TMI Blog2004 (6) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of interest income. 4. By the impugned order, the CIT (Appeals) observed that the assessee company has a franchise for manufacturing Dabur products with M/s. Dabur India Ltd. For manufacturing of these products the machineries are financed by M/s. Dabur Finance Ltd. whereas the interest income is earned from M/s. Dabur India Ltd., Dabur Finance Ltd. and M/s. Cherry Leasing Financing Co. Ltd. with whom the assessee made agreement for providing financial assistance to it and such arrangements with the company are backed by stipulation of making security deposits in the course of business. It was further observed that assessee was obliged to keep deposit and earn interest thereon with these companies in the course of its business and was having direct nexus to its business. In respect of miscellaneous income, the CIT (Appeals) observed that the miscellaneous income arising out of sale of empty drums/containers, sale of useless materials which is the outcome of the manufacturing process of the assessee-company. Therefore, the same is also an integral part of the business of the industrial undertaking of the assessee. After relying on various judgments of the Tribunal, the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d proximate connection with the business of industrial undertaking so as to entitle the assessee for deduction under section 80-IA and that there was no positive income on account of interest after setting of the interest paid by the assessee company. 7. We have considered the rival contentions, carefully gone through the orders of the authorities below and thoughtfully deliberated upon the case laws cited by the ld. Representatives of the Revenue and assessee in the context of factual metrix of the case. 8. The crux of the issue revolves around the determination of the nature of income which qualifies for deduction under section 80-IA. The provisions of section 80-IA as contained in the statute book for the relevant assessment year under consideration reads as follows: Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases.-Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or the business of a hotel.... 9. It is crystal clear from the reading of the above provisions that only the income derived from business of indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;Income derived from business of Industrial Undertaking'. Thus Legislature certainly wants to give benefit of deduction not only to the income derived from industrial undertaking but to all sort of income which is derived from business of industrial undertaking. Meaning thereby all sort of income which is inextricably related to the carrying on the business of industrial undertaking is to consider for computing deductions under section 80-IA. Thus an act which is required to be undertaken essentially for carrying on the business of Industrial Undertaking and if any income is generated out of such act, the same is to be considered for computing the deduction under section 80-IA. 12. From the record we find that for the purpose of business of its industrial undertaking, the assessee had entered into an agreement with M/s. Dabur India Ltd. according to which Dabur is to get its products manufactured by the assessee company under the technical know-how and in the trade name of Dabur. The Dabur India Ltd. was to arrange necessary business and bank guarantee for the assessee company for the manufacture and sale of products on the terms and conditions as provided in the agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for deduction under sections 80HHA and 80-I. It was also observed that for granting such facilities, the banks insist upon the assessee for depositing substantial amount with them. Thus, the Tribunal observed that the assessee did not deposit the surplus fund lying with the bank at its choice, but it was out of business compulsion that the assessee had to deposit the money in the Fixed Deposits and consequently it earned interest thereon. It was also observed that deposit in the course of business of manufacturing or production must not be by way of choice but out of necessity or business compulsion in order to carry on the said business. 14. Similarly, the ITAT, Delhi Bench in the case of Asstt. CIT v. Gallium Equipment (P.) Ltd. [2001] 79 ITD 41 (TM) observed that where is a direct nexus between the interest income and industrial undertaking of the assessee, the interest earned on F.D.R. were totally interwoven with the carrying of the business, therefore, interest is to be treated as derived from the said industrial undertaking and the assessee is entitled to benefit of section 80-I on interest income. 15. Applying the proposition laid down in the above judgments and kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if the profits of business include certain receipts which have corresponding costs, or if the profits include certain credits and the business has also debits of the same nature, if these are not netted out against each other, the profit of business will present a distorted picture and may lead to injustice while implementing an incentive provision. In the instant case, the said interest earning has merely gone to reduce the net interest burden of the assessee company. Thus, in effect, there is no income on account of interest included in the profits of the business of industrial undertaking, so no reduction whatsoever is called for while computing deduction under section 80-IA. While computing profit of the business of industrial undertaking under section 80-IA, revenue receipts can be adjusted against revenue expenditure of the like nature. Revenue receipt in the form of interest went to reduce the revenue expenditure of interest, because funds were borrowed for the purpose of business of industrial undertaking and funds were kept in deposit for the purpose of business of the assessee's industrial undertaking. Thus, interest income or expenditure is inextricably linked and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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