TMI Blog2005 (1) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... and 3 are general in nature the only ground which calls for adjudication by us is Ground No. 1. 3. To adjudicate the controversy revolving around the said ground, necessary facts available on record are that in the years under consideration the assessee is stated to have received some money by way of interest, which has been shown by the assessee as other income. On the said 'other income', the assessee claimed deduction under section 80-I of the IT Act. The said interest is stated to have been received by the assessee from the persons to whom it had made supplies, but who did not make the payment for the supplies of stores within the time agreed to which has led to the charging of the interest. The case of the assessee before the Assessing Officer as well as before the CIT(A) as well as before us was that this is a trading receipt and has a direct nexus with the business activities of the assessee and, therefore, the assessee is entitled to the benefit of section 80-I on these payment of interest. Some how, the arguments raised by the assessee did not find favour and the Assessing Officer refused to extend the benefit of section 80-I to the said payment. Having suffered at the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understood as something which has a direct or an immediate nexus with the assessee's industrial undertaking. Deriving strength from these observations of theApex Court, theId. DRcontended that the interest received from trade creditors which has been received on account of delayed payments cannot be said to be an act directly connected with the functions of the industrial undertaking. TheId. DRcontended that the word 'derived from' should not be confused with the word 'attributable to' the industrial undertaking. The ld. DR further contended that if the interest is attributable to an industrial undertaking, as the case is here, the benefit of section 80-I would not be extended to such a payment. 6. To the arguments raised by the ld. DR, ld. AR contended that the receipt of interest from trade creditor is a trading receipt which has a direct nexus with the business of the assessee. The ld. AR contended that the transaction of a sale of a commodity is completed on the receipt of the payment and it is obviously when the payment is received a contract can be said to be complete. The ld. AR further contended that the issue has been that the interest on delayed payment is a part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged on the delayed payment. The dispute is what is the treatment to be given to the interest payment meaning thereby whether this interest received can be said to be the payment received on account of running of business of industrial undertaking. The obvious answer is no and no is for the reason that to be entitled to the relief under section 80-I which is more or less identical to section 80HH, the source of a particular income on which rebate under that section is sought for must directly emerge from the running of the industrial undertaking and that is what is the ratio of judgment of Delhi High Court in the case of CIT v. Cement Distributors Ltd. [1994] 208 ITR 355. 12. In this case by running the industrial undertaking, the assessee produces goods which are marketed at a certain price tag. If the price is paid within the time by the purchaser, there is no dispute as the price so received is on account of the produce/commodity manufactured by running of industrial undertaking and later on sold. This price has a direct 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every receipt connected with the industrial undertaking. It is not all business receipts that would qualify for the deduction and the Legislature has apparently not intended to give the benefit of deduction to all business income. If the intention of the Legislature was to grant relief to all business income, it could have used the expression, 'Profits and gains of industrial undertaking'. The fact that the Legislature has used the expression 'profits and gains derived from the industrial undertaking' has some significance and it connotes that the immediate and effective source of income eligible for grant of relief under section 80HH must be the industrial undertaking itself, and not any other source. The mandate of law is that unless the source of the profit is the undertaking, the assessee is not eligible to claim deduction under section 80HH. Mere commercial connection between the income and the industrial undertaking would not be sufficient." 17. A perusal of the aforesaid judgment leaves no room to doubt that unless the source of profit is the undertaking the assessee is not eligible for claim of deduction under section 80HH. Admittedly in the present case, the source of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Revenue has a grievance to the said findings of the CIT(A) and they are in appeal before us on this issue also. 21. At the time of hearing of the appeal, ld. DR reiterated the submissions made, which were made while opposing the relief granted to the assessee by the CIT(A) with regard to his claim pertaining to the interest received. To the arguments raised by the ld. DR, the assessee stated that the subsidy received is directly linked to the industrial activity of the assessee and, therefore, is entitled to the benefit of section 80-I. 22. We have heard the parties and taken ourselves through the record and find that the judgment in the case of Pandian Chemicals Ltd. of the Apex Court which has confirmed the decision of the same assessee in CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 (Mad.) applies to this claim of the assessee with full force. Undoubtedly, there is a commercial connection between the income and the industrial undertaking, but we feel that is not sufficient. The source of the income has to be the industrial activity and the industrial activity of the assessee is what is being manufactured by the assessee. It may be a business income, but we say, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a CIT(A) decides an issue it is not the law of the land. Nor has the order of the CIT(A) binding effect on all within his jurisdiction. There may be various reasons for which the Revenue may not file an appeal. But that does not mean if it does not file an appeal in one case, it is precluded from filing the case in other case. The powers of the High Court and those of the CIT(A) operate in different fields as far as binding effects of the orders/judgments are concerned. We, therefore, say that merely because an appeal was not filed in the case of Sidharth Mills, the Revenue is precluded from filing the case for the assessee, is not correct. 25. This brings us to the last limb of the assessee's arguments and which was in the case of Phatela Cotgin Industries wherein this Tribunal has held under the identical circumstances that the interest received on account of delayed payment is directly linked with the sales and the same is to be treated as sales consideration. We must observe that by the time this order was announced the judgment of the Apex Court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 had come into the field as the said judgment was pronounced on 24th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken into consideration the decision of the Apex Court in the case of Pandian Chemicals Ltd. though this judgment was pronounced prior to the Order of the ITAT in the case of Phatela Cotgin Industries. 4. I have, therefore, carefully perused the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. It will not be out of place to mention that the issue before the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. has arisen out of the decision of Hon'ble Madras High Court in the same case. In that case, the assessee has claimed deduction under section 80HH of the Act on the interest earned on the deposits made with Tamilnadu Electricity Board. The Hon'ble Madras High Court in CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 held that immediate source of interest is the deposit itself and the effective source of the genealogy of the source of interest income is the deposit and not the business carried on by the assessee. Under these circumstances, the Hon'ble Madras High Court held that interest income was not derived from the industrial undertaking. The same was approved by the Hon'ble Supreme Court. But in the case before us, the nature of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the assessee of forgings. If the purchasers of the forgings did not make the payments for the forgings and then agree to pay the interest on the delayed payments, the said interest would have been direct nexus with the business of forgings. The true test would be whether such interest would be available to the assessee otherwise also. The answer to the question would be certainly in the negative. The interest being directly relatable only to the amounts receivable by the assessee during the course of its business on account of the sale of forgings, this interest would have to be included as the profits and gains derived from the business of the assessee. We hold that this part of the interest would be entitled to be covered by section 80HH of the Act." 6. TheDelhiBench of the ITAT in the case of Phatela Cotgin Industries also considered similar issue and held that interest on account of delayed payments received on account of sale made by the assessee was directly linked with the sale and the same is to be treated as sale consideration. The deduction under section 80HH was accordingly available to it. In the case of Sutluz Industries [IT Appeal No. 3730 (Delhi) of 1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are no other modifications. It is, therefore, clear from the facts and also these notifications that the transport subsidy has been received by the assessee for location of the industrial unit in remote and inaccessible areas and the subsidy was given as an incentive to the industrial unit. Thus, the subsidy is directly linked with the Industrial Unit as defined under the scheme. Therefore, it is clear that the income in the shape of subsidy received by the assessee was derived from the industrial unit and cannot be treated as 'other income'. The source for the transport subsidy is the industrial undertaking itself. Therefore, the transport subsidy received by the assessee will have to be included in the qualifying amount for the purpose of deduction under section 80-IA. 8. Hon'ble Madras High Court in the case of Madras Motors Ltd./MM Forgings Ltd. was considering as to whether the amount received under International Price Rationalization Scheme should be considered as income derived from industrial undertaking or not. After considering the rival submissions, theHon'ble Courtheld as under:- "(iii) That the amount received by way of Modvat credits could not have been received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R Per Shri R.V. Easwar, Vice President. - The following question has been referred to me under section 255(4) of the Income-tax Act: "Whether in the facts and circumstances of the case and in law, the interest received by the assessee from the buyers on delayed payment and the transport subsidy received from the Government under Restructuring Transport Subsidy Scheme was the income derived from industrial undertaking so as to be eligible for deduction under section 80-IA of the Act?" 2. I have heard the rival submission and considered the facts brought out clearly in the order of the Ld. Members, who differed. So far as the interest received by the assessee on delayed payment is concerned, I hold that this arises directly out of the industrial undertaking and has, therefore, to be held eligible for the deduction under section 80-IA. I rely on the following authorities in support of my decision: 1. CIT v. Flender Macneill Gears Ltd. [1984] 150 ITR 83 (Cal.) 2. CIT v. Madras Motors Ltd./M.M. Forgings Ltd. [2002] 257 ITR 60 (Mad.) 3. CIT v. Govinda Choudhury Sons [1993] 203 ITR 881 (SC). 4. CIT v.VisakhapatnamPort Trust [1983] 144 ITR 146 (AP). 5. Order of the Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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