TMI Blog2009 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2/2005 56 of 2006) Commissioner of Income Tax Versus M/s. Allied Minerals Chemical Industries (in ITA Nos. 30 34 of 2006) Commissioner of Income Tax Versus M/s. Associated Minerals Industries ( in ITA Nos. 65 66 of 2006) Commissioner of Income Tax Versus M/s. Anirudh Minerals and Chemicals ( in ITA No. 75 of 2006) Deepak Gupta and V. K. Ahuja, JJ. ITA No.1, 2 of 2005 with 30, 34, 56, 65, 66 75 of 2006 and 4 of 2007. For the Appellant(s).: Mr. Vinay Kuthiala Mrs. Vandana Kuthiala, Advocates For the Respondents: Mr. M.M. Khanna, Senior Advocate with Mr. Goverdhan Sharma, counsel for respondents in ITA Nos. 1 of 2005, 30 of 2006 34 of 2006. Mr. Sunil Mohan Goel, counsel for respondents in ITA Nos.2 of 2005 and 56 of 2006. Mr. K.D. Sood, counsel for respondents in ITA Nos. 65 of 2006 and 66 of 2006. None for the respondents in ITA Nos. 75 of 2006 and 4 of 2007. JUDGMENT The judgment of the court was delivered by Deepak Gupta, J. - These appeals are being disposed of by a single judgment as the question of law involved in all the appeals is the same and reads as follows: "1.Whether the ITAT was right in law in holding that ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an industrial undertaking referred to in sub-clause (b) or sub clause (c) of clause (iv) of subsection (2), hundred per cent of the profits and gains derived from such industrial undertaking for the initial five assessment years and thereafter twenty-five per cent of the profits and gains derived from such industrial undertaking. xxxxxxxxxx (7) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." It would not be out of place to mention that after the amendment made in Section 80-1A by the Finance Act, 1999 w.e.f. 1.4.2000, Section 80-1A was split into two parts and now Section 80-1A applies to und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 S. 80-J. 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." Relying on these observations of the Apex court it is contended on behalf of the Revenue that since in Section 80-1A the word 'derived' has been used, the transport subsidy cannot be said to be derived from the business of the industrial undertakings. A Division Bench of the Calcutta High Court dealt with a similar question in Merinoply and Chemicals ltd. vs. Commissioner of Income-tax, (1994) 209 ITR 508. One of the questions before the Calcutta High Court was whether transport subsidies were inseparably connected with the business carried on by the assessee or not. In that case 50% of the transportation cost of raw material and finished goods was paid to the new Units set up in the backward areas. The Court hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be made without the deposit in favour of the Electricity Board, the income derived from the deposit with the Electricity Board cannot be said to have been derived from the industrial undertaking. The immediate source of interest is the deposit itself, and the effective source of the genealogy of the source of the interest income is the deposit and not business, as the industrial undertaking is removed by one step from the source of income for the interest. Hence, the interest income cannot be held to be derived from the industrial undertaking." The Madras High Court had placed reliance on the judgment of the Karnataka High Court in Sterling Foods vs. CIT, (1984) 150 ITR 292. The judgment of the Karnataka High Court was upheld by the Apex Court in Commissioner of Income-Tax vs. Sterling Foods, (1999) 237 ITR 579. In this case the assessee had sold the import entitlements and had thus derived profit. The question which arose was whether the receipts from the sale of import entitlements were eligible for relief under Section 80HH. The assessee was engaged in the business of processing prawns and other sea food which it exported. Due to export of items of its products it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of CIT v. Sterling Foods (1999) 237 ITR 579 (SC), had made a distinction between the words "derived from" and "attributable to". The words "attributable to" have wider import than the words "derived from" and when the Legislature has used the words "derive from" in Section 80HH, we cannot enlarge the scope of benefit intended by the legislature in section 80HH. Profits and gains which are derived from an industrial undertaking are only eligible for deduction under section 80HH. Any incidental income or profit to the business of the assessee or to the income of the industrial undertaking is not entitled or eligible for the benefit of section 80HH. The industrial undertaking should be the direct and immediate source of income for the purpose of deduction under section 80HH. Subsidy or transport subsidy is not the immediate source or have direct nexus with the activity of the industrial undertaking. It is an aid by the Government under the Scheme. Though it is incidental to the activities of the assessee, the source is the Government. Any aid or assistance by the Government to a particular type of industry cannot be treated as profit derived from the industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in M/s.Liberty India has been upheld by the Apex Court in M/s. Liberty India vs. Commissioner of Income Tax, JT 2009 (11) SC 571. The Apex Court after considering the legal provisions held as follows: "13. Before analyzing Section 80-IB, as a prefatory note, it needs to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of "profit linked incentives". Therefore, when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract Section 80-IB(6). It is the profits arising from the business of a ship which attracts sub-section (6). In other words, deduction under sub-section (6) at the specified rate has linkage to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skar Oil Engines Ltd . reported in [1986] 157 ITR 762). 15. Continuing our analysis of Sections 80-IA/80-IB it may be mentioned that sub-section (13) of Section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of Section 80-IA, so far as may be, applicable to the eligible business under Section 80-IB. Therefore, at the outset, we stated that one needs to read Sections 80I, 80-IA and 80-IB as having a common Scheme. On perusal of sub-section(5) of Section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub- section (5) of Section 80-IA, which are also required to be read into Section 80-IB. [see Section 80-IB(13)]. We may reiterate that Sections 80I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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