TMI Blog1991 (8) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 80HH amounting to Rs. 9,90,095. This consisted of Rs. 3,90,615 in respect of Yamuna Nagar branch and Rs. 5,99,480 in respect ofJammubranch. On the basis of the Supreme Court decisions in the cases of Anglo-French Textile Co. Ltd. v. CIT [1954] 25 ITR 27 and CIT v. Ahmedbhai Umarbhai Co. [1950] 18 ITR 472, it was hold that the assessee derived income form manufacturing of forest trees into sleepers and from sale thereof. According to the learned CIT the deduction under section 80HH was not admissible to the assessee in respect of the trading activities involving the sale of the sleepers. He accordingly held that 1/3rd of the profit in each of the branches was attributable to the trading activities on which deduction under section 80HH was not admissible. (b) It was noticed by the learned CIT that the head office profit and loss account had shown debit balance of Rs. 12.52 lakhs on account of interest. He was of the opinion that the amounts raised by the head office had been passed on to the branches and that the interest in fact relating to the branches had been debited to the head office profit and loss account. The turnover inJammubranch was of the order of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal on the question whether there was merger or not of the order of the IAC (Assessment) with the order of the CIT (Appeals) in view of the retrospective amendment of section 263. As this ground relating to merger has not been pressed before us, it shall be treated as dismissed. 4. Shri Sapra further pointed out that as regards the aforesaid sum of Rs. 5,90,868 the learned CIT had restored the matter to the Assessing Officer for a fresh decision. In this regard it was pointed out that the Deputy Commissioner of Income-tax, Assessment Range, Dehradun, had vide his order dated 2-11-1988 reconsidered the matter after making fresh enquiries and come to the conclusion that no disallowance was called for on account of interest on delayed payments of royalty and Sales-tax since no element of the same involved penalty for infraction of Sales-tax or forest laws. In view of the decision by the Assessing Officer in regard to this item Shri Sapra submitted that the assessee no longer had any grievance against the direction of the learned CIT and that the ground raised in that regard may be treated as withdrawn. For the reasons mentioned by the learned counsel, this ground is treated as wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n indeed demanded an enquiry into the genealogy of the product. It was emphasised by the learned counsel that the enquiry should stop as soon as the effective source was discovered. According to the learned counsel the moment it was discovered that the profits of the branches were derived from the industrial undertakings further enquiry was not permitted and the matter should have rested at that as the source had been identified. It was also submitted that if profits attributable to manufacture of the products only were to qualify for deduction under section 80HH of the Act and not referable to the sale of the products then the purpose of giving relief to the assessees would be substantially defeated as these industrial undertakings would not be in a position to sell their products at the place of manufacture or in the backward region itself. Conversely, it was submitted that if an assessee did not manufacture or produce an article or thing himself, but sold it in the backward area, such an assessee would not be entitled to relief under section 80HH. It was elaborated that so far as the profits of the Jammu branch were concerned there was no difficulty even if one went by the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of industrial undertaking had been done and no action had been taken under section 263 for that year. 11. As regards the second issue, our attention was drawn to the details filed by the assessee before the learned CIT in which it was pointed out by the assessee that in the year relevant to assessment year 1982-83 excess payments had been received from the Jammu branch to the head office to the tune of Rs. 24.52 lakhs. According to the learned counsel excess payments received for assessment year 1983-84 amounted to Rs. 60.65 lakhs. Similarly for assessment year 1984-85 excess payments received fromJammubranch amounted to Rs. 43.74 lakhs and for assessment year 1985-86 excess payments received amounted to Rs. 72,09,690. It was emphasized by the learned counsel that these payments did not include the profits received by the head office from the branch office. Referring to the copy of account of Jammu office for the period from 1-4-1984 to 31-3-1985 (a copy of which was placed on the record at our request) the learned counsel pointed out that even during the course of the year at no point was there an excess payment from the head office to the branch office. It was, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such an industrial undertaking. There is no manner of doubt that the assessee was running two industrial undertakings atJammuand Yamuna Nagar. The assessee was manufacturing sleepers out of the forest trees. The income was derived from these industrial undertakings. It could not be said that the profit was derived partly from manufacturing activities and partly from trading activities. According to us the activity of getting a forest on lease, of felling the trees, of manufacturing the sleepers, of transporting them to the branches and of selling them was one integrated activity which could not be bifurcated or partitioned. Once the source was identified, namely, that the income had been derived from the industrial undertaking, no further enquiries could be made by the Revenue authorities. Shri Sapra's reliance on the decision of Karnataka High Court in Sterling Foods case is well-founded. It is significant to note that where the legislature itself wanted bifurcation it had made provision for the same in the relevant section. Section 80HHC of the Act is a case in point. That section makes a clear distinction between the export sales and other sales because such a distinction was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account of the head office to the two branches and deducting interest of Rs. 4,37,372 and Rs. 8,13,122 from Yamuna Nagar branch and Jammu branch respectively, since the learned counsel for the assessee has not seriously disputed the deduction of Rs. 4,37,372 from the profits of Yamuna Nagar branch we must confirm the action of the learned CIT in that regard. As regards the deduction of interest of Rs. 8,13,122 from the profits of theJammubranch, the facts narrated by the learned counsel for the assessee clearly show that there was no justification for such a deduction. In fact over a period of time as per details submitted by the learned counsel excess payments have been made by the branch office to the head office and not vice versa. Even if the head office had raised loans from the banks and other financial institutions, there is no evidence to suggest that such loans had been passed on to theJammubranch by the head office. We have carefully gone through the detailed copy of account of theJammuoffice in the books of the head office and find that excess payments have been made by the branch office to the head office and not the other way around. Even during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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