TMI Blog2003 (3) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... of the disallowance under section 37(2A)." After hearing both the sides and going through the record, we direct the Assessing Officer to consider the disallowance under section 37(2A) after allowing 2096 on account of employees participation as being done in similar type of other cases and allow necessary relief to the assessee. 4. Ground Nos. 3 and 4 read as under: "3. The learned CIT(A) erred in not allowing 80-I relief in respect of income earned from erection, installation and after sales service activity of the company, which activity is very much part and parcel of industrial undertaking. This activity is inseparable from industrial undertaking. He ought to have followed the ratio of following court cases: (a) Cambay Electric Supply Co. v. CIT (113 ITR 84) (b) Buckau Wolf v. CIT (l50 ITR 180 (Bom.)); 4. The learned CIT(A) also erred in not allowing 80-I relief in respect of interest earned, which is part of business income. In fact the CIT(A) erred in treating the interest income as income earned from investments. However, the interest earned is mostly for the interest charged to the customer, for late payments of the bills, as per agreement with them. He ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is the activity stated to be very much part and parcel of industrial undertaking, is inseparable and assessee is entitled to relief. Similarly, interest earned which is mostly for the interest charged to customers for late payment of bills is a part of business income, for the purpose of section 80-I which has not been allowed by the Assessing Officer. Therefore, while following decision of the Calcutta High Court in CIT v. Flender Macheill Gears Ltd. [1984] 150 ITR 83 it was pleaded for allowing the relief. Similarly, it was pleaded that the interest is also derived from industrial undertaking and hence eligible for deduction under section 80-I. 7. The learned D.R. while relying on the basis and reasoning as given by the authorities below pleaded for confirmation of the impugned order. It was also submitted that the assessee is manufacturing and selling generating sets and at the option of purchaser, the assessee also provides erection, installation and after sales service to such customers who intend to get such services. Since assessee's counsel has himself admitted that even sale of generating set can be affected without providing of the these services, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. 9. After taking into consideration the judgments as noted above, Assessing Officer noted that assessee claimed deduction under section 80-I and included in its claim for arriving at the amount of deduction, the charges for erection, commissioning and after sales service besides interest income. Since the claim included erection, commissioning and after sales service charges and income from interest, therefore, in view of the ratio of decisions as noted by the Assessing Officer, claim to the extent of Rs. 19,12,855 was disallowed by the Assessing Officer and CIT(A) confirmed his action. 10. In order to judge the claim of the assessee, it would relevant to discuss the issue in detail. Earlier deduction in this regard was being allowed under section 80E and the distinguishing feature of the earlier section 80E and the existing one is that earlier the expression 'profit attributable to priority industry' was on the statute book while in the existing provision Legislature has used expression 'any profits' and gains derived from industrial undertaking. The controversy had since been going on before the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd parameters as laid down by their Lordships in various cases, Hon'ble Madras High Court in the case of CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 where issue before it was relating to claim of the assessee for deduction under section 80HH and the expression used is similar, concluded that assessee who had deposited the amount with State Electricity Board and earned interest such interest income cannot be said to have derived from industrial undertaking as immediate source of interest is the deposit and not business. Their Lordships of Hon'ble Madras High Court have further opined that mere fact that interest amount was assessable as business income itself would not be sufficient unless the source of profit is the undertaking. Therefore, it was held that the assessee is not eligible to claim deduction and there were no compelling reasons to give wider meaning to the expression 'derived from' under section 80HH to cover every aspect. Further, it will be pertinent to mention that S.L.P. filed by the assessee has since been rejected, as the intention of the Legislature was that industrial undertaking must be the source of the profits or gains (Pandian Chemicals Ltd. v. CIT [SLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking. Therefore, following earlier decision of the Pune Bench in the case of Vardhini Udyogin IT Appeal No. 411 PN of 1995 dated 21-8-2001 and dated 30-8-2001, whereby this Bench preferred not to place reliance on the earlier decision in the case of Dy. CIT v. Jagdish Electronics P. Ltd. [1998] 66 ITD 542 (Pune) and Finolex Pipes Ltd. v. Dy. CIT [2000] 68 TTJ (Pune) 422, for the reasons given in those orders, we uphold the action of the authorities below and hold that net profit out of receipts on erection, commissioning and after sales service and interest income on bank deposits and on IDBI deposits are not eligible for deduction under section 80-I as claimed by the assessee. Therefore, these grounds of appeal of the assessee are dismissed. So far as the Bombay High Court decision is concerned, the same is relatable to words 'attributable to' as existing in the earlier provision and not 'derived from'. Therefore, the same cannot be of any help to the assessee. 16. As regards ground Nos. 5(a) and 5(b) are concerned, it is contended by the learned counsel for the assessee that the issue is covered in favour of the assessee by the decision of the Supreme Court reported in 236 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kar Electro Dyne Ltd. v. Dy. CIT in IT Appeal No. 170 (PN) of 1992 for assessment year 1990-91 on the plea that on the same issue in the case of Kripa Chemicals P. Ltd., the difference of opinion is there and the matter has already been referred to Third Member because I preferred to follow the decision in the case of Vardhini Udyog in preference to decision of Pune Bench in the cases of Jagdish Electronics P. Ltd. and Finolex Pipes P. Ltd., and in the fitness of the things, it has been suggested that the issue involved in this case should be decided after the receipt of the decision of the Third Member in the case of Kripa Chemicals P. Ltd. 2. In this regard I have to state that in the case of Kripa Chemicals P. Ltd., reservation to follow the decision in the case of Vardhini Udyog was shown by you as under: "Apropos to your note, I have to state that in this case, the Cross Objection was decided for the same year by the Bench constituted by me and Brother Singhal on 6-12-2000 and the matter was restored to the file of the Assessing Officer following the decision of this Bench in the case of Jagdish Electronics Ltd. So the matter already stands restored and now an opposite vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Kripa Chemicals P. Ltd., a question of law has already been forwarded to the President in the case of Kripa Chemicals P. Ltd. Accordingly, discussed, no useful purpose will be served in forwarding a similar question to the Hon'ble President and we must wait for the decision of the Third Member in the case of Kripa Chemicals P. Ltd. Accordingly, this file may be released. Kirloskar Electrodyne Ltd., Pune B.L. Chhibber, A.M.--Regretting my inability to agree with the conclusions of my learned brother Judicial Member on ground Nos. 3 4, I proceed to write a dissenting order. 2. The assessee company is engaged in the business of manufacturing gen-sets for industrial use. The normal features of a business engaged in manufacture and sale of capital goods is to ensure proper installation, commissioning and running of the equipment during the warranty period. The contract of sale invariably contains the clause regarding installation and commissioning. Though it is theoretically possible that A may manufacture and sell the equipment and B may do the installation and commissioning; but it is noted that in the assessee company's case there is not a single instance in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately linked to the assessee's priority industry: 7. It is true that the expression occurring in that case was 'attributable to' but it cannot be denied that if there is a direct nexus and intimate linking the activity would be covered by the expression 'derived from' also. It is also noted that the erection charges have been assessed also as part of the business profits only. What is required by the expression 'derived from' is that the undertaking itself must be the source of the profit and not some independent activity somehow connected with the undertaking. The decision in CIT v. Wheels India Ltd. [1983] 141 ITR 745 (Mad.) also supports this view. Accordingly, 1 hold that the assessee will be entitled to relief under section 80-I of the Income-tax Act in respect of the income earned from erection, installation and after sales service activity of the company which activity is very mch part and parcel of the industrial undertaking. Ground No.3 is accordingly allowed. 8. As regards ground No. 4, the claim of the assessee is a limited one. It was submitted by Shri Inamdar that as regards the interest charged to customers for late payment of sale price, it is nothing but extra s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A similar view has been taken again by the Pune Bench in the case of Finolex Pipes Ltd., to which one of us (A.M.) was a party. Accordingly, I restore this issue to the file of the Assessing Officer with the direction that he should verify the nature of fixed deposits, i.e. as to whether the deposits were kept with the bank as margin money to avail of credit facilities or for opening of letter of credit and then re-adjudicate upon the issue in the light of decisions of the Pune Bench in the cases of Jagdish Electronics P. Ltd. and Finolex Pipes Ltd. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 U.B.S. Bedi, Judicial Member.--As there is a difference of opinion between the Members on the Bench, following points of difference are being referred to Hon'ble President for hearing on such points or for nominating the Third Member or to pass such orders as the Hon'ble President may deem fit and proper: "(1) Whether net profit out of receipts on erection, commissioning and after sales service and interest income on bank deposits as well as IDBI deposits is eligible for deduction under section 80-I or not; (2) Whether the decision of first dictating Member on the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , following question was referred to a Third Member: "Whether in view of the facts and circumstances of the case, the order of the CIT(A) with respect to non-allowability of deduction under section 80-I with respect to items indicated by him can be confirmed as held by the JM or the issue is liable to be set aside to be dedicated afresh by the Assessing Officer as per directions issued by the AM?" 2. The learned Vice-President, Shri M.K. Chaturvedi, sitting as Third Member by his opinion dated 7-3-2003 has concurred partly with the view of A.M. and partly with J.M. In accordance with the majority view, we hold that the assessee is not entitled to deduction under section 80-I of the Act in respect of (i) service charges for erection and commissioning of machinery, and (ii) interest received from FOR made with the Bank, and so far as interest received from customers for delayed payment is concerned, we hold that the assessee is entitled to deduction under section 80-I on this item and other part of the order remains unchanged. 3. As a result, appeal of the assessee gets partly accepted. THIRD MEMBER ORDER M.K. Chaturvedi, Vice-President.--This appeal came before me as a Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to enable the benefit of section 80-I of the Act, the assessee must derive income from manufacturing or production of any article or thing, not being any article or thing specified in the list in the Eleventh Schedule to the 1961 Act. 6. The pertinent question is what is the implication of the word "derived". The dictionaries state that the word "derive" is usually followed by the word "from", and it means; get or trace from a source; arise from, originate in; so the origin or formation of. As a matter of plain English, when it is said that one word is derived from another, often in another language, what is meant is that the source of that word is another word, often in another language. As an illustration, the word "democracy" is derived from the Greek word "demos", the people, and most dictionaries will so state. That is the ordinary meaning of the words "derived from" and there is no reason to depart from that ordinary meaning here. 7. In the case of Fryerv. Morland, 45 LJ Ch. 820, Justice Jessel, MR said: "how can you say that the interest of the purchaser is 'derived from' the vendor. He does not derive his interest from the vendor; he derives it from his own mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials, by giving these materials new forms, qualities, properties or combinations, whether by hand, labour or machinery. 10. The other word is "produce". The word "produce" has not got any exact legal meaning but which requires to have an interpretation placed upon it in the statute in which it is used. 11. Under section 80-I of the Act, the word "produce" is used in the context of article or thing. The word "produce" when used in justa position with the word "manufacture", it connotes in bringing into existence new goods by a process which mayor may not amount to manufacture. 12. Many precedents cited pro et con (for and against) to explain the word "derive" in the context of the facts of the present case. I now proceed to deal with the precedents. 13. In the case of Orissa State Warehousing Corpn. v. CIT [1999] 237 ITR 589, the Hon'ble Supreme Court was concerned with the interpretation of section 10(29) of the Act. The pre-requisite for the entitlement apropos the claim for exemption was the income derived from letting out of godowns etc. The Apex Court held that the Legislature was careful enough to introduce in the section itself, a clarification by using the words "any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Central Government under an Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. It sold the import entitlements that it had earned to others. Its total income included the sale proceeds from such import entitlements. Relief under section 80HH of the Act was claimed on such sale proceeds. The Apex Court held that the source of import entitlements could only be said to be the export Promotion Scheme whereunder the export entitlements became available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In this case the Apex Court found that the nexus was not direct but only incidental. As such, the exemption was denied. 16. In the case of Hindustan Lever Ltd. v. CIT [1999] 239 ITR 297, the Apex Court has held that the word "derived" is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In this case the assessee exported groundnut oil which resulted in loss. However, for the exports made at a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should anything be added nor should something be subtracted therefrom unless there are adequate grounds to justify the inference that the Legislature clearly so intended. It is also well-settled that in a taxing statute one has to look merely at what is clearly stated. The meaning and extent of the statute must be collected from the plain and unambiguous expression used therein, rather than from any notions, which may be entertained by the Court as to what is just or expedient. 18. I find that there is no ambiguity in the provision. It would, therefore, not be apt to follow the purposive theory of interpretation. The word "derived" cannot be construed on the pattern of the word "attributable". There is ample authority on the proposition that the word "derived" is narrower in application comparing with the word "attributable". Keeping all those norms as are set out in the precedents cited above, I now decide the issues on the factual matrix of the case. 19. In the context of service charges for erection and commissioning, the learned counsel for the assessee placed reliance on the decision rendered in the case of Buck au Wolf New India Engg. Works Ltd. In this case the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent decision of Hon'ble Madras High Court in the case of CIT v. Madras Motor Ltd. [2002] 257 ITR 60. In this case the Hon'ble High Court has held that interest received on belated payments for goods exported are directly relatable to the business of the assessee. Same logic applies over here. No contrary decision was brought to my knowledge. I, therefore, respectfully following the precedent, decide this issue in favour of the assessee. I agree with the conclusion of the learned Accountant Member on this count. 24. Lastly, the allowability of interest from FDR was argued. In the case of Pandian Chemicals Ltd it was held that interest was not profit derived from industrial undertaking. As such, it should not be taken into account in computing special deduction. This decision was rendered in the context of interest on deposits which Electricity Board made out of statutory compulsion. 25. In the case of CIT v. Menon Impex P Ltd. [2003] 259 ITR 403 (Mad.) it was held that interest received on deposits is not derived from exports. In this case the deposit was made in bank for opening Letters of Credit. 26. In the case of South India Shipping Corpn. Ltd. v. CIT [1999] 240 ITR 242 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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