2003 (11) TMI 23 - HC - Income Tax

Whether the Tribunal was right in law in holding that the income from the sale of scrap is not relatable to the industrial activities of the assessee for the purpose of section 80HH of the Income-tax Act 1961 and as to whether it was right in not granting relief under section 80HH of the Act in respect of the amount received from the insurance company for the loss in transit of the raw materials imported by the assessee Both questions are answered against the assessee.

Summary

Issues:
1. Interpretation of income from the sale of scrap under section 80HH of the Income-tax Act, 1961.
2. Eligibility of the amount received from the insurance company for the loss in transit of raw materials under section 80HH of the Act.

Issue 1: Interpretation of income from the sale of scrap under section 80HH of the Income-tax Act, 1961

The High Court examined whether the income from the sale of scrap could be considered as derived from industrial activities for the purpose of section 80HH of the Income-tax Act, 1961. Referring to previous decisions, the court held that income from the sale of scrap, not being a necessary by-product in the manufacturing process, cannot be regarded as income derived from the industrial undertaking. The court cited precedents involving the same assessee and affirmed that the income from scrap sale does not qualify for special deductions under section 80HH. Consequently, the first question was answered against the assessee.

Issue 2: Eligibility of the amount received from the insurance company for the loss in transit of raw materials under section 80HH of the Act

The court considered the case where the assessee had imported raw materials which were lost in transit, and the insurance company compensated the assessee with an excess amount. The assessee sought to include this amount as income derived from the industrial undertaking under section 80HH. However, the court ruled that since the source of the receipt was the insurer and not the industrial undertaking itself, the income could not be considered as derived from the industrial activities. Drawing parallels to a Supreme Court decision, the court emphasized that income not directly flowing from the industrial undertaking does not qualify for special deductions under section 80HH. Consequently, the second question was also answered against the assessee and in favor of the Revenue.

This judgment clarifies the interpretation of income from the sale of scrap and the eligibility of amounts received from insurance companies in the context of special deductions under section 80HH of the Income-tax Act, 1961. The court's analysis underscores the importance of the source of income in determining its eligibility for tax benefits related to industrial activities, emphasizing that income must directly stem from the industrial undertaking to qualify for special deductions.