TMI Blog1980 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee from Canara Bank on the moneys deposited therein, could be treated as profit attributable to the priority industry and would qualify for deduction under section 80-I of the Income-tax Act, 1961, for the assessment year 1971-72 ? " The assessee was incorporated as a company which took over all the assets and liabilities of a firm carrying on business in the manufacture and sale of radiators, oil coolers, heat exchangers and other automobile accessories with effect from 1st June, 1969. It closed its accounts for the first time on 31st March, 1970, and thereafter at annual intervals on 31st March. The two assessment years under consideration are 1970-71 and 1971-72. The assessee declared in its return Rs. 3,32,675 and Rs. 5,74,242 as its assessable income for the assessment years 1970-71 and 1971-72, respectively, and claimed relief under s. 80-1 of the Act for both the assessment years. The ITO computed the business income for the assessment year 1970-71 at Rs. 3,58,589 and for 1971-72 at Rs. 6,23,131. Included in these amounts are the following three items, namely, (1) Rs. 33,333 and Rs. 60,000, being the amounts received in the two years by leasing the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Bank and that the assessee had borrowed from the said bank Rs. 4,50,000 as on March 31, 1970, and Rs. 5,81,255 as on March 31, 1971. The borrowing was said to be for business purposes. The interest on such borrowings had been allowed as a deduction. In the view of the Tribunal, the making of the deposit and the borrowings on the security of the deposits showed that they could be treated as part of the assessee's business and that, consequently, the interest received on such deposits from the bank was to be treated as profits attributable to the priority industry. It is in this view that the ITO's action in granting the relief under s. 80-I of the Act in respect of the three amounts for the two years was considered to be proper. The Commissioner has challenged these conclusions of the Appellate Tribunal in the form of the questions set out already. We shall take up each of the three amounts covered by the questions separately. We shall first consider the rent received by the assessee on the lease of the machinery and examine whether it is income attributable to the priority industry coming within the scope of s. 80-1 of the Act. This section was deleted with effect from 1st Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was running a priority industry. It had certain machinery which was sold. The balancing charge as a result of the sale of the machinery was brought to tax under s. 41(2) of the Act. The question was, whether the amount so brought to tax could be treated to be profits attributable to the priority industry so as to be eligible for exemption or relief contemplated by s. 80E which corresponds to s. 80-I of the Act, now under consideration. In construing the expression " attributable to ", the Supreme Court pointed out at page 93 : " As regards the aspect emerging from the expression 'attributable to' occurring in the phrase 'profits and gains attributable to the business of' the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression ' attributable to' and not the expression 'derived from'. 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 charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re there is some direct nexus between the income and the priority industry. The nature of the source would be immaterial. For instance, in the present case, even if the income from the lease of the factory had been assessed under the head " Other sources ", the above passage would support the view that it is eligible for the concession. It need not emanate from the actual running of the factory by the assessee. It is in that sense that the last sentence of the Supreme Court's judgment has to be understood. The learned counsel for the Commissioner contended that the source or receipt by the assessee was only the lease amount and that it cannot have anything to do with the priority industry contemplated by s. 80-I of the Act. The source cannot be divorced from its origin, namely, the factory in the present case. As the factory is producing the automobile ancillaries, the income either by way of rent or by direct manufacture would qualify for the relief under s. 80-I of the Act. The result is that the rental income would have to be taken as eligible for the relief under s. 80-I of the Act. We would now take up for consideration the amount derived by the assessee as and by way of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said to be attributable to the profits of the priority industry." The Appellate Tribunal seems to have missed the real point that arises in this case. The real question is, whether the interest derived from the deposit is attributable to the priority industry. The surplus funds, whenever deposited, in the bank were clearly not required for the priority industry and that is how it came to be kept in a fixed deposit for a term. If nothing more had happened, the fixed deposits could only be taken as originating from the funds not required by the priority industry. Its connection with the priority industry would only be remote. As and when the assessee required moneys, it approached the bank for loans. It was at that stage that the bank took this fixed deposit as security for the loans. We are, however, concerned with the deposit having nexus with the priority industry at the stage at which the amounts were deposited in the bank and started earning interest. Else, it would be enough for an assessee to offer as security all his properties and claim the entire amount of income earned from all of them as eligible for the relief under s. 80-I. Such a result could not have been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect relationship or nexus with the business of generating and supplying energy. The interest received on such investment, therefore, could not be considered to be profit or gain attributable to the business of the assessee which alone can be taken into account for the purpose of s. 80-I of the Act. " During the course of the argument there was some debate as to whether this particular passage would have validity after the judgment of the Supreme Court in [1978] 113 ITR 84 (Cambay Electric Supply Industrial Co. Ltd. v. CIT). In the context of the pronouncement of the Supreme Court, the view taken by this court that the profits and gains must arise from the specific activities or business of generation of electricity may have to be reconsidered. As " attributable to " is wider than " derived from ", the relief is not confined only to the profits of the priority industry strictly so called. It would have a wider ambit. However, the conclusion arrived at in that case is unexceptionable because the character of the interest is different from the character of the income attributable to the priority industry. The result is that in so far as the interest income was concerned, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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