TMI Blog1999 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... . and R. C. LAHOTI. JUDGMENT The judgment of the court was delivered by S. P. BHARUCHA J.---- The judgment and order under appeal ([1991] 190 ITR 275), was pronounced by a Division Bench of the Karnataka High Court on a reference made by the assessee, and the Revenue is in appeal. The High Court answered in favour of the assessee the following question: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the receipt from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80HH of the Income tax Act, 1961 ?" The identical question had arisen in respect of the same assessee for an earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it had earned to others. Its total income for the aforementioned assessment years included the sale proceeds for such import entitlements and it claimed relief under section 80HH of the Act in respect also of the sale proceeds of the import entitlements. Section 80HH, so far as it is relevant, read at all relevant times thus: "80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.-(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking and it was just not sufficient that a commercial connection was established between the profits earned and the industrial undertaking. The industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. The industrial undertaking had the direct source of that profit and not a means to earn any other profit. Reference was also made to the meaning of the word "source", and it was held that the import entitlements that the assessee had earned were awarded by the Central Government under the Scheme to encourage exports. The source referable to the profits and gains arising out of the sale proceeds of the import entitlement was, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smuch as it did not follow an earlier binding judgment of the High Court itself. But learned counsel for the assessee submitted that he was entitled to urge, since this matter related to a different assessment year, that the earlier Division Bench judgment of the High Court was erroneous. Since we are of the view that the earlier judgment was not erroneous, it is not necessary to decide whether the assessee could so urge. In learned counsel's submission, the profits and gains were derived from the assessee's industrial undertaking and were, therefore, entitled to the deduction prescribed by section 80HH. Learned counsel cited the judgment of the Madras High Court in CIT v. Wheel and Rim Company of India Ltd. [1977]107 ITR 168, which no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinary meaning here. 12. Crude petroleum is refined to produce raw naphtha. Raw naphtha is further refined, or cracked to produce the said products. This is not controverted. It seems to us to make no difference that the appellants buy the raw naphtha from others. The question is to be judged regardless of this, and the question is whether the intervention of the raw naphtha would justify the finding that the said products are not 'derived from refining of crude petroleum'. The refining of crude petroleum produces various products at different stages. Raw naphtha is one such stage. The further refining, or cracking, of raw naphtha results in the said products. The source of the said products is crude petroleum. The said products must ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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