TMI Blog2005 (1) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus with the running of industrial undertaking. The component of interest comes into operation when there is a breach of terms of payment. If there is no breach there is no interest meaning thereby that component of interest cannot be said to be loaded into the cost of product manufactured by the assessee's industrial undertaking. Such a payment cannot according to us take the colour of having been directly derived from the business of running of industrial undertaking. It may be as a necessary consequence running of business by the assessee or may be attributable to the business of assessee but cannot be said to be 'derived directly' from running of industrial undertaking by the assessee which is according to us the requirement of law. We, therefore, hold that the interest received by the assessee from its trade creditors on account of delayed payment has no direct nexus with the running of industrial undertaking by the assessee and is thus not eligible for the benefit of section 80-I of the Income-tax Act. Admittedly in the present case, the source of payment of interest is not industrial undertaking, but the delayed payment for the goods received and, therefore, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be considered as income in the first instance. Certainly, it cannot be considered as income derived from the industrial undertaking. The immediate source of the income is the transport subsidy scheme and not the industrial undertaking. The judgment of the Supreme Court in the case of CIT v. Sterling Foods [ 1999 (4) TMI 1 - SUPREME COURT] and Hindustan Lever Ltd. v. CIT [ 1997 (9) TMI 7 - SUPREME COURT] clearly show that these transport subsidy cannot be stated to be derived from the industrial undertaking since the immediate source thereof is the transport scheme. A similar view has also been taken by the Delhi Bench of the Tribunal in the case of National Thermal Power Corpn. Ltd. v. Addl CIT[ 2004 (5) TMI 244 - ITAT DELHI-B] . In the light of the judgments of the Supreme Court cited above, I am unable to give effect to the decision of the Chandigarh Bench of the Tribunal in ITO v. Kiran Enterprises [ 2004 (7) TMI 294 - ITAT CHANDIGARH-B] . In the result, I hold that the interest received by the assessee from buyers on delayed payment is eligible for the deduction u/s 80-IA, but the transport subsidy received by the assessee is not eligible for the deduction. I answer the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was contended by the assessee that the assessee did not earn interest on any investment made with any concern or financial institutions by placing the funds. According to the assessee the interest was earned as the customer delayed in making the payment in time, which has led to the charging of the interest. The interest, according to the assessee was received from the trade debtors. The assessee contended before the CIT(A) that as it is the debtors who had delayed the payment which has led to the charging of interest it was earned by the assessee out of the business activity and thus was derived from the industrial undertaking. The assessee contended that such a receipt cannot be said to be attributable to the business activity, but is directly derived by the business activity of the assessee and, therefore, the benefit of section 80-I is available to such payments. According to the assessee, the Assessing Officer had committed the mistake in taking the interest to have been not derived from the business activity of the assessee. The CIT(A), after considering various contentions made by the assessee agreed with the assessee and held that the interest received on late payment fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Phatela Cotgin Industries v. Asstt. CIT [IT Appeal No. 3368 (Delhi) of 1999] wherein this Tribunal has held that the interest on delayed payment is directly linked with the sale and the same is to be treated as sale consideration. 7. The ld. DR in a rejoinder to the arguments raised by the ld. Counsel for the assessee contended that the judgment of the Apex Court in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 was not taken note of by the Single Member Bench and, therefore, the same does not lay correct proposition of law. 8. We have heard the parties and taken ourselves through the record as well as the judgment of the Apex Court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 relied upon by the ld. DR which judgment of the Apex Court, we must observe, has approved the judgment of the Madras High Court in the case of CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497. 9. The short question before us which calls for adjudication and which pertains to first part of Ground No. 1 is as to whether the amount of interest received by the assessee from its trade creditors would be eligible for the extension of benefit available under section 80-I of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of product manufactured by the assessee's industrial undertaking. 13. This payment of interest is independent of cost of product, sold and is made for withholding of the amount which is due to the assessee or for using of assessee's funds for a certain period of time by not making the payment which is due to the assessee. 14. Such a payment cannot according to us take the colour of having been directly derived from the business of running of industrial undertaking. It may be as a necessary consequence running of business by the assessee or may be attributable to the business of assessee but cannot be said to be 'derived directly' from running of industrial undertaking by the assessee which is according to us the requirement of law. 15. We, therefore, hold that the interest received by the assessee from its trade creditors on account of delayed payment has no direct nexus with the running of industrial undertaking by the assessee and is thus not eligible for the benefit of section 80-I of the Income-tax Act. 16. Before we part with on this issue, we must observe that the expression 'derived from' has since now been explained by the Apex Court in the case of Pandian Chemicals Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the Apex Court and the Madras High Court, we feel that the assessee is not entitled to the benefit of section 80-I and, therefore, have no hesitation in rejecting one part of the Ground No. 1 which deals with the case of the assessee with regard to the payment of interest received from its sundry debtors. 18. This brings us to the second part of the case of the assessee that the receipt on account of transport subsidy would constitute the profits derived from an industrial undertaking as mentioned in the provisions of section 80-IA of IT Act and thus entitled to the benefit of the same. The background for the said issue is that the Government of India, Ministry of Industries under a Scheme had granted transport subsidy to the industrial units located in selected remote and inaccessible areas to the extent of 50% of the transport cost for the movement of raw material and finished goods and from certain selected rail heads to the location of industrial units and vice versa. The purposes for which this benefit was extended was basically to promote growth of industries by granting subsidy on the transport of raw material and finished goods to and from certain selected are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas. The promotion benefit given for setting up of an industry within the notified area, cannot be said to be income derived from industrial undertaking. Such a benefit that has accrued on account of setting up industry is notified area may partake the character of an income but it is not an income which would be qualified for the benefits of section 80-IA. 23. Respectfully following the judgment of the Apex Court, we feel that the amount of subsidy received cannot be said to be the income derived from industrial undertaking and, therefore, would not qualify for deduction under section 80-IA. 24. Before we part with, we must say that the Ld. Counsel for the assessee had made a submission that in the case of Sidharth Paper Mills Ltd. the CIT(A) had considered and held that the interest income received from the trade debtors is eligible for the purposes of deduction under section 80HH. According to the Ld. Counsel for the assessee the claim of interest from trade creditors is akin to that of the case of Sidharth Paper Mills claim and is, therefore, allowable. The Ld. Counsel contended that the Revenue having not filed the appeal the same treatment needs to be given to the assessee. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the field as it was announced on 29th April, 1997. These two judgments were not taken into consideration by the Single Bench. That apart, one should have considered the request of the assessee regarding the referring of the issue to a Special Bench had there been conflicting views between the co-coordinating Benches. It is not the case here as the order in the case of Phatela Cotgin Industries is by a Single Bench. In this view of the matter, we have no option, but to reject the contentions raised by the assessee in this regard as well. 26. In the result, the appeal filed by the Revenue is allowed. Per Keshaw Prasad, Accountant Member . - I have gone through the Order of the ld. Judicial Member but do not find myself in agreement with his findings relating to deduction under section 80-IA of the Act on the profit by way of interest received from sundry debtors and the transport subsidy. Hence, I record my dissent as under: 2. Briefly, the facts of the case are that when the assessee claimed deduction under section 80-IA, the Assessing Officer did not allow deduction on the profits by way of interest received from sundry debtors and on the transport subsidy. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Electricity Board, was not the business of that assessee. Though the deposit was essential for carrying on the business of the industrial undertaking but the immediate source of the interest income was the deposit and not the business of the industrial undertaking. But in the case before us, the assessee was supplying goods to various buyers. The buyers were to make payment to the assessee within a stipulated period failing which they were required to pay interest to the assessee of delayed payment. The interest income has, therefore, directly emanated from the supply of goods which were the business of the assessee. Thus, there is a direct nexus between the supply of goods and the earning of the interest. The interest has not been earned on any deposit but directly from the supply of goods. Such interest has been treated by the assessee as sale consideration. As the facts in the assessee's case are different than the facts in the case of Pandian Chemicals Ltd., I hold that the ratios laid down by the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. was distinguishable on facts. 5. Similar issue was considered by the Hon'ble Madras High Court itself in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business carried on by the assessee and, therefore, the same will be allowable for deduction under section 80HH/ 80-I of the Act. The crucial test, therefore, in determining whether the income was derived from industrial undertaking or not was whether income was inextricably linked with the business carried on by the industrial undertaking. Looking to the above facts, I hold that interest was derived from industrial undertaking and, therefore, the assessee was entitled to deduction under section 80-IA of the Act on this income. 7. As regards the amount of transport subsidy received by the assessee from the Government, I find that the Government of India, Ministry of Industries (Department of Natural Development), issued a Press Note (F.No. II/3/81/DBA-II dated20-3-1983) relating to Restructuring Transport Subsidy Scheme applicable to remote and inaccessible areas. Since July, 1971, Government of India in the Ministry of Industry have been administering a Transport Subsidy Scheme under which industrial units located in selected remote and inaccessible areas are eligible to transport subsidy at 50% of the transport cost for the movement of raw materials and finished goods from ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the raw materials that it was required to pay the excise duty thereupon in respect of which the assessee had earned Modvat credits. Therefore, that credit would be directly relatable to the industrial undertaking. Therefore, the amounts received by the assessee under Modvat credit were eligible for deduction under section 80HH. The same logic applies to the income earned by the assessee under the International Price Rationalization Scheme. The amount paid by the Government at the rate of Rs. 6 per kg. of raw materials purchased by the assessee had connection only with the industrial activity of the assessee. If the assessee had not purchased the raw materials for its industrial activity and had not exported the finished forgings, the assessee would not be entitled to the said amount of Rs. 6 per kilo. Therefore, the amount earned by the assessee under the International Price Rationalization Scheme was eligible for deduction under section 80HH." 9. In view of the above decision as well the Scheme of the Government of India, I hold that the transport subsidy received from the Government was inextricably linked with the business carried on by the assessee as it will go to reduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AM's order) that the receipt cannot be considered as income derived from the industrial undertaking. The transport subsidy is given by the Government in recoupment of the transport expenditure incurred by the assessee and at best it can only be said that a part of the expenditure has been reimbursed. It cannot be considered as income in the first instance. Certainly, it cannot be considered as income derived from the industrial undertaking. The immediate source of the income is the transport subsidy scheme and not the industrial undertaking. The judgment of the Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 and Hindustan Lever Ltd. v. CIT [1999] 239 ITR 297 clearly show that these transport subsidy cannot be stated to be derived from the industrial undertaking since the immediate source thereof is the transport scheme. A similar view has also been taken by the Delhi Bench of the Tribunal in the case of National Thermal Power Corpn. Ltd. v. Addl CIT [2003] 91 ITD 101. In the light of the judgments of the Supreme Court cited above, I am unable to give effect to the decision of the Chandigarh Bench of the Tribunal in ITO v. Kiran Enterprises [2005] 92 TTJ ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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