TMI Blog2015 (2) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... s "Attributable To" - Held that:- To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such as V-Belts, oil seals, O-Rings and certain rubber moulded products, etc. Thus profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under S. 80HH, inasmuch as such gains or profits are derived from the industrial undertaking and includible in the gross total income of the assessee. See Fenner (India) Ltd. Versus CIT [1998 (4) TMI 67 - MADRAS High Court] - Decided in favour of the assessee. - G A No.1420 of 2014, ITAT No.41 of 2014, G A No.1735 of 2014, ITAT No.59 of 2014 - - - Dated:- 23-12-2014 - Soumitra Pal And Arindam Sinha,JJ. For the Appellants : Mr Nageswar Rao, Adv. with Mr Avra Majumder, Adv. and Md Nizamuddin, Adv. For the Respondent : None ORDER The Court : These two appeals being ITAT No. 41 of 2014 and ITAT No. 59 of 2014 under section 260A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er alia, held as follows: Shorn off rhetorical legal arguments, compassionate pleas and emotionally surcharged submissions, what surfaces from beneath the mass of materials placed before this court, by way of pleadings and otherwise, is that there is no dispute, in this set of appeals, that, in order to claim deduction either under section 80-IB or under section 80-IC, an assessee has to establish that there is a direct, intrinsic and first degree nexus between a subsidy, on the one hand, and the profits and gains, on the other hand, derived from or derived by, the industrial undertaking concerned. There is also no dispute that if any of the subsidies, in question, goes on to reduce the cost of production of an industrial undertaking, the resultant profits and gains are deductible under the provisions of section 80-IB or 80-IC, as the case may be. Surfacing from beneath this statutory requirement, the legal proposition is that if the subsidy is non-operational in nature, there will be no entitlement of deduction; but the subsidy, if operational, would entitle an assessee to claim deduction. .. .. .. .. .. .. .. .. The facts are, therefore, not in dispute on this aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals . Mr. Rao went on to submit the answers to the question given by the Gauhati High Court and Karnataka High Court were correct and, in particular, the Gauhati High Court had considered the law declared in several decisions made by the Supreme Court. He further urged the decision in Liberty India vs. CIT : 317 ITR 218, considered by the Gauhati High Court, was focussed on the analysis of Section 80-IB and the basic scheme of Sections 80-I, 80-IA and 80-IB. That decision, according to him, could not be relied on for an interpretation of the provisions in Section 80-IC of the said Act. He went on to submit Section 80-IB(1) and (2) was with regard to the eligibility, while 80-IB(3) was with regard to the quantification. He pointed out that even in the quantification provision under section 80-IB(3) the word derived had been used. Therefore, in quantification under the said section, the effect of eligibility was narrow. On the other hand, according to him, Section 80-IC(1) and (2) was with regard to the eligibility which, on the contrary, made the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has suffered the accident of non-payment. And rent is not land within the meaning of the definition. (p.328) This definition was approved and reiterated in 1955 by a Constitution Bench of this Court in the decision of Mrs. Bacha F. Guzdar V. CIT [1955] 27 ITR 1. It is clear, therefore, 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 appellant's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with Electricity Board cannot be said to flow directly from the industrial undertaking itself. The interpretation of the word 'derived' as made by the High Courts are as under: In Globe Organics Limited the High Court of Andhra Pradesh held: The interest paid on intercorporate deposits can by no means is said to be an activity of the industry so established. When the making of intercorporate deposits itself is not part of the manufacturing activity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed had been discussed in paras.7 to 15 therein by a Division Bench of this Court, which ultimately held that the Tribunal has committed an error of law holding that the interest earned on the deposit with the Tamil Nadu Electricity Board by the assessee should be treated as income derived from industrial undertaking for the purpose of relief under s. 80HH of IT Act. 16. This decision, being that of a Division Bench of this Court, is binding on us and in this view of the matter, there is no other go for us, except to conclude that the interest earned by the industrial undertaking cannot at all be eligible to be included in the gross total income for claiming deduction of an amount equal to twenty per cent in the process of computation of the profits and gains of the said industrial undertaking and this part of the question is, therefore, answered against the assessee. Keeping these interpretations of the word `derived' in mind, let us now scan Section 80IC in the context of this case. We find the said section postulates gross total income of an assessee shall include any profits and gains derived by an undertaking from any business referred to in sub-section(2)to be entit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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