TMI Blog2003 (4) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that while interpreting the provisions as regards deduction, if two views are possible, the view in favour of the assessee should be adopted and in this connection ten decisions of the Supreme Court have been referred to starting from CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518 (SC) to Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 (SC). In principal we agree with the ld. Counsel and say that there cannot be any doubt about the proposition but subject to the following observation of the Supreme Court in Escorts Ltd. v. Union of India [1993] 199 ITR 432 (SC): 'In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some overenthusiastic assessee who sought double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the scope of the provisions as they stood earlier'. It would thus be imperative that when a provision is clear as to its scope, that interpretation is to be adopted irrespective of the acceptance of a contrary view by some authority and raised by an assessee. 3. Another preliminar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single judge takes a view different from the one taken by another judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly, if a Division Bench differs from the view taken by another Division Bench it does not express disagreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report as under:-- "The Tribunal noted that for a number of years the assessee had returned the income derived by it as and by way of interest under the head "other sources" and that it was assessed accordingly. It, however, proceeded to observe that the principles of estoppel and res judicata were not applicable to income-tax proceedings and that, therefore, the matter had to be viewed in the light of the facts and circumstances brought on record, so far as the assessment year in question was concerned. We do not think any objection could be taken to the approach of the Tribunal, so far as this particular aspect is concerned." 7. Another case we find in the case of Dwarkadas Kesardeo Morarka v. CIT [1962] 44 ITR 529 the Supreme Court observed as under:-- "The conclusion of the Tribunal was amply supported by evidence. It cannot be said that because in the previous years the shares were held to be stock-in-trade, they must be similarly treated for the assessment year 1949-50. In the matter of assessment of income-tax, each year's assessment is complete and the decision arrived at in a previous year on materials before the taxing authorities cannot be regarded as binding in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Lordships considered its earlier decisions in the case of Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 and Union of India v. Satish Panalal Shah [2001] 249 ITR 221 and observed that these decisions do not hold that the revenue can never challenge an interpretation which they have not chosen to do so earlier. This is an indication of a proposition that there is no bar for taking a different view and such a different view could be taken by showing a just cause and conflicting decision by itself and a contrary decision of another court by itself would be such a "just cause". 11. From the above it is clear that an earlier order of co-ordinate bench has a great persuasive value and it should not ordinarily be deviated from. This principle however, is subject to certain limitations, namely, (i) the facts are same, (ii) no new facts are brought on record, (iii) no change in the circumstances under which the decision was reached is there, (iv) there is no decision of a higher court, or (v) there is no change in the statutory provision of law. A decision reached on particular facts and on consideration of the law prevailing at that time can be deviated from it some new f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial undertaking profit and gain arising therefrom is to be held to be derived from industrial undertaking. 13. Shri M.M. Patel, appearing for Sandek India Ltd. in ITA No. 1460/Ahd./2002 adopted the arguments of Shri Soparkar. In his case, the issue is for 80HH and 80-I deduction on interest on late payment from customers and interest received from banks on deposits for opening letter of credit and bank guarantee. 14. Shri Ramesh Malpani appearing for Suncity Synthetics Ltd. (ITA No. 4807/Ahd./96 and ITA No. 230/ Ahd./96) stated that in his case 80-I deduction is for interest on late payment, interest on deposit for opening letter of credit and bank guarantee and interest received from banks and sarafi interest are involved. With regard to the first two items, he adopted the argument of Shri Soparkar. For the interest on sarafi account, he submitted that there must be made a distinction between initial funds and surplus funds which are ultimately reducing the cost of the assessee. It is only the subsequent funds which are not meant for industrial undertaking and the interest therefrom could at best be disallowed. 15. Shri P.K. Vyas is appearing for Pee Gee Fabrics P. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax, DR, appearing on behalf of the revenue, heavily relied upon the decision of the Tribunal in the case of Bio Pharma(supra) and in the case of Avani Petrochem (P.) Ltd. [IT Appeal No. 1215 (Ahd.) of 1995 dated 25-9-2001]. He also placed reliance on the cases of Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325; of the Supreme Court in the case of Sterling Foods and in the case of Hindustan Lever Ltd.; Madras High Court in CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497; and in CIT v. South India Shipping Corpn. Ltd. [1995] 216 ITR 651. He also referred to the decision of the Supreme Court in the case of CIT v. Autokast Ltd. [2001] 248 ITR 110 wherein interest was held to be an income from other sources. He then referred to decisions of Supreme Court in the case of Bakaro Steel Ltd. (supra) and Delhi Bench of the Tribunal in the case of Asstt. CIT v. Gallium Equipment (P.) Ltd. [2001] 73 TTJ (Delhi) (TM) 130 wherein the cases referred have been discussed. Unless and until the profit and gain is derived from the specified industrial undertaking from the manufacture and production of article or thing, the deduction, he submitted, wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the business of the hotel has started or starts functioning after the 31st day of December, 1970 [but before the 1st day of April, 1990], in any backward area; (ii) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence; (iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government. (4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning: Provided that,-- (i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and (ii) in the case of the business of a hotel which has started functioning, after the 31st day of December, 1970, but before the 1st day of April, 1973, this sub-section shall have effect as if the reference to ten assessment years were a reference to ten assessment years as reduced by the number of assessment years which expired before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of [ten] years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power: Provided that the condition in. clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and with the period specified in that section: Provided further that the condition in clause (iii) shall, in relation to a small-scale indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building previously used as a hotel or of any machinery or plant previously used for any purpose; (ii) the business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees; (iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government; (iv) the business of the hotel starts functioning after the 31st day of March, 1981, but before the 1st day of April, 1991. (4A) This section applies to the business of repairs to ocean-going vessels or other powered craft which fulfils all the following conditions, namely:-- (i) the business is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it is carried on by an Indian company and the work by way of repairs to ocean-giving vessels or other powered craft has been commenced by such company after the 31st day of March, 1983, but before the 1st day of April, 1988; and (iv) it is for the time being approved for the purposes of this subsection by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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." Sub-sections (7) to (10) not being relevant not reproduced. 20. Sub-section (1) of section 80HH provides for a deduction of 20 per cent of the profits and gains derived from an industrial undertaking or the business of a hotel, to which this section applies. Sub-section (2) enumerates such industrial undertaking to which the section applies. Sub-section (3) on the other hand prescribes the business of a hotel to which the section applies. Sub-section (1) of section 80-I provides similar deduction in respect of profits and gains derived from an industrial undertaking or a ship or business of a hotel, etc., to which the section applies. Sub-sections (2) to (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "What then is an 'industrial undertaking'. The Income-tax Act does not define what is 'an industrial undertaking' or what is an 'industrial undertaking'. It has, therefore, become necessary to construe these words. Words used in a statute dealing with matters relating to the general public are presumed to have been used in their popular rather than their narrow, legal or technical sense. Loquitur ut vulgus, that is, according to the common understanding and acceptation of the terms, is the doctrine that should be applied in construing the words used in statutes dealing with matters relating to the public in general. In short, if an 'Act is directed to dealings with matters affecting everybody generally, the words used have the meaning attached to them in the common and ordinary use of language'. That the Income-tax Act is of general application, is beyond dispute. It, therefore, follows that the meaning that should be given to these words 'industrial undertaking' must be the natural meaning. It is all the more so because the Income-tax Act is one consolidating and amending the law relating to income-tax and supertax." "..... "Undertaking' in common parlance means an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. The feeding activity so carried on for "manufacturing or processing of goods' facilitates efficient and economic management and the effectuation of the purpose of construction. Their Lordships therefore, held that the assessee used new machinery or plant in an industrial undertaking for the purpose of construction or production of an article or thing and such article or thing is not specified in the Eleventh Schedule and so, the assessee is entitled to relief under section 32A. (c) The Supreme Court decision referred to above was concerned with the term "Industry" and the "Undertaking" as appearing in Industrial Disputes Act and in that context it held as under: "34. So, the long and short of it is, what is an industry? Section 2(j) defines it: "industry" means any business, trade undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen," Let us put it plain. The canons of construction are trite that we must read the statute as a whole to get a hang of it and a holistic perspective of it. We must have regard to the historical background, objects and reasons, international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or musheria which are spiritual and aesthetic undertakings. Wide meanings must fall in line and discordance must be excluded from a sound system. From Banerjee (AIR 1953 SC 58) to Safdar Jung (AIR 1970 SC 1407) and beyond, this limited criterion has passed muster and we see no reason, after all the marathon of argument, to shift from this position. 38. Likewise, an 'industry' cannot exist without co-operative endeavour between employer and employee. No employer, no industry;--no as a dogmatic proposition in economics but as an articulate major premises of the definition and the scheme of the Act, and as a necessary postulate of industrial disputes and statutory resolution thereof. 39. An industry is not a utility but geared to utilities in which the community has concern. And in this mundane world where law lives now, economic utilities - material goods and services, not transcendental flights nor intangible achievements - are the functional focus of industry. Therefore, no temporal utilities, no statutory industry, is axiomatic. If society, in its advance, experiences subtler realities and assigns values to them, jurisprudence may reach out to such collective good. Today, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, canals, etc., Their Lordships did not express any opinion as to the meaning of the term "industrial undertaking" given by the High Court, because no arguments have been addressed by the learned counsel of the Revenue questioning the view taken by the High Court. On a reading of the provisions and considering the use of the machineries as the determinative factor, Their Lordships held that sub-clause (iil) of clause (b) of sub-section (2) of section 32A does not comprehend within its ambit construction of a dam, a bridge, a building, a road, a canal or other similar construction and therefore, the machinery used for such an activity was held to be not entitled to deduction thereunder, it being not used for construction, manufacture or production of anyone or more articles and things. 24. These are the cases wherein the deduction was with reference to plant and machinery used for construction, manufacture or production of an article or thing which was found to be a condition precedent for investment allowance irrespective of the fact that the term "industrial undertaking" has a wider meaning or the restrictive one. This much, however, is clear that it has to be an "industrial un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be derived from. Sale is not the only source of income but also one mode of finding out of the profit. The other mode is the market value of the articles or things produced, i.e., in case of captive consumption and see in this connection the decision of the Supreme Court in the case of Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income-tax [1962] 44 ITR 6 (SC) wherein it was observed that even if agricultural produce is self-consumed, its value is liable to be treated as agricultural income, since extent of sale is not compulsory (captive consumption). 26. The second requirement to be seen for availing the benefit of deduction under sections 80HH and 80-I is that profits and gains must be derived from industrial undertaking. The industrial undertakings manufacture and production must be the direct, effective and of First degree source of the profit and gains. The deduction under these sections 80HH and 80-I is available only in respect of such profits and gains which have a direct or proximate nexus with the activity of manufacture or production. Any other profit or gains, which is not derived from an industrial undertaking, though attributable to the business of the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there would have been no arrears of rent, and if there had been no arrears of rent, there would have been no statutory interest. Following this sequence of causes, they say that it is obvious that interest in circumstances such as these must be classified as revenue derived from land," 28. Their Lordships then answered the question by stating:-- "The interest clearly is not rent. Rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use land. Interest payable by statute on rent in arrears is not such a payment, It is not part of the rent, nor is it an assertion to it, though it is received in respect of it. Equally clearly the interest on rent is revenue, but in Their Lordships' opinion it is not revenue derived from land, It is no doubt true that without the obligation to pay rent--and rent is obviously derived from land--there could be no arrears of rent and without arrears of rent there would be no interest, But the affirmative proposition that interest is derived from land does not emerge from this series of facts, All that emerges is that as regards the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of tea. The trees were cut down and sold after they had become useless by efflux of time. The grevelia trees in the tea estate of the respondent constituted therefore capital assets and the proceeds derived therefrom by sale as firewood would not constitute agricultural income under the Act." 31. In the case of Mrs. Bacha F. Guzdar v. CIT [1952] 22 ITR 158 (Bom.) it was observed that although you may hold back the source of the income, you should not go right back to its ultimate source. The moment you came to an immediate and effective source, one ought not to go any further. This case affirmed in Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC) and it was been held as under: "No doubt, initial source which had produced revenue was land used for agricultural purposes, but in fact dividend is derived from investment made in shares and the foundation is contractual relationship of the company and the chairman," 32. In the case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) it was observed that the mere fact that an activity has some connection with or is in some way dependent on land is not sufficient to bring it within the scope of the term and such extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the value of the turnover of exports under section 2(3)." 36, The term 'derived from' came up for consideration before the Supreme Court in the case of Sterling Foods' in connection with the receipt from sale of import entitlement and it was held by Their Lordships of Supreme Court "The use of the words 'derived from' in item 11-AA(2) suggests that the original source of the product has to be found. Thus, as a matter of plain English, when it is said that one word is derived from another, often in another language ,what is meant is that the source of that word is another word, often in another language. As an illustration, the word 'democracy' is derived from Greek word 'demos' the people, and most dictionaries will so state. That is the ordinary meaning of the 'derived from' and there is no reason to depart from that ordinary meaning here." Again it said "There must be, for the application of the words 'derived from' a direct nexus between the profits and gains and the industrial undertaking." It was ultimately held that the source of import entitlement is the export promotion scheme of the Central Government and, therefore, there is 'no direct nexus involving the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he effective source in geneology of the source of interest income is the deposit and not the business as the industrial undertaking is removed by one step from the source of income for the interest. Their Lordships further observed that the deposit might be an incidental investment with the business of the industrial undertaking but that would not be sufficient to render the interest income as profits and gains derived from industrial undertaking. The fact that an amount was assessable as business income itself was observed to be not sufficient to hold that interest income was derived from the actual conduct of the business of the industrial undertaking. 40. In the case of Gallium Equipment (P.) Ltd., the interest on the fixed deposit taken for the security of the customers was held to be income derived from industrial undertaking since the fixed deposits were pledged with the bank by way of security against the advance payments made by customers for purchase of goods from the assessee. This decision discussed the Supreme Court decision in the case of Sterling Foods. The case of Pandian Chemicals Ltd. was sought to be distinguished on the ground that there was no discussion as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king. In this case, the Tribunal found that the assessee commenced manufacturing Ashok Leyland trucks in collaboration with foreign company Leyland and there was a phased programme for the manufacture of necessary spare parts. It was found that some of the purchasers of the Leyland trucks from the assessee found it difficult during some years to get the requisite spare parts because the spare parts manufactured by the assessee were not sufficient to meet the demand or because the assessee did not manufacture those particular spare parts. In the circumstances and as a matter of commercial expediency, the assessee imported such spare parts and sold them during the accounting year relevant to the year concerned herein. Based on these findings, the Supreme Court held that profits and gains arising from import and sale of spare parts was attributable to industrial undertaking carried on by the assessee and that on the facts found by the Tribunal it was difficult to dissociate the said activity to the main activity carried on by the assessee namely manufacture and sale of Ashok Leyland trucks. It was intimately connected with the priority industry set up and being run by the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to deduction under section 80HH. It has not discussed the decision of Privy Council in the case of Raja Bahadur Kamakhaya Narayan Singh. In this very case, however, the interest on margin money for obtaining the letter of credit was held to be not entitled to deduction under section 80HH and the court observed that the interest which was earned by the assessee from bank deposits made for obtaining the letter of credit for the purpose of export would not have a direct nexus with the industrial undertaking of the assessee and would only be incidental thereto and such interest had to be ignored from the allowable profit under section 80HH. 46. We would discuss now certain other cases referred to in the course of hearing. One is in the case of CIT v. Gujarat Mineral Development Corpn. [1981] 132 ITR 377 wherein the Gujarat High Court held that the amount kept by the assessee in short-term fixed deposits out of idle funds are to be included in computation of capital employed for the purpose of relief under sections 84 and 80J for the relevant year. There was no question for consideration before the court as to whether the interest income on fixed deposit represented profits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of asset for setting up the plant and machinery. 47. In Avani Petrochem (P.) Ltd.'s case interest has been mainly received from one of the group concerns on the amount which has been advanced directly from the overdraft account to ensure that the limit sanctioned by the bank was not reduced. The Tribunal held "On the facts of the present case, the interest income, though assessed as income from business, can not be regarded as income derived from the assessee's industrial undertaking". 48. In the case of Amarsinhji Stationery Industries Ltd. the Tribunal upon consideration of the Supreme Court decision in Sterling Foods' case held that interest income from IDBI deposit, on NSC deposits with Govt. Deptt., fixed deposits against margin money for guarantee/L.C., on intercorporate loans, on IT Refunds and on Hundies as also on insurance claims receipts would not be eligible to deduction ,--under seCtion 80-I of the-Act. 49. In the case of Kalpataru Power Transmission Ltd. one of the assessees before us, the Tribunal, in the appeal for assessment year 1991-92 in ITA No. 2700/Ahd./1995 order dated 4-4-2001 following the two decisions of the Supreme Court in Sterling Foods case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking. In this case, the decision in the case of Raja Bahadur Kamakhaya Narayan Singh was distinguished by the Tribunal by stating that interest was payable on arrears of rent by virtue of statutory provisions and, therefore, could not be treated as rent derived from agricultural activity. The Tribunal relied upon the decision of the Supreme Court in the case of Govinda Choudhury Sons wherein the interest receipt was claimed by the assessee to be treated as part of trading for application of flat rate whereas the Revenue assessed the entire sum as income from other sources. The Supreme Court in that case observed that if the amounts are not paid at proper time and interest is awarded on such delay, such interest is only an accretion to the assessee's receipt from contracts. It is obviously attributable and incidental to the business carried on by the assessee and that it would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. To quote, "We find it difficult to comprehend how the interest received by the assessee can be treated as receipt which flow to him de hors the business which is carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iversal Radiators (P.) Ltd [1981] 128 ITR 531 was referred to wherein the bank deposits were made out of surplus funds which were clearly not required by the assessee and it was only after the deposits were made that when the assessee required moneys, it approached the bank for loan and at that stage the fixed deposit receipts were given as security for loan. In these circumstances, it was held that there was no connection between priority industry and the fixed deposit. In the decision in the case of Vellore Electric Corpn. Ltd., which was a case under section 80-I of the time when it used the expression "attributable to", the Bench observed "though in that case the court was concerned with the expression 'attributable to', yet it is an authority for the proposition that where the investments had been made in the course of actual carrying of the business and the income accrues on such investment, then it can be said that there is a direct and proximate connection between the income earned and activity of the business. 53. In the case of Kinetic Honda Motor Ltd. v. Joint CIT [2001] 72 TTJ (Pun e) 72, the interest earned on old payments of debtors to the assessee is considered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case near to the case of Cambay Electric Supply Industrial Co. Ltd. The question whether interest was derived from the execution of contracts was not there before the Supreme Court in this case. See also in this connection two decisions of the Supreme Court relating to levy of excise duty in the case of Government of India v, Madras Rubber Factory AIR 1995 SCW 2654 and in the case of VST Industries Ltd. v. Collector of Central Excise, Hyderabad AIR 1998 (SC) 1441 the observations wherein clearly show that when goods are sold on credit and interest is received that does not form part of the price on which excise duty is payable. (ii) The interest received from banks on deposits pledged with it for obtaining letter of credit/bank guarantee A letter of credit is an undertaking by a banker to meet drafts drawn under by the beneficiary of the credit in accordance with the conditions laid down therein. A letter of credit is generally issued to another specified banker where credit is designed to facilitate trade. Banks, to insure themselves generally ask for deposit to be kept with them for issuing the letter of credit. On such deposits banks grants interest obviously because assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made and not from industrial undertaking manufacturing or producing articles or things. This distinction may be valid for determining the income whether from business where only incidental connection is required to be established and determining whether income is derived from where the effective and direct source of first degree alone is to be established. (v) Insurance claim receipts for reimbursement of losses In general terms the insurance receipts -are not income at all. The receipt is to reimburse the expenditure or to compensate for the loss incurred by an assessee and for which the assessee was insured. See in this connection the decision of Supreme Court in the case of CIT v. Hukumchand Mohanlal [1971] 82 ITR 624 wherein it was pointed out at page 626 that "As observed by the High Court, under the General Law if a trading liability has been allowed as a business expenditure and if this liability is remitted in any subsequent year, the amount remitted cannot be taxed as income of the year of the remittance nor can the amount, for the year in which the liability was allowed, to be reopened or adjusted. Therefore, there is no liability of the recipient for the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le service'. (ii) Rs. 15,079, being rewinding charges, because it was a condition of sale as 'after sale service'. (b) The assessee would not be entitled to deduction under section 80-I on: (1) Rs. 39,402, being interest on late payment of sale proceeds, as the immediate source is the debt owed and not the industrial undertaking. (c) The other dispute raised in this appeal is for the disallowance of interest on debit balance in partners capital account of Rs. 58,183. The money was advanced to and withdrawn by the partner in earlier year from bank account having credit balance and disallowance was deleted by the appellant authority on the ground that no borrowed money was utilized in such withdrawalsby the partners. In this year again the money is withdrawn from bank account wherein the sale proceeds of the assessee are deposited which are much more than the withdrawals by the partners and no nexus is established by the revenue that borrowed money on which interest has been paid has been the source of withdrawals by the partners, no disallowance therefore is justified and the same is accordingly deleted. (d) In the result the appeal of the revenue is partly allowed. 2. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate payment from customers. Assessee's contention that it paid very heavy interest to GSFC of Rs. 9,41,099 and interest paid was to partly to meet the cost of interest paid and therefore it relates to and has a direct connection to industrial undertaking has no force. The interest payment and interest receipt are two different transactions and merely because assessee paid interest cannot be a ground for holding that receipt is income derived from industrial undertaking. However to arrive at the income derived from the industrial undertaking the interest which is paid for earning this income has to be excluded. We, therefore, direct the Assessing Officer to exclude only the net interest income from the profits and gains shown in the profit and loss account to arrive at the income derived from the industrial undertaking. (b) The assessee has been granted necessary relief by the Assessing Officer and the ground has been withdrawn before the CIT(A) therefore the ground regarding labour charges of Rs. 8,173 is misconceived and does not survive and is accordingly rejected. (c) The other ground raised is for denying section 80HHA deduction as Small Scale Industry because the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r manufacture of articles or things as envisaged in section 80-I of the Act. (b) The other ground raised is for denying section 80HHA deduction as Small Scale Industry because the value of its assets had exceeded Rs. 35 lakhs. There has been an amendment in the monetary limit by notification No. SO 232(E) dated 2nd April, 1991 issued by Ministry of Industries raising the limit to Rs. 60 lakhs. Assessing Officer may therefore look into this aspect and allow necessary relief to the assessee. (c) In the result the Revenue's appeal is partly allowed. 6. Pee Gee Fabrics (P.) Ltd. (ITA No. 4850/Ahd./1996) (a) The assessee would not be entitled to deduction on Rs. 4,80,838 under section 80-IA the successor provision on the lines of section 80-I, it being interest from customers on late payment of sale proceeds, as the immediate source is the debt owed and not the industrial undertaking. (b) In the result the Revenue's appeal is allowed 7. Kalpataru Power Transmission Ltd. (a) The assessee would not be entitled to deduction under section 80-IA the successor section to 80-I on interest of Rs. 3,18,701 from bank on fixed deposits kept as money margin - for the purpose of letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however referred to the resolution dated 7-4-1988 passed by the company appointing the managing director wherein it is stated that the managing director is appointed for a term of five years on a salary of Rs. 7,500 per month with the perquisites and conveyance in the shape of rent-free accommodation, car, provident fund, etc. He observed that the terms of employment of the managing director have not been revised although the quantum of remuneration paid to him has been approved in the Annual General Meeting, since it was a fait accompli. The Assessing Officer applied the provisions of section 40A(2)(b) and observing that the assessee has failed to prove the reasonableness of 10 times increase in the salary of managing director, held that the amount paid in excess of Rs. 3 lakhs was unreasonable and disallowed Rs. 6,90,246. The CIT(A) allowed the claim of the assessee by observing as under: "8.2 I have considered the facts of the case, submission made by the appellant and the evidence furnished. The statement by the Assessing Officer in the assessment order to the effect that the terms of employment of the Managing Director appointed on 7-4-1988 have not been subsequently revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons for the substantial increase in the remuneration to the Managing Director. The assessee explained that after the demise of the earlier Managing Director, who was also one of the promoters of the assessee-company in November, 1986, the company was in search of a suitable person for an appointment as its Managing Director Shri M.G. Punatra a Technocrat with experience in similar line of business was appointed as Managing Director on 7-4-1988 as per Board of Resolution as under: 'Managing Director shall during the term of five years from his appointment continue to serve the company as M.D. and shall give whole-time attention to management and necessary affairs of the company and shall use his best endeavour and efforts to improve and extent overall business of the company. The M.D. shall be entitled to salary of Rs. 7,500 p.m. Apart from above, the perquisite and conveyance in the shape of rent-free accommodation, car, P.F. etc. also given.' The assessee further submitted that due to untiring efforts of Shri Punatra the company achieved a turn around as reflected in the following figures: For the year ended Net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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