balachanaran, learned counsel for the respondents-assessees.

9. In order to appreciate the rival contentions it is necessary to refer to the relevant provisions of Section 80HHC Section 80HHC as it stood at the relevant time reads as follows :

"80HHC Deduction in respect of profits retained for export business.-

(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise . . .

(3) For the purposes of Sub-section (1),--

(a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee ; . . .

(c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,--

(i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and

(ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods :

Provided that the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent, of any sum referred to in Clause (iiia) (not being profits on sale of a licence acquired from any other person), and Clauses (iiib) and (iiic) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. . . .

Explanation.--. . . .

(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 1st day of April, 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 ;"

10. Under Section 80HHC(1) in the case of an assessee being an Indian company or a person resident in India, who is engaged in the business of export out of India of any goods or merchandise to which this section applies, a deduction of the profits derived by the assessee from the export of such goods or merchandise will be allowed subject to the provisions of Section 80HHC. Sub-section (3) provides that for the purposes of Sub-section (1)(a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. It also provides that where the export out of India is of goods or merchandise manufactured or processed by the assessee and, of trading goods, the profits derived from such export, shall, in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee, and in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods. The proviso to Sub-section (3) states that the profits computed under Clause (a) or Clause (b) or Clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent, of any sum referred to in Clause (iiia) not being profits on sale of a licence acquired from any other person, and Clauses (iiib) and (iiic), of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. The Explanation to Section 80HHC gives the meaning of certain expressions used in the section. Clause (ba) gives the meaning of the words "total turnover". It says that the 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. The proviso thereto says that in relation to any assessment year commencing on or after the 1st day of April, 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.

11. We are presently concerned with the question whether the processing charges received by the assessee for processing raw cashew nuts belonging to third persons will come under the definition of "total turnover". As we have already noted, the definition of "total turnover" only says that freight or insurance attributable to the transport of goods or merchandise beyond the customs station as defined in the Customs Act, 1962, is not includible. In other words, the meaning given in Clause (ba) of the Explanation is not an exhaustive definition of the word "total turnover". Therefore it is necessary for us to find out the scope and content of the words "total turnover".

12. The word "turnover" is not defined in the. One of the meanings given to the word "turnover" in the Shorter Oxford English Dictionary on historical principles revised by C. T. Onions, third edition, is "the total amount of business done in a given time ; also the amount of goods produced and disposed of by a manufacturer; also, the turning over of the capital involved in a business ; also, the net profit derived from a business in a given time Adj; that turns or is turned over".

13. Senior counsel took us to the meaning of the word "turnover" occurring in P. Ramanatha Aiyars the Law Lexicon at page 1300--edn., which reads thus : "Turnover" is the amount of money turned over or drawn in a business, as in a retail shop, in a given time. He also took us to the meaning of the word "turned out" (in commerce) equipage; amount of goods turned out. However, we notice that in P. Ramanatha Aiyars the Law Lexicon Law Dictionary, 1997 edn., the meaning of the word "turnover" with reference to the decisions of the court rendered in the context of the General Sales Tax Act is given as follows : "Turnover" of the dealer includes the entire sum paid by the purchaser as consideration for the sale of goods though part of it might be styled price and another part as sales tax in the bill or invoice issued to the purchaser.

14. Going by the above definition of the word "turnover" one thing is clear that the consideration received must be for the sale of goods and it must be available with the assessee for being turned over, or in other words it must come to the assessees till as the money belonging to him. It has got relation to the capital employed in the business; turnover has also got relationship with profits of the business.

15. The assessee admittedly is a registered dealer under the K. G. S. T. Act. The word "turnover" defined in Section 2(xxvii) means the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration. Explanation l(A)(i) says that the turnover in respect of works contract shall be the aggregate amount received or receivable by the dealer for the transfer of goods (whether as goods or in some other form) involved in the execution of such contract. Explanation 2 says that subject to such conditions and restrictions, if any, as may be prescribed in this behalf, the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before, the delivery thereof.

16. The definition of "sale" contained in Section 2(xxi) also is relevant. It means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration. Processing charges received from third parties do not form part of the "turnover" even under the provisions of the K. G. S. T. Act for the said Act is attracted only in a case where there is sale of goods. .

17. As we have already noted the relief under Section 80HHC(1) is available only to persons who are engaged in the business of export out of India of any goods or merchandise belonging to them and with reference to the profits derived by the assessee from the export of such goods or merchandise. Subsection (3) also makes the position clear that for the purposes of sub-section (1) the goods which are exported out of India must be of goods or merchandise manufactured or processed by the assessee.

18. The meaning given to the words "total turnover" in Clause (ba) of the Explanation to Sub-section (4A) itself refers to the goods or merchandise and the meaning centres around the goods dealt with by the assessee. It is in that context it is stated that the total turnover shall not include freight or insurance attributable to the transport of the goods or merchandise. This is also on the assumption that but for this definition of total turnover the expression will include not only the purchase price or sale price of the goods which are the subject matter of the business but will take in charges incurred in connection with the transport of the goods or merchandise including freight, insurance/ etc. On a consideration of the provisions of Section 80HHC we are of the view that in order that an amount must be included in the total turnover it must either be the purchase price or the sale price or something incidental to the transfer of the goods dealt with by the assessee. In other words, the turnover must relate to the purchase or the sale of the goods made by the assessee.

19. In the present case admittedly the assessee has processed raw cashew nuts belonging to third parties in his factory and had only collected the processing charges. As already noticed, the contention of the Department is that the processing charges received by the assessee must be treated as turnover of the business of the assessee and is liable to be included in the total turnover. We are unable to accept the said contention for the reason that what is includible in the total turnover is only the consideration for the transfer of goods effected by the assessee and the expenses incurred in connection with the said transfer, of course excluding the freight or insurance attributable to the transport of goods or merchandise.

20. In fact a question arose before the Division Bench of this court in I. T. A. No. 98 of 1999 (CIT v. T.C. Usha : [2003]264ITR368(Ker) ) where an assessee, who is engaged in the business of local and export sales of cashew kernels claimed relief under Section 80HHC. While computing the total turnover, the Assessing Officer included therein Rs. 10,045 and Rs. 1,17,483 towards claim for bad quality of raw nuts purchased. According to the assessee, these two amounts, though form part of the income, do not constitute turnover. The Assessing Officer rejected the same and the same was confirmed in appeal by the first appellate authority. The Tribunal, in further appeal, held that these items do not form part of the total turnover.

21. The matter came up before this court by way of appeal. The question raised was as to whether the said two amounts received by the assessee towards quality claim and raw nut claim form part of the total turnover of the assessee and further in view of Explanation (ba) to Section 80HHC and Clauses (iiia), (iiib) and (iiic) of Section 28 will not take into account all other receipts other -than the excluded items of receipts Senior counsel appearing for the Department contended before this court that even though the items constitute income they form part of turnover as well. Senior counsel in support of the said contention relied on the decision of the Supreme Court in George Oakes P. Ltd. v. State of Madras [1962] 13 STC 98 [LQ/SC/1961/374] and contended that turnover is the amount of money turned over in business and viewed in that manner, the total turnover referred to in Section 80HHC should include all receipts including income of every nature. There counsel for the assessee contended that the total turnover and export turnover referred to in Section 80HHC relate to sales and purchases and therefore the total turnover in that context only means sales and purchases. It was also contended that the damages received for bad quality purchases though constitute income do not form part of the total turnover. Considering the said submissions, the Division Bench observed as follows (page 370) :

"We are inclined to accept this view, because the purpose of the formula provided under Section 80HHC is to find out the profit attributable to export turnover, that is the profit on export sales. Moreover, the business income is only reckoned for the purpose of computation of eligible deduction and the business income in the context of total turnover is only the income generated on purchases and sales. Therefore the total turnover in the context of Section 80HHC is only sales turnover and purchase turnover and not the receipts in the nature of income, which is not attributable to sales."

22. The aforesaid decision also is to the effect that in order to bring a particular amount within the definition of "turnover" and for that matter within the meaning of total "turnover" there must be transaction either by way of purchase or by way of sale of goods. This decision, according to us, will also apply to the facts of the case on hand.

23. Counsel for the assessee also took us to the circulars issued by the Central Board of Direct Taxes occurring in [1990] 184 ITR 137, and [1992] 195 ITR 154. Central Board of Direct Taxes Circular No. 564 dated 5th July, 1990 ([1990] 184 ITR 137), is a clarification regarding deduction under Section 80HHC of the Income Tax Act, 1961. With reference to the definition of "total turnover" occurring in the Explanation to Section 80HHC, in paragraph 9 of the said circular, it is stated that in order to arrive at the amount deductible under Section 80HHC in the case of an assessee doing export business as well as some other domestic business, the fraction of "export turnover" to "total turnover", will be applied to his profits computed under the head "Profits and gains of business or profession". Thereafter illustration is given with regard to the operation of Section 80HHC read with Section 28 as amended by the Finance Act, 1990. It categorises four types of transactions. Code I--Exclusively export business, Code II 2/3 export, 1/3 domestic sale. Code III 1/2 export, 1/2 domestic sale and Code IV 1/3 export and 2/3 domestic sale. Counsel submits that the use of the word "sale" occurring in Code Nos. II, III and IV is also indicative of the fact that in order to include an amount in the definition of "total turnover" it must be the sale proceeds of the goods and not any other amount. Circular No. 621 dated 19th December, 1991 (see [1992] 195 ITR 154), gives explanatory notes on the provisions relating to direct taxes with reference to the Finance (No. 2) Act, 1991. Paragraph 32 onwards deal with modification of provisions relating to exemption of income from exports. Paragraph 32.7 says that the tax concession under Section 80HHC is intended to compensate an exporter for the comparative disadvantage faced by him in the international market and that with a view to ensuring that the tax concession is not misused, Sub-section (3) of Section 80HHC of the Income Tax Act has been amended. Paragraph 32.8 further says that under the new formula, the profits from the business of export of any goods or merchandise would be computed where the export is of goods or merchandise manufactured by the taxpayer, or where the export is of goods not manufactured by the taxpayer but purchased from a third party (i.e., trading goods). He also pointed out that the words "direct costs" means costs directly attributable to such goods including their purchase price. According to counsel, these clarifications also indicate that in order to become turnover there must be purchase and sale of goods. Counsel also relied on the decisions of the Bombay High Court in CIT v. K.K. Doshi and Co. : [2000]245ITR849(Bom) and in CIT v. Kantilal Chhotalal : [2000]246ITR439(Bom) and the decision of the Calcutta and Madras High Courts in CIT v. Chloride India Ltd. : [2002]256ITR625(Cal) and in CIT v. Madras Motors Ltd./M. M. Forgings ltd. , respectively.

24. We find that the Bombay High Court in CIT v. K.K. Doshi and Co. : [2000]245ITR849(Bom) was concerned with the question as to whether service charges received by the assessee for offering its services on job work basis to outsiders to polish rough diamonds can be considered as part of the business profits while working out deduction under Section 80HHC. It was held that profits earned by the assessee on account of service charges cannot be said to have a direct nexus with the export activities of the assessee and hence to that extent the assessee was not entitled to claim deduction under Section 80HHC. Another Division Bench of the Bombay High Court in (CIT v. Sudarshan Chemicals Industries Ltd. : [2000]245ITR769(Bom) ) held that excise duty and sales tax are not includible in total turnover for the purpose of computation of special deduction under Section 80HHC. It was observed that turnover should be restricted to such receipts which have an element of profit in it and that it is only the actual sale price which is relevant. Again the Bombay High Court in CIT v. Kantilal Chhotalal : [2000]246ITR439(Bom) considered the question whether reassortment charges (commission received by the assessee from local parties in India from their export sale) were includible in business profits in the formula of



Business profits x _Export turnover_

Total turnover



provided under Section 80HHC. The court observed that a reading of Clauses (b) and (ba) of the Explanation to Section 80HHC clearly indicates that the Legislature has brought on par the components of export turnover and total turnover and that both the numerator and the denominator show that they refer to sale proceeds. Any receipt which does not form part of sale proceeds cannot come within the ambit of the above ratio. Referring to the provisions of Clause (ba) to the Explanation which provides that the expression "total turnover" shall have effect so as to exclude Section 28 (iiia), (iiib) and (iiic), this exclusion also shows that the Legislature clearly intended to exclude all receipts which have no nexus with sale proceeds from export activity. It was accordingly held that total turnover cannot include receipts like labour charges, reassortment charges, etc. The Madras High Court in CIT v. Madras Motors Ltd./M. M, Forgings Ltd. held that the sale proceeds of motor cycles, motor cycle spare parts, television sets sold locally cannot be included in the total turnover for computation of relief under Section 80HHC since the section contemplates only the inclusion of the class of goods specified in the said section. In other words, in order to include sale proceeds of goods in the turnover the goods exported and the goods locally sold must be the same and not other goods. The Calcutta High Court in CIT v. Chloride India Ltd. : [2002]256ITR625(Cal) also took the view that octroi, sales tax and excise duty cannot be included in the "turnover" for working out the relief under Section 80HHC for that would artificially inflate the total turnover thereby reducing the benefit to which the assessee is entitled to under Section 80HHC. This court in CIT v. Jose Thomas : [2002]253ITR553(Ker) also had observed that since the assessee had made a margin on the construction of the flats, the sale price of the flats has to be the turnover of the assessee. This also indicates that in order to become turnover it must be the result of sale of goods.

25. On an evaluation of all these we are of the considered view that the processing charges received by the assessee cannot be included in the definition of total turnover in Clause (ba) of the Explanation to Section 80HHC. We are also of the view that the provisions of Clauses (iiia), (iiib) and (iiic) of Section 28 do not alter the position. We accordingly answer these two questions in favour of the assessee and against the Revenue.

26. We dispose of these appeals in the light of our answer to the questions already rendered and it is for the Assessing Officer to modify the assessment orders accordingly.