Turnover for Income Tax Purposes

This query is : Resolved 

25 May 2008

What constitutes turnover U/Sec.44AB of Income Tax Act relating to Trading in Shares, are there any circulars by CBDT?

S.Srinivasaraghavan (Expert)
26 May 2008

The terms used in section 44AB are sales turnover and gross receipts and have not been defined in the IT Act. They are terms to be construed in a commercial sense and in accordance with normal principles of accountancy. Accordingly, turnover and gross receipts means gross inflow of cash receivable and other consideration arising from the activity of sale of goods or from rendering of service to the buyer or client.

In this regard a reference may be made to the following case law:

Growmore Exports Ltd. vs. ACIT 78 ITD 95 (Mum.)

In this case it was held that turnover in commercial terms would mean account of money turned over or drawn in business in given time. It was further held that where assessee without any liquid funds or working capital has purchased and sold units of Rs. 7 crore without taking delivery, the transaction was speculative; i.e., no actual purchase as contemplated under the Sale of Goods Act takes place and the assessee had to treat only the differences paid or received as turnover.

Late CA Sampat Jain (Expert)
26 May 2008

The word “turnover”, when it is not specifically defined in the Act, would actually assume the meaning 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 asses­see’s till as the money belonging to him.

The definition ‘export turnover’ read along with ‘total turnover’ would show that they include anything which has nexus with the sale proceeds - CIT v. Wheels India Ltd. [2005] 275 ITR 319/146 Taxman 442 (Mad.).
The word ‘sale’ is not defined in the Act; therefore, it must be given its ordinary grammatical meaning. According to the Oxford Dictionary, ‘sale’ means an act of selling or making over to another for a price. It has also been defined as an exchange of a thing for a price. The ordinary concept of ‘sale’ of a movable property is that something is handed over for price as a result of negotiation and agreement. In a ‘sale’ there is an agreement between the parties where one person known as the seller hands over a thing or property to the other person known as the buyer for a consideration usually in terms of money which has been agreed to between the parties. That is the ordinary English concept of ‘sale’ - Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 137 Taxman 112/267 ITR 488 (Bom.).

R.V.RAO (Expert)
26 May 2008

for a business income which is chargeable under the head profits and gains of business or profession an audit will be required under Section 44AB of the Income-Tax Act, 1961 if the turnover exceeds Rs 40 lakh. Turnover for this purpose should be taken as the sale value of the transactions.

A similar view has been expressed by the publication of the Institute of Chartered Accountants of India in its second revised edition of the book Issues on Tax Audit.

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