TMI Blog2013 (1) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking' and the scope and ambit of Section 80-IB(1) is not in any manner wider than that of 80-IB(4). A holistic view of Section 80-IB would reveal that what is intended by the Law Makers to qualify for deduction is 'profits and gains derived from the industrial undertaking'. 'There is, therefore, no reason to bring within the fold of 'profits and gains derived from industrial undertakings' any income beyond the activities of the industrial undertakings on the ground that the words 'any business' finds expression in 80-IB(l). In favour of revenue Whether interest income allowed to set off against the interest paid – Held that:- Following the decision in case of Dr. V. P. Gopinathan (2001 (2) TMI 10 - SUPREME COURT) that the interest paid by the assessee as interest on overdraft facility cannot be set off against the interest received on the FDRs pledged by him with the Bank so as to avail any deduction under the head 'Income from other sources'. Hence set off not allowed. In favour of revenue - IT APPEAL NOS. 5 & 6 OF 2007 - - - Dated:- 24-8-2012 - HASNAIN MASSODI AND VIRENDER SINGH, JJ. Subash Dutt and Suraj Singh Wazir for the Appellant. D.S. Thakur an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC) given by Double Bench, by ignoring the Larger Bench judgment of Hon'ble Supreme Court (2000) 244 ITR (St.) 54 whereby the Special Leave Petition filed by the department against judgment of Hon'ble Bombay High Court in CIT v. Nagpur Engineering Co. Ltd. [2000] 245 ITR 806 (Bom.) wherein it was held that interest income from fixed deposits is eligible profit of the business for computing deductions under section 80-HH and 80-I was dismissed" 4. Brief resume of the case of the Assessee: 5. The controversy relates to the assessment years 2003-2004 and 2004-2005. The assessee claimed deduction under section 80-IB of I.T. Act by including interest amounting to Rs. 2,21,845 and Rs. 2,86,486 on FDRs for the aforesaid two assessment years respectively declaring it as income of an industrial undertaking before Assessing Officer (for short 'A.O.') on the plea that the said FDRs were kept as guarantee with the Electricity Department and the Banks for securing credit facilities. It was contended that the interest part was part of business income of an Industrial Undertaking and therefore, eligible for deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrued in wide amplitude so that it covers any trade or any act in nature of trade. 11. Mr. Dutt, thus, submits that the interest income derived from FDRs is the income from the business of the Industrial Undertaking, as such, liable for deduction and that the judgment of Hon'ble Supreme Court in case 'Pandian Chemicals Ltd. v. CIT [2003] applied against the assessee is totally distinguishable on facts from the present case. 12. In support of his submissions, Mr. Dutt has relied upon a judgment of Delhi High Court in case CIT v. Eltek SGS (P.) Ltd. [2008] 300 ITR 6 and has in particular referred to para 21 of the judgment. 13. Learned counsel lastly submitted that even otherwise also the interest earned by the assessee on FDRs is liable to be adjusted against the interest paid by him on the overdraft facilities obtained from the Bank(s), therefore, the assessee could be taxed only on the differential amount and not on the entire interest amount, which aspect has also not to be dealt with in accordance with the provisions of the Act. 14. Mr. Dutt, thus, submits that issues summarized hereinabove, are debatable issues and, as such, substantial questions of law, warranting co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, that the expression "derived from" has a narrower connotation than the expression "attributable to". The distinction between "derived from" and "attributable to", has been reiterated by the Supreme Court in its later ruling in the case of CIT v. Sterling Foods [1999] 237 ITR 579, The word "derived" has been construed as far back in 1948 by the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 when it said: "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." The Hon'ble Supreme Court in Pandian Chemical case referred to this definition and observed that the word "derived from" in section 80HH of the Income-tax Act, 1961, must be understood as something which has direct or immediate nexus with the appellants industrial undertaking. It observed that although electricity may be required for the purpose of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty five percent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking." It would be seen from the above that the deduction u/s 80-IB also, is admissible in respect of profits and gains derived from the industrial undertaking and not of the business of industrial undertaking. 5.2 Keeping in view the legal position as discussed above and the direct judgment of the Hon'ble Supreme Court in Pandian Chemicals case (supra), in my considered opinion, the appellant is not eligible for deduction u/s 80-IB of the Act in respect of interest income. As observed by the Hon'ble Apex Court, we have to see the immediate source of the income which in the present case is FDRs. As regards deduction u/s 80-IB, it is immaterial whether the FDRs were taken under compulsion or otherwise. As regards the other ground that the interest income should be allowed to be set off against the interest paid in my considered opinion, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking:" (Emphasis supplied) 24. A bare look at section 80-IB(4) would reveal that reference made to 'profits and gains derived from such industrial undertakings' and not to 'profit and gains derived from any business of the industrial undertaking'. A conjoint reading of Section 80-IB(l) and 80-IB(4) would reveal that the expression 'profits and gains derived from any business' is to be read as 'profits and gains derived from the industrial undertaking' and the scope and ambit of Section 80-IB(1) is not in any manner wider than that of 80-IB(4). A holistic view of Section 80-IB would reveal that what is intended by the haw Makers to qualify for deduction is 'profits and gains derived from the industrial undertaking'. 'There is, therefore, no reason to bring within the fold of 'profits and gains derived from industrial undertakings' any income beyond the activities of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, on which custom duty is paid and the entitlement for duty drawback arose from section 75(1) of the Custom Act, 1961 and the relevant notification thereto issued by the Central Govt. in that regard. 29. Dealing with the aforesaid case on its own facts, it is observed by the Division Bench in para 23 as under: "23. Learned counsel for the Revenue also drew our attention to Pandian Chemicals Ltd. v. CIT [2003] 183 CTR (SC) 99/[2003] 262 ITR 278 (SC). However, on a reading of the judgment we find that that also deals with section 80HH of the Act and does not lay down any principle different from Sterling Foods (supra). In fact, in Pandian Chemicals (supra) reliance has been placed on Cambay Electric Supply Industrial Co. Ltd. (supra) and the decision seems to suggest, as we have held above, that the expression "derived from an industrial undertaking" is a step removed from "the business of the industrial undertaking." 30. The case on hand is entirely distinguishable on facts as the interest income amounting to Rs. 2,21,845/-and Rs. 2,86,486/- on FDRs for the aforesaid two Assessment Years respectively declaring it as income from the business of the industrial undertaking, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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