TMI Blog1984 (7) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... entative submitted that the Commissioner (Appeals) erred in holding that the assessee is entitled to deduction under section 80HH in respect of profits attributable to sale proceeds of scrap and drums and value of stock at close of the accounting year. 8. The assessee is a domestic company in which the public are not substantially interested. Its main activity was manufacture and sale of super-enamelled aluminium, copper wire and DPC wires. The assessee claimed a deduction of Rs. 46,393 under section 80HH, being 20 per cent of Rs. 2,31,963 in the revised return filed. This deduction was claimed as allowable on the profits and gains derived from the industrial undertaking. According to the ITO, it was seen from the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer is, accordingly, directed to take that also into account for the purpose of allowing relief under section 80HH. in passing, however, I may mention that in any event, the Income-tax Officer is certainly not right in excluding the entire sale proceeds from the purview of relief under section 80HH as if it represented net profits. If at all the receipts under this category are to be held as not eligible for the said relief, then the Income-tax Officer should ascertain the net profit relatable to these receipts and not the gross receipts to deny the claim. " Aggrieved, the department is in appeal before us challenging the order passed by the Commissioner (Appeals). 10. The fact remains that the ITO, while admitting that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrap was Rs. 1,581. According to the learned counsel appearing for the assessee, the main activity of the assessee being manufacture and sale of different varieties of metallic wires, it is in the course of the manufacturing activity that scrap metal was obtained. The scrap metal, he stated, is the direct outcome from the materials used in the manufacture of different varieties of metallic wires. Therefore, this amounts, if nothing else, to a by-product of the main product manufactured. Therefore, the scrap metals being directly derived from the industrial undertaking which was earned on by the assessee, profit derived from the sale therefrom would qualify for relief under section 80HH. Adverting to the drums, it was stated they were purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd.'s case. In Cochin Refineries Ltd.'s case, the Kerala High Court held as under : " ...the words 'derived from' in section 80J of the Act cannot have a wide import so as to include any income which can in some manner be attributed to the business. The derivation of the income must be directly connected with the business in the sense that the income is generated by the business. It would not be sufficient if it is generated by the exploitation of a business asset.... " According to the facts occurring in Cochin Refineries Ltd.'s case, the assessee-company had borrowed for the purpose of purchase of machinery and erection of refinery plant, heavy funds fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as profit attributable to the business of generation and distribution of electricity. 15. The learned departmental representative contended that sections 41(1) and 41(2) are applicable to the facts of this case in respect of sale proceeds of scrap and drums because original purchase price of metal was allowed as deduction. Sub-section (1) of section 41 consists of two parts. The first part of sub-section (1) contemplates recoupment of loss, expenditure or trading liability in some year for which allowance or deduction had been made in a bygone assessment year. The second part of sub-section contemplates deriving a benefit in respect of such trading liability by way of remission or cessation thereof in some subsequent year. Thus, section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, section 41(2) has no application to the facts of this case as far as scrap is concerned. The section may be attracted insofar as the sale price of drums is concerned. 17. Another decision brought to our notice by the revenue was that reported in the case of New India Fisheries Ltd. v. P.M. Mehra, ITO [1971] 82 ITR 765 (Bom.). In that case, the Bombay High Court, while dealing with deduction under section 80J(1), held that profits and gains from a business activity like catching fish in deep sea with the aid of ships (trawlers) and selling the same cannot be regarded as profits and gains derived from ships to which the deduction allowed in sub-section (1) of section 80J will be applicable. In that case, the profits and gains were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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