1. The common question which is referred to us under section 256(1) of the Income-tax Act, 1961, (hereinafter referred to as 'the Act') by the Income-tax Appellate Tribunal,, Bangalore Bench in these three cases is as follows :
'Whether on the facts and in the circumstances of the case, the technical service fee secured by the assessee was income from priority industry for purposes of section 80-I of the Income-tax Act, 1961 ?'
2. The assessee is the Mysore Electrical Industries Ltd. which is engaged in the production of equipment for generation and transmission of electricity including transformers. These cases relate to the assessment years 1969-70, 1970-71, and 1972-73. During the relevant accounting period, the assessee had received some amounts, by way of technical fees under technical collaboration agreement entered into by it with M/s. United Electrical Industry Ltd. in the State of Kerala. The assessee claimed relief in respect of the said receipts under section 80-I of the Act. The Income-tax Officer, the Appellate Assistant Commissioner and the tribunal rejected the claim of the assessee for such claim. Hence these references at the instance of the assessee.
3. Section 80-I of the Act which was in force during the assessment years 1969-70 and 1970-71, read as follows :
80-1, Deduction in respect of profits and gains from priority industries in the case of certain companies - (1) In the case of a company to which the section applies, where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed in accordance with and subject to the provision of this section, a deduction from such profits and gains of an amount equal to eight per cent thereof, in computing the total income of the company.
(2) This section applies to a domestic company, save in a case where such company is a company which is referred to in section 108 and has a gross total income of fifty thousand rupees or less.
(3) Where a company to which this section applies is entitled also to the deduction under section 80H, the deduction under sub-section (1) of this section shall allowed with reference to the amount of the profits and gains attributable to the priority industry or industries as reduced by the deduction under section 80H in relation to such profits and gains.'
During the assessment year 1972-73, in sub-section (1), 'five percent' was submitted for 'eight percent'.
4. It is not disputed that the assessee is a domestic company to which section 80-I, applies. It is also not in dispute that it is engaged in the production of the goods and articles which are described at item No. 7 in the Sixth Schedule of the Act. The assessee, therefore, satisfied that it was carrying on business which came within the definition of the expression 'priority industry' found in sub-section (7) of section 80B of the Act as it stood then. The authorities under the Act disallowed the claim of the assessee for relief under section 80-I on the sole ground that the receipts in question, viz, the technical fees received by the assessee from the United Electrical Industry Ltd., were not profits and gains attributable to any priority industry, because the income in question was not derived by the assessee by itself manufacturing or producing the goods.
5. The Tribunal reached the above conclusion in view of its observations made in its earlier order passed in appeal in respect of the assessment year 1967-68. In that order, the Tribunal observed as follows :
'It is a fact that the assesses company had allowed another company to manufacture starters under the assesses company's trade name and received fees for the same.... It is no doubt true that the technical services are in respect of the manufacture of certain articles but that would not mean that so far as the assesses company was concerned, the profits and gains had arisen as a result of the business of manufacturing. The significant use of the expression 'attributable' in the section goes to show that it must be by reason must have formed part of the total income. The profits and gains in this case admittedly have not arisen by reason of the business of manufacture but by the receipt of fees for allowing the other company to use its trade mark and manufacture starters.'
6. We are of the view that the interpretation placed by the Tribunal on the expression 'attributable to' found in section 80-I is too narrow. Section 80E(1) of the Act, which was introduced by the Finance Act of 1966, was more or less in similar terms and the words 'attributable to' were also found there. In Cambay Electric Supply Industrial Co. Ltd. v. Commissioner of Income-tax : 113ITR84(SC) the supreme court while construing the expression 'attribute to' in section 80E(1) observed as follows :
'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 charge arising from the sale of old machinery and buildings cannot be regarded as 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 had 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.'
7. The assessee, as mentioned above, was engaged in the business of manufacturing and production of goods mentioned in the Sixth Schedule. It had acquired the necessary technical know-how by reason of the business in which it was so engaged. M/s. United Electrical Industry Ltd. must have entered into the technical collaboration agreement with the assessee only on account of the competence, the assessee had acquired by engaging itself in the business of manufacturing and production of the goods in question. The collaboration agreement would not have come into existence but for the business in 'priority industry' in which the assessee was engaged. The income derived by virtue of the agreement can, therefore, be attributed only to the said competence and the technical know-how which the assessee had come to possess by carrying on the business in question. The income in question was only the result of another way of exploration of the business in which the assessee was engaged, This view receives support from the decision of the House of Lords in Rolls Royce Ltd. v. Heffery  1 All ER 801,  56 ITR 580 in which Lord Radcliffe said :
'My Lords, in my opinion, money's so obtained arise from the appellants trade as manufacturers of motor-cars and aero-engines. I appreciate their point that such moneys are not derived from their own operations of manufacture and, therefore, if assessable at all, must be attributable to a new and separate trade consisting of the exploitations of know-how for reward. But this, with all respect is a verbalism, and I think that the respondents were right in saying that the appellants new way of exploiting. know-how was no more than a development of their direct manufacturing trade and did not rank or need to tank as a separate business. In my view, that expresses the reality of the matter, since, as manufacturers the appellants were interested to promote the production of their engines for reward to themselves, and it was a question of trading policy by which method they secured this result by manufacturing and selling on their own or be selling to others the essential secrets of manufacture.' In the same decision Lord Morris of Borth-Y-Gest said (page 590) : 'Whatever description is given to that which in this case has been denoted by the words 'know-how', the course of activity embarked upon by the appellants was to put their current 'know-how' to the most advantageous available use while it had its maximum current value. The appellants acted in the way in which they considered that they had could best carry on their trade as manufacturers.' The income in question, therefore, is clearly attributable to priority industry and falls within the ambit of section 80-I of the Act. The authorities under the Act - the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, were, therefore, in error in refusing relief under section 80-I in respect of this income.
8. The question referred to us in each of the above cases is, therefore, answered in the affirmative and in favor of the assessee.