TMI Blog2009 (11) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial undertaking for the purposes of Sections 80I/80-IA/80-IB of the 1961 Act, questions are answered in favour of the Revenue [Liberty India (2009 - TMI - 34471 - SUPREME COURT)] Whether the Tribunal was correct in law in allowing deduction to the assessee under section 80-IA of the Income-tax Act, 1961, on the amount of notional credit of customs duty on goods imported for self-consumption - questions are answered in favour of the Revenue [Liberty India (2009 - TMI - 34471 - SUPREME COURT)] - 545 of 2006, 18, 765, 796 and 816 of 2007 - - - Dated:- 30-11-2009 - SIKRI A. K., SIDDHARTH MRIDUL, JJ. JUDGMENT A. K. Sikri J.- I. T. A. No. 248 of 2009 2. This appeal was admitted and heard on the following substantial question of law : "Whether the Tribunal was correct in law in holding that the interest earned by the assessee on late payment received from the customers is eligible for deduction under section 80-IA of the Income-tax Act, 1961 ?" 3. This question has arisen for consideration under the following circumstances : 4. The assessee is an industrial undertaking. For the assessment year 1997-98, it filed its return declaring income as "ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words 'twenty per cent.', the words 'twenty-five per cent.' had been substituted." 7. It is clear from the bare reading of this provision that only such profits and gains which are derived from an industrial undertaking are to be taken into consideration for computing deduction equal to 20 per cent. 8. In this backdrop, the question for consideration before us is as to whether the interest received by the assessee on overdue payments from the customers is to be considered as profits and gains which are derived from an industrial undertaking. 9. As pointed out above, the Tribunal has referred to various judgments of the High Courts as well as other Benches of the Tribunal. We may, however, begin our discussions with the recent case decided by the Supreme Court in Liberty India v. CIT [2009] 317 ITR 218 (SC) in which it has discussed and explained the contents and scope of the said provision in a very lucid manner. The interpretation of section 80-IA and other sections in the said judgment would provide suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial under-taking'." 11. Applying the principle in respect of the DEPB benefits of duty drawback receipts, after explaining the said schemes the court opined that those incomes would constitute independent source of income beyond the first degree nexus between profits of the industrial undertaking and, therefore, were not to be treated as profits derived from the business of the industrial undertaking eligible for deduction under section 80-IB of the Act. 12. We now proceed to determine the question posed before us applying the principle laid down by the Supreme Court in the aforesaid case. 13. The respondent-assessee, which is an industrial undertaking, had supplied goods to its various customers which had been manufactured by it. Some of these customers did not make payment in time. The dues which were payable by those buyers attracted interest on late payment charges. In this manner, ultimately, the payments which were received by the assessee against the supply of goods also included interest on overdue payments. 14. Precisely, this very issue came up for consideration before the Gujarat High Court in the case of Nirma Industries Ltd. v. Deputy CIT [2006] 283 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of delay the payment for sale of products worth Rs. 100 to carry the sale price of Rs. 102 for the first month's delay, Rs. 104 for the second month's delay, Rs. 106 for the third month's delay and so on. If the contention of the Revenue is accepted merely because the assessee has described the additional sale proceeds as interest in the case of contract as per illustration (a) above, such payment would not be profits derived from the industrial undertaking, but in the case of illustration (b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking. This can never be, because in sum and substance, these are only two modes of realising the sale consideration, the object being to realise the sale proceeds at the earliest and without delay. Purchaser pays higher sale price if it delays payment of sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. 16. Thus, according to the Gujarat High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty drawback and on the amount received by the assessee on sale of the DEPB and the QBAL licences ? 3. Whether the Tribunal was correct in law in allowing deduction to the assessee under section 80-IA of the Income-tax Act, 1961, on the amount of notional credit of customs duty on goods imported for self-consumption ?" 22. The first question is answered partly in favour of the Revenue and partly in favour of the assessee holding that interest received from trade debtors would be entitled to deduction under section 80-IA, but interest earned on FDRs would not be so entitled in view of the judgment of this court in CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi). 23. In so far as the second and the third questions are concerned, they are decided in favour of the Revenue and against the assessee following the judgment of the Supreme Court in Liberty India [2009] 317 ITR 218 (SC) I. T. A. No. 545 of 2006 24. This appeal was admitted on the following question of law : "Whether the Tribunal was correct in law in holding that the assessee was entitled to reduce interest paid by it against interest received by it while calculating deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L licences ? 3. Whether the Tribunal was correct in law in allowing deduction to the assessee under section 80-IA of the Income-tax Act, 1961, on the amount of notional credit of customs duty on goods imported for self-consumption ?" 30. The first question is answered partly in favour of the Revenue and partly in favour of the assessee holding that interest received from the trade debtors would be entitled to deduction under section 80-IA, but the interest earned on FDRs would not be so entitled in view of the judgment of this court in Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi). 31. The second and third questions are answered in favour of the Revenue in view of the judgment in Liberty India [2009] 317 ITR 218 (SC). I. T. A. No. 796 of 2007 The following substantial questions of law are framed for consideration : "1. Whether the Tribunal was correct in law in holding that the assessee is entitled to deduction under section 80-IA of the Income-tax Act, 1961, on the interest received from the trade debtors and also on the interest earned on FDRs ? 2. Whether the Tribunal was correct in law in holding that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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