TMI Blog1981 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... 1977 are two numbers given for the same reference and that for the assessment year 1970-71, in regard to the same assessee. In that case too, two reference applications had been made as in I.T.Rs. Nos. 65 and 66 of 1977. Besides the question which is the subject of I.T.Rs. Nos. 65 and 66 of 1977, in I.T.Rs. Nos. 71 and 72 there is a second question, namely: " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in treating the interest receipts of Rs. 14,09,802 from bank deposits as business receipts of the assessee for the purpose of section 80J of the Income-tax Act 1961 ?" The assessee is M/s. Cochin Refineries Ltd., Ambalamugal, a public limited company, engaged in the business of refining crude mineral oils. The company entered into two agreements with M/s. Universal Oil Products Company, U.S.A., on November 26, 1963, and on December 30, 1963, respectively. According to these agreements, the assessee-company obtained patent rights from the Universal Oil Products Company to use the U.O.P. Merox Process and U.O.P. Platforming Process for refining oil in India. The foreign company had to be paid a royalty of Rs. 3,42, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l liability of Rs. 10,93,981 claimed by the assessee was not the total liability towards the process royalty. This included a sum of Rs. 1,32,702 being the adjustment on account of devaluation of Indian rupee with reference to American dollars as on June 6, 1966. The instalments of process royalty payable by the assessee by June 6, 1966, the date of devaluation, had been fully paid by the assessee in dollars, that being a sum of Rs. 5,71,587, so much so that on June 6, 1966, no amount was outstanding. Of course, future instalments were payable and they were paid. In paying the instalments before June 6, 1966, the assessee had utilised the dollars available to it from the loans taken from M/s. Philips Petroleum Company. Though that was not intended for the payment of process royalty, since that was available and remained unutilised at that time, the process royalty dues had been paid out of it. On the basis that replacement of such dollars utilised before devaluation would mean an additional liability on the part of the assessee, that liability being the difference in the dollar value due to devaluation, that amount of Rs. 1,32,702 was also brought into the books of account of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (i) `relevant previous years' means the fourteen previous years beginning with the previous year in which such expenditure is incurred or, where such expenditure is incurred before the commencement of the business, the fourteen previous years beginning with the previous year in which the business commenced: Provided that where the rights commenced, that is to say, became effective, in any year prior to the previous year in which expenditure on the acquisition thereof was incurred by the assessee, this clause shall have effect with the substitution for the reference to fourteen years of a reference to fourteen years less the number of complete years which, when the rights are acquired by the assessee, have elapsed since the commencement thereof, and if fourteen years have elapsed as aforesaid, of a reference to one year; (ii) `appropriate fraction' means the fraction the numerator of which is one and the denominator of which is the number of the relevant previous years." In order to apply this section it is necessary that there should be an expenditure of a capital nature, such expenditure should be incurred after the 28th day of February, 1966, and such expenditure shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 (reduced by the deduction, if any, admissible to the assessee under section 80HH) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year): Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date, or from the business of a hotel which starts functioning after that date, the provisions of this 'Sub-section shall have effect as if for the words ' six per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time the company required." On these facts, the Tribunal found that nothing had happened to the assets to change the character from that of a business asset. If the amount had remained with the company in cash till the date of repayment and utilised for such repayment it would no doubt have been a business asset. Could it make any difference because amounts were deposited in such a manner as to be available for payment when such payments fell due ? That is the question here. The case of the assessee is that in making such deposits it was only exploiting the business assets in the best manner possible under the circumstances without in any way affecting the liquidity of the funds. The question in the context of s. 80J, is whether the income obtained by way of interest from such short-term deposits can be treated as income derived from the industrial undertaking. It may be an income derived from other sources or it may be an income derived from business. If it would be income from other sources it could not be an income derived from business. In this context, we may advert to decisions relied on by counsel for the revenue in support of the case that the income derived from deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is in that context that the court said thus (p. 93): "It cannot be disputed that the expression 'attributable to' is certainly wider in import than the expression 'derived from'. Had the expression 'derived from' been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. , In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression derived from, as, for instance, in section 80J. In our view, since the expression of wider import, namely 'attributable to', has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. " No doubt these decisions lend weight to the argument of learned counsel for the revenue, Sri P. K. R. Menon, that the words " derived from " in s. 80J of the Act cannot have a wide import so as to include any income which can in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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