TMI Blog2019 (4) TMI 1676X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the appellant- Assessee. - TAX APPEAL NO.20 OF 2009 - - - Dated:- 18-4-2019 - R.D. DHANUKA PRITHVIRAJ K. CHAVAN, JJ. Mr. R.G. Ramani, Advocate for the Appellant. Ms. Susan Linhares, Junior Standing Counsel for the Respondent. JUDGMENT : (Per R.D. Dhanuka, J.) 1. This appeal under Section 260-A of the Income-tax Act, 1961 (for short 'the Act') preferred by the Assessee, challenges the order dated 18th February, 2009, passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji in ITA No.177/PNJ/2007. The impugned order is in respect of Assessment Year 2004-05. 2. By an order dated 7th December 2009, this Court admitted the Tax Appeal on the following substantial question of law : Whether on facts and in the circumstances of the case, the profit from the sale of slag, which is a by-product in the manufacture of Pig Iron, could, for the purpose of deduction u/s. 80-IB of the Act, be considered as the profit derived from the business of the industrial undertaking engaged in the manufacture and sale of Pig Iron ? 3. Some of the relevant facts, for the purpose of deciding this Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred by the Revenue and held that the profit arising from the sale of 'slag' was not derived from the business of the industrial undertaking. The Tribunal distinguished the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. 1988 169 ITR 158 Bom. The Assessee, thus, preferred this Appeal under Section 260-A of the Act before this Court. 4. Mr. R.G. Ramani, learned counsel for the Assessee invited our attention to the orders passed by the Assessing Officer, CIT(A), and the order passed by the Income Tax Appellate Tribunal. It is submitted by the learned counsel that the Tribunal reversed the decision of the CIT(A) only on the ground that the decision of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra) was concerned with the then prevailing Section 80-I of the Act, which provided for deduction with reference to profit and gains attributable to any priority industry ; whereas in the case of the Assessee, the applicable Section 80-IB provides for deduction with reference to profits and gains derived from the business . The Tribunal also held that the meaning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from . There must be a direct nexus between the profits and gains and the industrial undertaking for the application of the words derived from . 8. It is submitted that the slag generated out of the manufacturing process had a direct nexus with the manufacturing of the Pig Iron. He placed reliance on the Judgment of the Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT, 262 ITR 278 (SC) and in particular paragraphs 6 and 7. The Supreme Court in the said Judgment construed the expression 'derived from'. He also placed reliance on the Judgment of the Supreme Court in the case of Liberty India and ors. vs. CIT, 317 ITR 218 (SC) and in particular paragraphs 3 and 11. He submits that the Supreme Court in the said Judgment had considered the issue i.e. whether profit from Duty Entitlement Passbook Scheme and Duty Drawback Scheme could be said to be profit derived from the business of the Industrial Undertaking eligible for deduction under Section 80-IB of the Income-tax Act,1961. He submits that the Supreme Court in the said Judgment held that on analysis of Sections 80-IB and 80-IA it becomes clear that any industrial undertaking which becomes eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty India (supra). 11. It is submitted that in this case also since the slag generated during the manufacturing process of Pig Iron being the first degree source, was eligible for deduction under Section 80-IB of the Act. It is submitted that in the said Judgment in the case of Vidyut Corporation (supra) , this Court disallowed the deduction on the interest on unsecured loan having found that the same was not derived from the first degree source. He submits that the slag was part and parcel of the manufacture of Pig Iron and thus was eligible for deduction under the said provision. 12. Ms. S. Linhares, learned counsel for the Revenue, on the other hand, invited our attention to the findings rendered by the Assessing Officer, CIT(A) and the Tribunal and would submit that the findings rendered by the Assessing Office, while rejecting the claim in so far as the deduction claimed on the slag generated in the process of manufacturing and by the Tribunal while allowing the Appeal preferred by the Revenue by distinguishing the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra), are correct and does not war ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfills all the following conditions, namely :- (i) ... (ii) (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words not being any article or thing specified in the list in the Eleventh Schedule had been omitted. (3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) beginning with the initial assessment year subject to the fulfillment of the following co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer not to exclude the amount of 71,31,557/- ₹ from the sales. 19. A perusal of the order passed by the Tribunal in the appeal filed by the Revenue indicates that though the Tribunal, in paragraph 12 of the impugned order, has held that the CIT(A) has taken a correct view as far as slag generated out of manufacturing process and profit earned from such sale holding that it is a part of profit derived from the Industrial Undertaking which is engaged in the manufacturing of pig iron, and has rightly held that the slag could be considered as part of profit derived from manufacturing activity of the Industrial Undertaking, the Tribunal contrary to such findings rendered by it, and upholding the findings rendered by the CIT(A), has allowed the Appeal of the Revenue by distinguishing the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra). In our view, the conclusion drawn by the Tribunal in the impugned order is contrary to the finding rendered by it, shows perversity. 20. The Supreme Court in the case of Liberty India and ors. vs. CIT (supra), had considered a substantial question of law i.e. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law laid down by the Supreme Court in the said Judgment applies to the facts of this case. 23. The question that arises for consideration of this Court is, whether the slag generated out of the manufacturing process would satisfy the test 'first y degree source' or not and, if satisfies such test, would be eligible to deduction under Section 80-IB of the Act or not ? 24. In our view, in view of the findings already rendered by the CIT(A), which are upheld by the Tribunal that the slag generated out of the manufacturing process, the profit earned from such sale, is derived from the Industrial Undertaking which is engaged in manufacturing of Pig Iron, the Revenue cannot be allowed to contend that the sale of slag would not be a part of profits earned from the manufacturing process and would not be eligible for deduction under Section 80-IB of the Act. The findings rendered by the CIT(A) and upheld by the Tribunal having attained finality, are binding on the Revenue. 25. The Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (supra), has also construed the word derived after adverting to the Judgment of the Privy Council in CIT vs. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the sale of goods manufactured by the Industrial Undertaking constitutes a component of the profits and gains derived from the eligible business. It is further held that the payment of interest on account of the delay in payment of the sale price of the goods supplied by the undertaking partakes of the same nature and character as the sale consideration. The delayed payment charges consequently satisfy, together with the sale price, the first degree test which has been laid down by the Supreme Court in the case of Liberty India and ors vs. CIT (supra). 28. In the said Judgment, the Division Bench, however, rejected the deduction claimed in respect of the interest received by the Assessee on unsecured loans under Section 80-IB by holding that the interest received by the Assessee on unsecured loans, cannot be regarded as being derived from Industrial Undertaking and would fail to meet the first degree test laid down by the Supreme Court in the case of Liberty India and ors vs. CIT (supra). In our view, the principles laid down by the Division Bench of this Court in the said Judgment in the case of CIT vs. Vidyut Corporation (supra) applies to the facts of this case. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 1999, Section 80-IA was split. The deductions therein were divided in two sections i.e. Section 80-IA and 80-IB. Section 80-IA deals with deductions for Industrial Undertakings or enterprises engaged in infrastructure developments; whereas Section 80-IB deals with several other activities and income of any profits and gains derived from any such business/activities are covered by the provisions of Section 80IB. 32. In so far as the Judgment of the Madras High Court in the case of M/s. Computer Graphics Limited vs. The Assistant Commissioner of Income Tax Company Circle IV(2) relied upon by the learned counsel for the Revenue is concerned, the substantial question of law before the Madras High Court was whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the appellant was not entitled to deduction under Section 80-IB of Income-tax Act 1961 on the ground that conversion of jumbo rolls into salable packets/rolls of standard sizes was not manufacture or production of article or thing? The Madras High Court, in the said Judgment, held that the activity of converting jumbo rolls into marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the customers of the Assessee. The original goods, as well as the size reduced goods by slitting were all one and the same i.e. they were photographic colour paper. No new commercial commodity emerged out of the activity carried on, on the original goods i.e. jumbo rolls which could be considered as a manufacturing activity at the hands of the Assessee. 35. It is held that the Assessee was only trading in photographic colour papers as a wholesaler and slitted the already manufactured and produced photographic paper into required size to suit the requirement of its customers and in easily marketable sizes. It is held that slitting of bigger roll into marketable smaller rolls or sizes was an integral part of the trading activity of the Assessee and in such process neither manufacture nor production is involved, nor a new product emerged. The facts before the Madras High Court were totally different. The said Judgment even does not remotely apply to the facts of this case and is clearly distinguishable. 36. For the reasons indicated above the substantial question of law formulated herein above on 7th December 2009 by this Court is answered in the affirmative, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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