TMI Blog1994 (3) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the rules, on the ground that having held that the assessee is entitled to deduction under section 80HH, the assessee is also entitled to deduction under section 80J ?" At the outset, we may state that the first question, as framed, can straightaway be answered in the negative on the short ground that the question itself suggests and holds that "the assessee-company did not derive any profit from manufacturing operations", which is a condition precedent for the deduction permissible under section 80HH of the Act. Relief under section 80J of the Act having been granted in consequence of the relief under section 80HH, and also stated so in the question itself, the answer to the second question will also go the same way. However, as the case has been argued at some length, we will also consider it so, for which it would be necessary to refer to the facts as found by the Tribunal and the relevant statutory provisions. The respondent/assessee, a closely held company, was engaged in various trading and manufacturing activities. On April 1, 1971, the assessee set up a new industrial undertaking at Dalmiapuram, a notified backward area situated in the Tiruchirapalli District of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business profit, the said income from lease rent could clearly be said to be profit derived from the industrial unit within the meaning of section 80HH of the Act. In coming to this conclusion, the Tribunal drew support from a judgment of the Madras High Court in CIT v. Universal Radiators P. Ltd. [1981] 128 ITR 531. Since relief under section 80J of the Act had been denied to the assessee by the lower authorities mainly on the ground of disallowance of relief under section 80HH of the Act, the Tribunal further directed that relief under section 80J should also be allowed to the assessee as per the rules. It is the correctness of this conclusion of the Tribunal which is challenged before us by the Revenue by asking for a reference on the question mentioned above. The answer to the questions raised in main depends on the provisions and interpretation of section 80HH of the Act, which governs the controversy in the first question. The query in the second question relates to the claim for relief under section 80J of the Act, allowed by the Tribunal in consequence of relief granted under section 80HH. The controversy, therefore, revolves round section 80HH of the Act. The material p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking, it shall be allowed a deduction from such profits and gains of an amount equal to 20 per cent. thereof provided the assessee satisfies the requirements prescribed therein. Besides fulfilling the conditions stipulated in sub-section (2) of section 80HH of the Act, the assessee has also to establish that his profits and gains are derived from his industrial undertaking. In the instant case, it is not in dispute that the assessee's new unit, Rockfort Asbestos, in respect whereof relief is claimed under section 80HH, is an industrial undertaking within the meaning of the said section and it fulfils all the conditions laid down in sub-section (2) thereof. The only objection of the Revenue to the grant of the relief under the said section is that the industrial undertaking having been leased out by the assessee, the lease income earned by the assessee does not constitute profits and gains derived from an industrial undertaking. In other words, the question which falls for consideration is whether the income earned by the leasing out of the entire industrial undertaking could be said to be profits and gains derived from the industrial undertaking of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or engage himself in that particular activity, it had been specifically provided therein. He submitted that the decisions relied on by the Revenue were distinguishable inasmuch as unlike those cases, in the present case, the direct source of income was the industrial undertaking and the lease was only a mode of safeguarding the rights of the parties. He also said that the industrial undertaking was leased out by the assessee to Messrs. Hari Bros. (P.) Ltd. lock, stock and barrel and was run by them on the same lines as was being done by the assessee itself. The statement is objected to by learned counsel for the Revenue on the ground that it does not emerge either from the statement of the case or from the annexures forming part thereof. Reference was made by Mr. Harihar Lal to a decision of the Supreme Court in Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1. Since the word "derived" has already received judicial interpretation, we do not consider it necessary to go into its dictionary meaning but it will be useful to refer at this stage to the decisions wherein its scope has been considered. In Raja Bahadur Kamakhaya Narayan Singh's case [1948] 16 ITR 325, the Privy Council wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the law requires that such profits must have been derived from the industrial undertaking, which must itself be the source of that profit. Thus, the word "derived" has to be assigned a restricted meaning as compared to the words "attributable to" or "referable to" and, therefore, to avail of a rebate under section 80HH, an assessee must establish that he has derived profits or gains from the industrial undertaking. In other words, the industrial undertaking must itself be the source of that profit and gain and it is not sufficient if a commercial connection is established between the profits and gains earned and the industrial undertaking. As we have noted above, the assessee established a new industrial undertaking on April 1, 1971, in a backward area and fulfilled all the conditions specified in the section and became entitled to claim rebate under the said section. It ran the industrial undertaking itself up to April 9, 1973, whereafter it was leased out to Hari Bros. (P.) Ltd. Therefore, for the period from April 1, 1971, to April 9, 1973, there could be little doubt that the assessee qualified for rebate under section 80HH. However, the intervening factor, which, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money as herein is not dependent on the running of industrial undertaking. Once settled, the lease money becomes payable irrespective of any profit or gain or for that matter from the running of an industrial undertaking by the lessee. The lessee may or may not run the unit (industrial undertaking) or may or may not earn any profit or gain and in fact may incur loss in running it, but he still will be liable to pay the lease money. Thus income from lease money earned herein, though in a wider sense attributable to the industrial undertaking (as it is for leasing out the unit) cannot be said to be profits or gains (or a mode safeguarding it) derived from the industrial undertaking so as to entitle the lessor-assessee to a rebate under section 80HH of the Act. In this view of the matter, it is not necessary for us to go further into the contentions urged by learned counsel for the assessee. In our opinion, therefore, the Tribunal fell into error in holding that the assessee was entitled to deduction under section 80HH of the Act on the fixed lease money received by it for the industrial undertaking. As regards question No 2, we find from the statement of the case that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
