TMI Blog2004 (10) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate office and Marketing division at Noida. The role of the corporate office is to manage all activities relating to corporate affairs which includes statutory compliance with the Companies Law, Income-tax Law and coordination between Ministry and Government agencies. The role of Marketing division is to promote the products of the company and to handle trading of the products which are not manufactured by the company. The expenses incurred by each of the division are accounted for initially in the respective divisions and they are debited to each of the unit including Vijaipur. In the same manner expenses incurred in the corporate office and marketing office are also accounted for in the respective divisions. As a policy the company prepares consolidated accounts at the year end and all the expenses incurred in the corporate office as well as marketing divisions are transferred to four units including Vijaipur unit in the ratio of installed capacity of each of these plant. It is worth noticing that the expenditure incurred by the corporate office as well as the marketing office is not directly relatable to any of the units. In preparing the profit and loss account for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income included under the head other income 4. Hire charges of heavy vehicles 24,713 5. Medical charges 2,77,011 6. Sale of scrap 8,39,021 (4)Whether question under section 80-I is to be allowed on a further sum of ₹ 51,51,289 on account of other miscellaneous income ? Questions (1), (2) and (4) in AAR/533/2001 are similar to the aforementioned question except, the fact that amounts in them are different. Insofar as question No. 3 is concerned while there are 6 items in AAR/532/2001, there are only 2 items in AAR/533/2001. We shall advert to those facets presently. 2. The Commissioner of Income-tax forwarded his comments to the applications, stating that the applicant raised two types of questions. In the first category fall questions (1), (3) and (4) which relate to claim of deductions on various types of income which may be attributable to but are not derived from the eligible industrial undertaking; question (2) which involves exclusion of certain expenditure for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enty per cent , the words twenty five per cent had been substituted. (1A) Notwithstanding anything contained in sub-section (1), in relation to any profits and gains derived by an assessee from- ( i)an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or (ii )a ship which is first brought into use; or (iii )the business of a hotel which starts functioning, on or after the 1st day of April, 1990 but before the 1st day of April, 1991 there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty-five per cent thereof : Provided that in the case of an assessee, being a company, the provisions 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 five per cent , the words thirty per cent had been substituted . (2) to (5)****** (6) Notwithstanding anything contained in any other provision of this Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits and gains of such undertaking by increasing items/quantum of elementary/reducing deductions to avail maximum benefit under the section. It will be useful to notice here that the expression derived from was interpreted by the Hon ble Supreme Court in CIT v. Sterling Foods [1999] 237 ITR 579 1. Thus : ...There must be, for the application of the words derived from , a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus was not direct but only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. There under, the assessee was entitled to import entitlements, which it could sell. The sale consideration there from could not be held to constitute a profit and gain derived from the assessee s industrial undertaking . (p. 580) 5. Question No. (1), referred to above, relates to interest on deposit with the MP Electricity Board. 6. Mr. Ved Kumar Jain who appeared for the applicant fairly conceded that in view of the judgments, the point is covered against the applicant by the judgments in the following cases : 1.Sterling Foods case (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are not directly relatable to Vijaipur unit cannot but be ignored. In view of this position, the expenditure allocated by the corporate office and the marketing division ought to have been excluded from the debit side of the profit and loss accounts for working out the profits of industrial undertaking for the purpose of computing special deduction under section 80-I. In regard to question No. 1, it was conceded that the said interest income did not qualify for deduction under section 80-I, it, therefore, follows that the allocation of interest expenditure from corporate office is untenable. Question No. 3 in AAR/532/2001 Whether the following incomes credited to P L account of the industrial undertaking and held by the Assessing Officer as not derived from the Industrial Undertaking, for the purpose of working out deduction under section 80-I, should not be excluded from its profits to the extent of expenses incurred for earning these incomes and debited to Profit and Loss account. S. No. Name of the item Income included under the head other income (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items - (1) and (2) - as could be seen from above table. For the reasons mentioned above in regard to items (3) and (4) in AAR/532/2001, the exclusion of these two items for the purpose of working out deduction under section 80-I of the Act, cannot be said to be incorrect. Question No. 4 in AAR/532/2001 The sum of ₹ 51,51,289 mentioned in question No. 4 represent aggregate of 12 items specified in application against S.No. 8 under the head name of the item miscellaneous income . In respect of these items of income, the same submission was made by Mr. Jain as was urged in regard to items (5) and (6) of question No. 3 discussed above. Ms. Shumana reiterated her submission that if the applicant satisfies the concerned Assessing Officer (AO) by showing the corresponding expenditure entries in the books of account, the same will be included in computing special deduction under section 80-I. We record her submission. 11. In light of above discussions we rule on :- (1)question No. 1 in AAR/532/2001 that interest of ₹ 7,22,506 and in AAR/533/2001 of ₹ 7,05,191, earned on deposits with MP Electricity Board do not qualify for deduction under section 80-I of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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