TMI Blog2006 (11) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it was mentioned that the learned CIT (Appeals) erred in not appreciating that interest of Rs. 26,92,739 received by the assessee was more than the interest of Rs. 50,19,078 paid by it and, therefore, the net income by way of interest was a negative figure. It is further mentioned that on the facts and in the circumstances of the case, the learned CIT (Appeals) ought to have held that the Assessing Officer was unjustified in deducting interest from the eligible profits of the undertaking for the purpose of computing deduction under section 80-IB of the Act. 2. In the assessment order, the Assessing Officer pointed out that the assessee earned interest income of Rs. 26,92,739 on deposits with bank and other parties. It was further pointed out by him that while this income may be attributable to the business of the assessee, it cannot be said to be the income derived from the business of manufacture of toughened glasses and other manufacturing activities. He relied on a number of cases to distinguish between the terms "derived from" and "attributable to", and came to the conclusion that the aforesaid amount had to be deducted from the income of the assessee from the eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as deposits of fixed term with the bank were out of borrowed funds. Such funds were also used by the industrial undertaking for purchase of materials etc. Therefore, interest received on delayed payment of the sale consideration was also relatable to the borrowings of the assessee. He referred to the findings of the learned CIT (Appeals) in paragraph 14 of the order to the effect that the interest income is the business income of the assessee and it could not be classified as income from other sources. This finding was not challenged by the revenue in appeal. However, in spite of the aforesaid finding, the learned CIT(A) held in paragraph 22 that there was no merit in the argument of the assessee that the interest should have been netted for finding out income by way of interest before making any disallowance from the profits of the eligible undertaking for computing deduction under section 80-IB. 4.2 Coming to the legal arguments, the learned counsel relied on the decision of Hon ble ITAT, Delhi "E" Bench, in the case of BHP Engineers Ltd. v. Dy. CIT [1998] 99 Taxman 43 (Delhi) (Mag.), in ITA No. 3716 (Delhi)/94 for assessment year 1992-93. The facts of that case wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Lalsons Enterprises ( supra ) was also rendered under section 80HHC. 4.3 In view of the aforesaid facts and the case law, the learned counsel argued that since there was no income by way of interest earned by the assessee, nothing could be deducted from the profits of eligible undertaking on this ground for computing deduction under section 80-IB. 5. As against the aforesaid, the learned DR referred to page 4 of the paper book, which shows that the assessee was carrying on manufacturing activities of various kinds in three units and was also carrying on the business of trading of goods including the export of the manufactured goods. Unit No. 2 was eligible for deduction under section 80-IB, from which the assessee carried on the business of manufacturing flat toughened glass articles. It was pointed out by him that the Assessing Officer had to compute the income of the assessee as well as eligible profits of unit No. 2. In this connection, he referred to page No. 13 of the paper book, which is a consolidated profit loss account for the assessee, which shows net profit of about Rs. 3.22 crores. This account also shows payment of financial charges amounting to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me into play only if there is any doubt with regard to the language used in the statute. Where the words are unequivocal, there is no scope for importing the rule of liberal interpretation. 5.2 The learned D.R. also relied on the decision of Hon ble Supreme Court in the case of Orissa State Warehousing Corpn. v. CIT [1999] 237 ITR 589 , in which it was held that the pre-requisite element for not including any income in the total income under section 10( 29 ) of the Act is that the income is derived from letting out of godowns or warehouses for storage, processing or facilitating marketing of commodities and not otherwise. The Hon ble Court pointed out that the words "any income" is used in the restrictive sense by use of the expression "derived from" alongside the earlier words. It was also pointed out that the statute in this regard was rather categorical and restrictive in the matter of grant of exemption by limiting it to storage, processing or facilitating the marketing of commodities. Therefore, if the letting out of the godown or warehouses is for purposes other than the aforesaid purposes, then, the income derived from such other activities will not fall within the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m an industrial undertaking so as to entitle the assessee to claim deduction thereon under section 80-I of the Act. The Hon ble Court pointed out that while the aforesaid income may constitute profits and gains of the business by virtue of section 28 of the Act, but it cannot be construed as profits and gains derived from the industrial undertaking for the reason that the immediate and proximate source of the income is not the industrial undertaking, but the scheme of the Central Government for duty drawback. 5.6 The learned D.R. also relied on the decision of Hon ble ITAT, Ahmedabad Bench (Special Bench) in the case of Nirma Industries Ltd. v. Asstt. CIT [2005] 95 ITD 199 (Mag.). The decision of the Hon ble Tribunal was that interest received on delayed payment of sale proceeds cannot be said to be the income derived from industrial undertaking for claiming deduction under section 80-I. However, in the course of hearing before us, it was pointed out to the learned DR that the aforesaid decision of the Special Bench has been overruled by the Hon ble Gujarat High Court in the case of Nirma Industries Ltd. v. Dy. CIT [2006] 283 ITR 402. The Hon ble Court pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the interest is permissible when there is a direct linkage between receipt and payment of interest. It was also pointed out that both these decisions were rendered under section 80HHC, where certain artificial meaning has been given by way of defining certain terms in the section itself. He also referred to the decision in the case of BHP Engineers Ltd. ( supra ) and pointed out that decision was rendered in 1997 and thereafter a number of decisions to the contrary have been pronounced by courts and Tribunals. 6. In the rejoinder, the learned counsel drew our attention to the decision of Special Bench, Delhi in the case of Lalsons Enterprises ( supra ), in which it was inter alia held that ( i ) the principle of netting is not based merely on accounting principle but it is well-founded in the statute itself in the sense that the Act does not tax the gross receipts but taxes only gross receipts minus the expenditure incurred in relation to the receipts, and ( ii ) the expenditure incurred for earning the interest has to be deducted either under section 57( iii ) or section 37(1) of the Act. 7. We have considered the facts of the case and submissions made by the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the bank. Thus, there was a direct connection between the fixed deposit and the borrowings used for the purpose of business. However, the Hon ble Court pointed out that there was no connection between the priority industry and the fixed deposit and the use of the deposit as security for a borrowing for the purpose of business could not make the income from the deposit as attributable to the priority undertaking. The Hon ble Court pointed out that in order to attract provisions of section 80-I, the income should be in the nature of profits or gains arising out of the business of priority industry. Any investment could not be taken as having a direct relationship or nexus with the business of generating and supplying energy. The interest received on such investment, therefore, could not be considered to be profit or gain attributable to the business of the assessee, which alone can be taken into account for the purpose of section 80-I. That case dealt with the interpretation of the words "attributable to", and not with the words "derived from". Therefore, if interest on fixed deposits cannot be attributed to the business of the priority industry, it can certainly not be termed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Gujarat High Court in the case of Nirma Industries Ltd. ( supra ). The Hon ble Court on page 431 explained that the interest is charged for expeditious recovery of sale proceeds and, therefore, it takes the character of sale proceeds. Such interest is entitled to deduction under section 80-I of the Act. If that is so, then, interest received from customers on delayed payment of sale consideration would certainly amount to profit of the business of the eligible unit. Respectfully following this decision, it is held that the assessee is entitled to deduction on this amount also. 7.5 We may also deal with the argument of the learned counsel that the assessee had not earned any income by way of interest and there was a deficit in the interest account. Therefore, there was no question of reducing any amount from the profits derived from the eligible undertaking. We are unable to persuade ourselves to agree with this argument of the learned counsel. It may be pointed out that the decisions in the cases of Paramount Trading Corpn. ( supra ) and Lalsons Enterprises ( supra ) were rendered under section 80HHC, which mandates the computing of the profits of the business in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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