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Commissioner of Income-tax Vs. Andaman Timber Industries Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 118 of 1994
Judge
Reported in(2000)158CTR(Cal)458,[2000]242ITR204(Cal)
ActsIncome Tax Act, 1961 - Section 80HH
AppellantCommissioner of Income-tax
RespondentAndaman Timber Industries Ltd.
Appellant AdvocateSoumitra Pal, Adv.
Respondent AdvocateJ.P. Khaitan and ;Sanjay Banerjee, Advs.
Excerpt:
- .....for our consideration in this case is whether this amount of subsidy has been treated as income derived from the newly established industrial undertaking or it is an income incidental to the business of the assessee. in cit v. pandian chemicals ltd. : [1998]233itr497(mad) , the madras high court has considered whether the interest received on deposits with the electricity board made out of the statutory compulsion can be treated as profit derived from the industrial undertaking. the madras high court held that the immediate and effective source of interest was the deposit and not the industrial undertaking. therefore, interest could not be treated as income derived from an industrial undertaking for the purpose of relief under section 80hh of the act.7. in ashok leyland ltd. v......
Judgment:

Y.R. Meena, J.

1. On an application under Section 256(1) the Tribunal has referred the following question for our opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding the view that the assessee in the present case was eligible for deduction under Section 80HH of the Income-tax Act, 1961, in respect of transport subsidy received by it ?'

2. The return was filed on September 30, 1985, disclosing a total income of Rs. 29,98,041. Subsequently, another return was filed on September 30, 1986, in VDIW Scheme disclosing a total income of Rs. 35,56,620. The relevant assessment year is 1985-86 and the year ending is on March 31, 1985. During the course of assessment, the Assessing Officer found that the assessee has claimed the benefit of Section 80HH of the Income-tax Act, 1961, on profits and gains derived from an industrial undertaking which includes the grant of subsidy of Rs. 6,29,871 under the Transport Subsidy Scheme, 1971. The Assessing Officer has considered the submissions on the issue whether the transport subsidy amount is eligible for deduction under Section 80HH. According to the Assessing Officer, the assessee is not entitled for a deduction under Section 80HH of the transport subsidy amount. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals), has also dismissed the appeal of the assessee on this ground. In appeal before the Tribunal preferred by the assessee, the Tribunal observed that when contrary views have been taken by different High Courts, the view taken in favour of the assessee should be followed and it allowed the appeal of the assessee on the ground that the transport subsidy amount is eligible for the benefit under Section 80HH of the Act.

3. On the question referred learned counsel for the Revenue submits that the deduction under Section 80HH is available only in respect of the profits and gains 'derived' from the newly established industrial undertaking and the subsidy amount is not a part of the profit which was derived from the newly established industrial undertaking.

4. He placed reliance on the decisions of the apex court in the case of CIT v. Sterling Foods : 1999ECR481(SC) ; CIT v. Pandian Chemicals Ltd. : [1998]233ITR497(Mad) and Ashok Leyland Ltd. v. CIT : [1997]224ITR122(SC) .

5. Learned counsel for the assessee, Mr. Khaitan, submits that the transport subsidy received is profit derived by the assessee from the newly established industrial undertaking as the transport subsidy reduced the cost and has direct nexus with the profit earned. He placed reliance on the decision of the Gujarat High Court in the case of Ahmedabad . v. CIT : [1982]137ITR616(Guj) and the decision of the Madhya Pradesh High Court in the case of Gwalior Rayon Silk . v. CIT : [1983]143ITR590(MP) .

6. The facts are not in dispute that the assessee has received a sum of Rs, 6,29,871 as transport subsidy under the Transport Subsidy Scheme, 1971. The only controversy for our consideration in this case is whether this amount of subsidy has been treated as income derived from the newly established industrial undertaking or it is an income incidental to the business of the assessee. In CIT v. Pandian Chemicals Ltd. : [1998]233ITR497(Mad) , the Madras High Court has considered whether the interest received on deposits with the Electricity Board made out of the statutory compulsion can be treated as profit derived from the industrial undertaking. The Madras High Court held that the immediate and effective source of interest was the deposit and not the industrial undertaking. Therefore, interest could not be treated as income derived from an industrial undertaking for the purpose of relief under Section 80HH of the Act.

7. In Ashok Leyland Ltd. v. CIT : [1997]224ITR122(SC) , their Lordships have quoted the observations made in the earlier decision in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , wherein their Lordships have made the distinction between 'attributable to' and 'derived from'. The expression 'attributable to' has wider import than 'derived from'. Therefore, the Legislature intended to cover receipts from sources other than actual conduct of the business of generation and distribution of electricity while using the expression 'attributable to'.

8. In the latest decision of the apex court in the case of CIT v. Sterling Foods : 1999ECR481(SC) , the issue before their Lordships was whether the profits from the sale of import entitlements formed part of the profits for the purpose of Section 80HH. Their Lordships while reversing the decision of the High Court in Sterling Foods v. CIT : [1991]190ITR275(KAR) , held that the word 'derive' is usually followed by the word 'from' and it means : 'get, to trace from a source, arise from, originate in ; show the origin or formation of.' The source of import entitlements could not be said to be the industrial undertaking of the assessee. There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. Therefore, the sale consideration on the sale of import entitlements could not be held to constitute a profit and gain derived from the assessee's industrial undertaking. For the benefit of Section 80HH, the industrial undertaking itself had to be the source of profit. The nexus should be direct and not incidental.

9. Mr. Khaitan placed reliance on the decision of the Gujarat High Court in the case of Ahmedabad . v. CIT : [1982]137ITR616(Guj) , and the decision of the Madhya Pradesh High Court in the case of Gwalior Rayon Silk . v. CIT : [1983]143ITR590(MP) . In Ahmedabad .'s case : [1982]137ITR616(Guj) , one of the issues before the Gujarat High Court was whether the cash subsidy or allowance given on export ofgoods is directly connected with the export of goods and rebate under Section 2(5) of the Finance Act, 1964, and the Finance Act, 1965, can be treated as profits derived from the industrial undertaking for the benefit allowed under Section 80HH of the Act. The Gujarat High Court has taken the view that the cash subsidy has direct nexus with the export of goods and, therefore, entitled for deduction under Section 80HH of the Income-tax Act.

10. In Gwalior Rayon Silk . v. CIT : [1983]143ITR590(MP) , the question before the Madhya Pradesh High Court was to calculate the tax deduction allowance under Section 2(5) of the Finance (No. 2) Act, 1962. The Income-tax Officer had calculated the value of the turnover of the exports for computation of qualifying income under Rule 2(3) of the Income-tax (Determination of Exporting Profits) Rules, 1962, and took into account only the value of the goods exported as per invoice amounting to Rs. 8,25,668. The assessee claimed that three further items should be taken into account in calculating the value of the turnover of exports, that is, draw back of customs duty, refund of excise duty and value of import entitlements. The Madhya Pradesh High Court has taken the view that the Tribunal was not justified in not including the draw-back of customs duty, refund of excise duty in calculating turnover of profits from exports under Rule 2(3) for computation of qualifying income.

11. The limited question for our consideration is whether the amount of transport subsidy is a profit for the purpose of deduction under Section 80HH of the Income-tax Act. As referred to above, their Lordships in their latest decision in the case of CIT v. Sterling Foods : 1999ECR481(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 industrial undertaking.

12. Therefore, considering the undisputed fact that the subsidy is an aid to the assessee for which the immediate source is the Government, it is an incidental income on account of the newly established industrial under-taking, which has been given by the Government under the Scheme. Therefore, it cannot be treated as part of the profits and gains 'derived' from an industrial undertaking of the assessee.

13. In view of the above discussions, we answer the question in the negative, that is, in favour of the Revenue and against the assessee.

14. The reference application is, accordingly, disposed of.

G.C. De, J.

15. I agree.


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