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TMI Blog2012 (8) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... of foreign travel of the directors. Issue has been discussed by the CIT(A) as under- ".......the AO noted that appellant had incurred foreign travelling expenses of Rs. 5,85,165/- in respect of director, Mr. Charul J Ghia and his wife, Mrs Smita Charul Ghia, who was also an employee of the appellant. As per the AO appellant could not explain the reason for the travel of Mrs Smita along with Mr. Chahal Ghia. 50% of the expenditure which worked out to Rs. 2,95,582/- was disallowed as non-business expenditure. Further, as the expenditure incurred by Mr. Chahal Ghia was for the purchase of machinery and moulds, the balance amount off to peace 2,92,582/-, was treated as capital expenditure. After allowing the depreciation at the rate of 25% amounting to Rs. 73,145/- the balance amount of rupees 2,19,438/- was disallowed." CIT(A), after considering the submissions of the appellant, held that the expenditure incurred on foreign travels was for the purpose of business. Relying upon the decisions of CIT v. Alfa Lavel (I) Ltd. [2006] 282 ITR 445/[2005] 149 Taxman 29 (Bom.), CIT v. Appollo Tyres Ltd. [1999] 237 ITR 706/[1998] 101 Taxmann 167 (Ker.) Glaxo Laboratories (India) Ltd. v. Second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atch clearance from the Reliance industries. Accordingly, the appellant company raised a debit note of Rs. 17.5 Lacs as storage charges. Appellant pointed out that it did not have a warehouse- hence, goods were kept in factory premises where the manufacturing activities were undertaken. The storage charges were directly related to the dispatch of manufactured goods. So, the receipts in question were to be included as the profit and gains derived from the manufacturing activity of the business undertaking. In the appellate proceedings CIT(A) held that storage charges received by the appellant was derived from the business of the undertaking. Relying upon the cases and principles of Wheel India Ltd, Kirloskar Electrodyne Ltd and Buckan Wolf new India Engineering works, he reversed the order of the AO and he directed the AO to allow the deduction under section 80 IB of the Act to the assessee. 3.1 Before us DR submitted that the receipt in question was not derived from the business activity of the appellant, that store charges could not be linked with business of the undertaking, that it was more in the nature of compensatory payment. AR on the other hand, supported the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression derived from cannot include the incidental receipts earned in the course of such business. There must be direct link with the main activity of the business of industrial undertaking and the profits earned. Any other source, not falling within the first degree, could in a sense be described as ancillary to the business of the assessee. vi. Income generated by any act, which is required to be undertaken essentially for carrying on the business of Industrial Undertaking, has to be considered for computing the deduction under Sec.80-IB. 3.3 Above referred principles have been summed up by the Hon'ble SC in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349, as under- "Section 80-IB of the Income-tax Act, 1961, provides for allowing of a deduction in respect of profits and gains derived from the business of the assessee and thereby Parliament intended to cover sources of profits and gains not beyond the first degree. In other words, there must be a direct nexus between the generation of profits and gains and the source of profits and gains, the latter being directly relatable to the business of the assessee. Any other source, not falling within the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue filed an appeal to the High Court, which was dismissed. This order of dismissal was set aside by the Supreme Court in an appeal filed by the Revenue and the matter was remanded back to the High Court for decision on the merits. Deciding the substantial question of law framed by the Supreme Court. High Court in the second round of hearing, held as under :- ".......allowing the Revenue's appeal, that the amount claimed by the assessee was not an amount earned directly by sale of its finished commodity manufactured in its undertaking but it was in the nature of compensation/damages on account of the breach committed by the supplier and purchaser of the assessee. Such sum could not be equated with actual profit which the assessee earned by sale of the finished products and hence the assessee was not entitled to deduction under sections 80HH and 80-I. The words derived from has got to be given a restricted meaning and, hence, we cannot include such type of earning within the meaning of expression as profit/gains derived from an industrial undertaking. The amount received as compensation had to be taxed as income earned from other sources as defined under section 56(1) read with sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon the decision of Cambay Electric Supply Industrial Co. Ltd v. CIT [1978] 113 ITR 84 and reproduced observations of the Hon'ble Supreme Court as under: "it will be pertinent to observe that the legislature has deliberately used the expression attributable to and not expression derived from. It cannot be disputed that the expression attributable to is certainly wider in import than the expression derived from. Had the expression derived from being used, it could have been some force been contended that a balancing charge arising from the sale of old machinery and building cannot be regarded as profit and gains derived from the conduct of the business." The facts of the case under consideration are different and distinguishable from the matter of Wheels India Ltd. In Wheels India Ltd, the words used were 'attributable to' and not 'derived from'. Secondly, appellant in that case had sold scrap and rendered services in respect of their supplies. Receipts on both the accounts were held to be attributable to the activities of the assessee. 4.2 ITAT bench, Pune while deciding the case of Kirloskar Electrodyne Ltd. v. Dy. CIT [2003] 87 ITD 264 (TM) had decided that assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income derived therefrom must be held to be attributable to the priority industry. The income derived from interest paid by the buyers of machinery manufactured by the assessee on deferred payment also had a direct nexus to the assessee's priority industry and was attributable to it. The facility of after-sales repairs and of deferred payment were inducements offered to the intending purchasers and were intimately linked to the assessee's priority industry. Therefore, the assessee was entitled to deduction under section. 80-I in respect of such income." In this case Hon'ble HC has distinguished the terms attributable and derived from and has held that income received by the assessee was attributable to the business of the assessee and hence eligible for deduction. We are of the opinion matters related with 'attributable to' phrase are of no help in deciding the issue under consideration. Thus, case laws relied upon by the assessee and referred to by the CIT(A) do not support the claim made by the assessee. 5. So, after hearing both the sides and considering facts and circumstances of the case we are of the opinion that the appellant is not entitled to the benefits of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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