TMI Blog1979 (8) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be "derived from" the industrial undertaking of processing of prawns and sale under s. 80J(1), the word "derived from" being such narrower in its connotation than the word "attributable." The ITO accordingly held that as the profit on the sale of licences was not 'derived' from the processing and sale of prawns and after eliminating the same as there was only a negative income from the business of processing and sale of prawns, the 80J relief of Rs. 46,848 could not be set off against the income of the year, but will be carried forward to be set off in future years. Before the AAC in appeal against the above finding he contended that the right to receive import licence derived solely from the assessee's business and any profit thereon was also derived from the assessee's business, being intimately connected with the business undertaking. The AAC, however, held that so long as it is not shown that the income is directly the profit derived from the industrial undertaking, the relief is not available. The AAC thus upheld the ITO's disallowance. 3. Before us the ld. counsel for the assessee submitted that the right to import licence is "derived from" the business within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Registered Exporters in favour of the State Trading Corporation, or the Minerals and Metals Trading Corporation, or an eligible Export House. The requests for transfer should be supported by a written consent of the proposed transferee. The counsel submitted that the total premium received on export sales import licences totalling amount to Rs. 17,18,951 was Rs. 5,70,704, being the profit on the sale of export licences. The counsel submitted to illustrate that this amount of Rs. 17,18,951 included tha last item of the import licence amount of Rs. 4,68,180 on which the assessee received a premium of Rs. 1,46,944 (included in Rs. 5,70,704). The relevant period of export for this item was from July to September, 1972,totalling Rs. 41,86,460. The import replenishment due to the assessee at 10 per cent thereon was Rs. 4,18,646, in respect of which the assessee asked for permission to import stainless steel for Rs. 10,466 and regarding the balance of Rs. 4,08,180 the assessee received the premium of Rs. 1,46,944 referred to above. The counsel submitted that thus there was an inextricable and intimate connection between tha assessee's export sales and the import licences received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting capacity and to keep their supporting manufacture supplied with imported raw materials required for export production. The granting of the import licence to an exporter like the assessee is thus inextricably inter linked with the export sales and trading activities of the assessee going hand in hand and being part and parcel of the assessee's business which is a new industrial undertaking. In this context we may refer to the dictionary meaning of the word "derived" which is not defined in the Act. According to The Concise Oxford Dictionary the term "derived" means: "Get, obtain (from a source, or with the source present in thought): have one's or its origin etc", "derive from be descended or have one's origin from". There can be no doubt that the import licences have their origin from the assessee's processing business having regard to the nature of the import licence scheme. 6. At this juncture it would be useful to refer to the decision of the Allahabad High Court in 1978 CTR (All) 415 : (1978) 114 ITR 840 cited supra, in which the issue was the interpretation of s. 28 (iv) of the Act, which reads: "The following income shall be chargeable to income-tax under the head 'Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity." This observation lays emphasis on the profit being derived from the conduct of the business. There can be no doubt that bearing in mind the nature of the import licence scheme, the sale proceeds of the import licences are derived from the assessee s conducting. of the business, namely the industrial undertaking of processing of goods. We say so because the conducting of the business will involve not merely the direct export sale or the processed sea foods, but also the inevitable concomitant of that sale, viz., the assessee's entitlement to the import and the sales thereof which occurred in the course of the business itself. 8. The Deptl. Rep. for the Revenue has referred to the same judicial decisions in support of his stand. We are of the view, after anxious thought, that these cases are distinguishable. In Kunwar Trivikram Narain Singh (1965) 57 ITR 29 (SC) the facts were that the assessee was given the Jagir of Parganas Sayedpore and Bhittery in perpetuity. Following disputes between the assessee and the Zamindars, there was a compromise in 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the managing agents. Therefore it is clear that if the managing agents have to advance loans or have to guarantee loans, the advance of loans cannot be made out of the trust fund nor can any guarantee be discharged from the trust fund because there are no trust funds beyond the sum of Rs. 1 lakh which is kept as a deposit with a company. Therefore the only purpose that the trust fund has played in this managing agency business is that it has served as a deposit for the discharge of the obligations of the managing agents. With regard to the rest, no part of the trust fund has played any part whatsoever in the business which the trustee have carried on as managing agents of the company. There seems to be no connection whatsoever between the commission earned by the managing agents and the keeping in deposit of the sum of Rs. 1 lakh. It is difficult to see how it could possibly be stated on the facts of this case that the sum of Rs. 1 lakh which constitutes the trust fund is invested in the managing agency business." It will thus be seen that in this case the Bombay High Court found that there was no connection whatsoever between the managing agency commission earned by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the plant and machinery used by the appellant are not covered by any item for which no extra shift allowance is applicable and therefore the appellant claims extra depreciation at the rate of 10 per cent in addition to the normal 10 per cent depreciation. In the course of the hearing it was clarified that even though the refrigeration plant and machinery are denied extra shift allowance the rules contained the words "other than racks" and according to the appellant no racks are used in the cold storage after the prawns are processed and therefore the extra shift allowance is admissible. However, on a plain reading of the said provision it looks as if the denial of extra shift allowance is confined to the cold storage equipment and not to racks since the words "other than racks appear in brackets. Therefore, I cannot agree with the appellant that it is entitled to the extra shift allowance" 13. Before us the learned counsel for the assessee referred to Entry III (ii)(B)(13), namely Refrigeration plant containers etc., (other than racks) (NESA) 15 per cent. The extra shift depreciation allowance shall not be allowed in respect of any item of machinery or plant which has been spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976 CTR (Cal) 433 : (1977) 107 ITR 909 (Cal) and the decision of the Madras High Court in Madras Industrial Linings Ltd. 1978 CTR (Mad) 45 : (1977) 110 ITR 256 (Mad) should be followed and that in computing the capital employed the balance-sheet as on the last day of the previous year should be taken into account as against the first day of the previous year. The assessee has filed an additional ground on 5th March, 1979 that the AAC having directed the ITO to follow the decision of the Madras High Court in 1978 CTR (Mad) 45 : (1977) 110 ITR 256 (Mad), erred in directing the ITO to distinguish between the borrowed capital and the other borrowings while computing the capital and the AAC should have held that the capital employed should be on the basis of the total assets of the balance-sheet as on the last day of the previous year without making any deduction of liabilities. Before the ITO the assessee had claimed relief under s. 80J Rs. 43,532 at 6 per cent of the capital employed computing the capital employed at Rs. 7,25,530 being the deference between the assets of Rs. 29,80,514 and liabilities of Rs. 21,82,984 as on1st April, 1972, the first day of the previous year. The ITO m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision, observing, "It is only the capital employed that is entitled to the said relief and not liabilities for other expenses. Therefore the ITO will carefully distinguish between the borrowed capital and other borrowings while working out the relief." 17. Before us the ld. counsel for the assessee submitted that the capital employed during the previous year for the purpose of s. 80-J should be worked out on the basis of the balance-sheet of the company as on the last day of the previous year, namely, 31st March, 1973, as under: W.D.V. of assets as per i. t. records Rs. 7,82,930 Land Rs. 58,532 Investments Rs. 1,000 Current assets Rs. 18,99,130 Loans and advances excluding advance-tax Rs. 9,65,593 . Rs. 37,07,185 6 per cent of Rs. 37,07,185 = Rs. 2,22,431 In support of his submissions the counsel referred to the decision in Century Enka Ltd. (1977) 107 ITR 123 (Cal), Century Enka Ltd. 1976 CTR (Cal) 433 : (1977) 107 ITR 909 (Cal) and in Madras Industrial Linings Ltd. 1978 CTR (Mad) 45 : (1977) 110 ITR 256 (Mad). The counsel submitted that having regard to the above decisions th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowings, is not carrying out the purposes of the Act, is beyond the power of the rule making authority. In the present context the consideration of the applicability of r. 19A insofar as it is repugment to the legal provision of s. 80J does not involve the question of deciding the ultra vires of the rules as such. Here we may profitably refer to the decision of the Bombay High Court in Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom). The facts in this case were that the Tribunal, Bombay, in view of the Madras High Court decision had struck down s. 140(A)(3) as unconstitutional, as it was violative of the provisions of art. 19(1)(f) of the Constitution, set aside the penalty order on the assessee. The Bombay Tribunal, following this decision, cancelled the penalty on the footing that s. 140A(3) was non-existent. On the department's reference about the legality of the cancellation of the penalty, the Bombay High Court held as under: " That s. 140A(3) was already declared ultra vires by a competent High Court in the country and an authority like a Tribunal, acting anywhere in the country, has to respect the law laid down by the High Court though of a different State, so long as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of weighted deduction under s. 35B in the additional ground filed by it on 14th Feb., 1978. The AAC, however, rejected this ground holding that only such part of the expenses which could really be relatable to the export under various heads such as salary, postage, etc., can be allowed as eligible for weighted deduction, but the assessee is unable to furnish the break up of the expenses in this fashion. 22. We have heard the parties. There is force in the department's preliminary plea that the AAC should not have entertained this ground, since such claim, which requires factual investigation, was not at all made before the ITO, but made for the first time before the AAC only. The SC decision in Addl. CIT vs. Gurjargravures Pvt Ltd. 1978 CTR (SC) 1 : (1978) 111 ITR 1 (SC) has held that the appellate authority cannot consider a claim where such a claim was neither made before the ITO, nor was there any material on record supporting such a claim. This decision supports the department's objection. The AAC has also referred to the assessee s liability to furnish the break up of expenses. Having regard to the above we are of the view that the assessee's claim for deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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