TMI Blog2017 (3) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... MBAY HIGH COURT] is concerned, it has taken a view qua the provisions of Section 80-IA of the Act, which is contrary to the view taken by us. We are unable to persuade ourselves to agree with the view of the Bombay High Court. We are informed that the Revenue has carried the matter in appeal to the Supreme Court, and the appeal so filed stands admitted.Therefore, for the foregoing reasons, we find no infirmity in the order of the Tribunal as held Authorised Representative could not support with explanation whether assessee has claimed deduction u/s.80-IAB of the Act for the assessment year 2008-09 on interest income. We found the assessee could not substantiate the direct nexus with the industrial undertaking. Interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction under section 80HH.- Decided against assessee - T.C.(Appeal) No.701 of 2016 - - - Dated:- 27-2-2017 - MR. SHAKDHER AND MR. M.SU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, carried the matter in appeal to the Tribunal. 5.1. The Tribunal, as indicated above, ruled against the petitioner vide the impugned judgment and order, which is assailed before us in the present appeal. 5.2. The operative part of the impugned judgment passed by the Tribunal, being relevant, is extracted hereafter : ..... 7. We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Authorised Representative of assessee basic contention being assessee company is in the business of developing software parks and leasing to software companies. These companies provide security deposits to the assessee company which are returnable on termination of lease. Such refund may be for a period of five years or more and the assessee company for liquidity purpose deposit the amount in fixed deposits in bank and interest is receivable and offered in financial statements and whether interest takes the characteristic profit from business undertaking which is disputed. On perusal of the assessment order, the assessee has claimed deduction u/s.80-IAB of the Act on the interest portion also but at the time of assessment based on the Audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its or gains derived by the undertaking for the purpose of the special deduction under section 80HH. On application of ratio of above case, we are not inclined to interfere with order of the Commissioner of Income Tax (Appeals) on this ground and upheld the same and dismiss the appeal of the assessee. ..... (emphasis is ours) 6. A perusal of the aforementioned extract of the judgment of the Tribunal would show that the assessee's claim for deduction qua the balance sum, i.e., ₹ 2,52,04,544/- was rejected on two grounds : 6.1. First, that via the Auditor's certificate issued in Form 10CCB, the claim under Section 80-IAB had been restricted to ₹ 1,68,54,543/-. 6.2. Second, that the interest received from security deposit in the sum of ₹ 2,52,04,544/- had no direct nexus with the industrial undertaking. In this behalf, the Tribunal relied upon the judgement of the Supreme Court in : Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, [2003] 262 ITR 278 (SC). 7. Mr.N.V.Balaji, who appears on behalf of the assessee, assails the judgment of the Tribunal on the following, broad, grounds : 7.1. First, the Tribunal, according to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that it was only, thereafter, that a revised Form 10CCB was filed, albeit, on 26.11.2012. 8.5. Therefore, as indicated above, the submission of the Revenue was that the assessee could not do an about turn, so to speak, after the assessment proceedings stood concluded. 8.6. On the merits of the claim made by the assessee, learned counsel submitted that for the interest earned by the petitioner, from security deposit, to be amenable to deduction under Section 80-IAB, such income, should have a direct nexus with the subject activity, which is, the business of developing a Special Economic Zone. 8.7. In other words, the submission was that only those profits and/or gains, which are derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, would come within the purview of Section 80-IAB. In support of his submission, learned counsel relied upon the following judgments : (i).CIT V. A.S.Nizar Ahmed and Co., [2003] 259 ITR 244 ; (ii).CIT V. Menon Impex P. Ltd., [2003] 259 ITR 403 ; (iii).Pandian Chemicals Ltd. V. CIT, [2003] 262 ITR 0278 (SC) (iv).CIT, Delhi Vs. Shri Ram Honda Power Equip, [2007] 289 ITR 475(Delhi) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as Business Profits for the purpose of claiming deduction u/s80-IAB. As per Section 80-IAB, Income generated by way of developing, maintaining operating infrastructure facilities forms part of business profits of the undertaking. As this was put to the assessee, the assessee had stated that it had been inadvertently claimed for the purpose of 80-IAB and also stated that as per Certificate in Form 10CCB, 80-IAB has been claimed only to the extent of ₹ 1,68,54,543/- Accordingly, the claim of 80-IAB is considered only to the extent of ₹ 1,68,54,543/- and the balance amount of ₹ 2,52,04,544/- is treated as Income from Other Sources and the assessment is completed u/s 143(3) of the Income Tax Act, 1961. .... (emphasis is ours) 10.3. Therefore, in our opinion, the Tribunal, rightly, based on what emanated from the record, restricted the deduction to the sum of ₹ 1,68,54,543/-. 11. Which bring us to the other aspect of the matter. This aspect concerns the merits of the claim. 11.1. According to the learned counsel for the petitioner, interest derived from interest-free security deposit, which was invested in Fixed Deposits with the banks, was incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be a direct or immediate nexus with the assessee's industrial undertaking. Since, the observations made by the Supreme Court in Pandian Chemicals case are apposite, as indicated above, the same are set forth hereafter: ..... 4. Section 80HH of Income Tax Act grants deduction in respect of profits and gains derived from an industrial undertaking. The contention of the appellant before us is that interest earned on the deposit made with the Electricity Board for the supply of electricity to the appellants industrial undertaking should be treated as income derived from the industrial undertaking within the meaning of section 80HH. It is submitted that without the supply of electricity the industrial undertaking could not run and since electricity was an essential requirement of the industrial undertaking, the industrial undertaking could not survive without it. It is further pointed out that for the purpose of getting this essential input, the statutory requirement was that the deposit must be made as a precondition for the supply of electricity. Consequently, according to the appellant, the interest on the deposit should be treated as income derived from the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., [2003] 259 ITR 403 (Mad.) , wherein, the Court was considering an issue, in the light of facts similar to the instant case, though in the light of the provisions of Section 10A of the Act, took the very same view qua the term derived. 13.1. In CIT V. Menon Impex P. Ltd. The Court was called upon to decide as to whether deposits made for opening of Letters of Credit, which earned interest, was income derived from exports. 13.2. This Court rejected the contention of the assessee that interest received on deposit made over to open Letters of Credit was income derived by an industrial undertaking carrying on the business of export. In reaching this conclusion, the Division Bench took recourse to the judgment of the Supreme Court in : Cambay Electric Supply Industrial Co. Ltd. V. CIT, [1978] 113 ITR 84, which, as indicated above, is adverted to in Pandian Chemicals case. The observations of the Division Bench, which are relevant, are extracted hereinbelow: .... Section 10A of the Act provides that the profits and gains derived by an assessee from an industrial undertaking to which that section applies shall not be included in the total income of the assessee. The Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the expression derived is used, as against attributable to , the width and the amplitude is narrower. Therefore, courts have held consistently that in order to come to a conclusion as to whether such profits or gains, i.e., income, would be amenable to deduction, the effective source of such income is to be looked at. Once, it is found that the income is derived from a secondary source, which is not the effective source, it falls outside the purview of such like provisions, which provide for deductions with purpose of giving fillip to the designated activity, which, in the instant case, is the business of developing a Special Economic Zone. 15. We may also indicate that in so far as the judgement of the Bombay High Court in CIT V. Jagdishprasad M.Joshi, [2009] 318 ITR 420 (Bom.) is concerned, it has taken a view qua the provisions of Section 80-IA of the Act, which is contrary to the view taken by us. We are unable to persuade ourselves to agree with the view of the Bombay High Court. 15.1. We are informed that the Revenue has carried the matter in appeal to the Supreme Court, and the appeal so filed stands admitted. 16. Therefore, for the foregoing reasons, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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