2005 (2) TMI 752 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80-IA for income attributable to business activities.
2. Eligibility of courier income for deduction under section 80-IA.
3. Eligibility of labor income for deduction under section 80-IA.
4. Eligibility of miscellaneous income for deduction under section 80-IA.
5. Interpretation of "derived from" vs. "attributable to" in the context of section 80-IA.

Detailed Analysis:

1. Deduction under section 80-IA for income attributable to business activities:
The primary issue is whether the income from net courier charges, labor income, and miscellaneous income qualifies for deduction under section 80-IA. The Assessing Officer (AO) allowed deductions for the printing activity but denied them for other incomes, arguing that section 80-IA allows deductions only for income "derived from" business activities, not income "attributable to" them.

2. Eligibility of courier income for deduction under section 80-IA:
The assessee argued that courier charges were part of a lump sum contract covering printing, numbering, packing, and dispatching share issue forms. The CIT(A) accepted this argument, stating that courier charges were integral to the printing work and thus should be considered as income "derived from" an industrial undertaking. The AO, however, contended that such income was merely "attributable to" the business and not directly derived from it.

3. Eligibility of labor income for deduction under section 80-IA:
The labor income of Rs. 4,80,000 was earned from printing share forms for Saurashtra Paper Mills, where the paper was supplied by the parties. The CIT(A) and the jurisdictional High Court in the case of Harjivandas Juthabhai Zaveri supported the view that this income qualifies for deduction under section 80-IA, as it was directly related to the printing activity, an industrial undertaking.

4. Eligibility of miscellaneous income for deduction under section 80-IA:
Miscellaneous income of Rs. 95,900 was earned from the sale of paper scrap generated from the printing process. The CIT(A) ruled that this income also qualifies for deduction under section 80-IA, as it was directly linked to the primary business activity of the industrial undertaking.

5. Interpretation of "derived from" vs. "attributable to" in the context of section 80-IA:
The AO and the learned DR argued that deductions under section 80-IA should be limited to income directly "derived from" the industrial undertaking. However, the CIT(A) and various case laws, including the jurisdictional High Court's ruling in Harjivandas Juthabhai Zaveri, supported a broader interpretation, allowing deductions for income closely linked to the industrial undertaking. The Tribunal noted that section 80-IA uses the phrase "any profit and gains derived from any business of an industrial undertaking," suggesting a broader scope than section 80-I, which uses "profits and gains derived from an industrial undertaking."

Judgment Analysis:
The Tribunal acknowledged the broader language of section 80-IA compared to section 80-I. It concluded that the legislature intended to extend the benefit of section 80-IA to profits derived from the "business of an industrial undertaking," not just the industrial activity itself. Consequently, the Tribunal restored the matter to the AO to re-examine the assessee's claim under section 80-IA, considering the composite contract for the supply of goods and related services.

Conclusion:
The appeal was allowed in part for statistical purposes, directing the AO to re-evaluate the claims for deduction under section 80-IA in light of the broader interpretation of the provision.