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2013 (8) TMI 636 - ALLAHABAD HIGH COURTExemption of the amount received as royalty/consultancy charges under Section 80HH and Section 80-I of the Act - Assessee company is engaged in the manufacturing of wide range of products like industrial perfumes, chewing tobacco, synthetic essential oil etc. The assessee has entered into an agreement with Hindustan Lever Ltd. (for short, 'HLL') whereby assessee as the licensor had licensed the formula developed through its research and gave exclusive right to HLL to use the said formula in their products specially in liril soap - It is the claim of the assessee that along with its manufacturing activity, the assessee carried out the research and development activity side by side making use of the entire paraphernalia of the industrial undertaking – Held that:- In the instant case, the consultancy has no nexus with the objects as mentioned in Section 80HH & 80-I of the Act. The case laws relied by the assessee are in the context of old Section of 80E/80I, in which the words were "profit attributable to" as distinct from the word "profit derived from" in the present Section of 80HH and 80-I of the Act. Reliance is placed upon the judgment in the case of Honda SIEL Power Products Ltd. vs. Commissioner of Income-tax [2007 (10) TMI 298 - DELHI HIGH COURT], wherein observation made is "Both sections 80HH and 80-I of the Income-tax Act, 1961, use the expression "profit and gains derived from an industrial undertaking". The Supreme Court has drawn a distinction between the expression "derived from" and "attributable to" in Combay Electric Supply Industrial Co. Ltd., vs. CIT, [1978] 113 ITR 84. Only such business profits that have a direct nexus to the essential business activity of the assessee can qualify for deduction under Section 80HH of the Act. Inasmuch as both Sections 80HH and 80-I use the expression "profits and gains derived from an industrial undertaking", the burden is on the assessee to show that the income earned from an activity, the profits from which are claimed to qualify for deduction, has an immediate and direct nexus to the essential activity of the industrial undertaking." In the instant case, the consultancy charges received from the HLL is a receipt. So, it is subject to tax and cannot be allowed for deduction under Section 80HH & 80-I of the Act. For the purpose of this section, the profit and gains of the new undertaking is not commercial profit but only such profit as are computed in the manner land down under the Act in pursuance of Section 80AB, as if each undertaking was a separate assessee - By considering the totality of the facts and circumstances of the case, the consultancy charges are not exempted under Section 80HH & 80-I of the Act – Decided in favor of Revenue.
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