2002 (10) TMI 43 - HC - Income Tax

The question referred to us, at the instance of the Revenue, for our consideration is, Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the cash assistance, duty drawback and air subsidy should be treated as income derived from the industrial undertaking and included in the business income for the purpose of deduction under section 80HH of the Income-tax Act, 1961 ? - The distinction between derived from and attributable to , which had been emphasised by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT, has been reiterated by the Supreme Court in its later ruling in the case of CIT v. Sterling Foods which reversed the decision of the Karnataka High Court (Sterling Foods v. CIT . The question referred to us is, therefore, answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Interpretation of the term "derived from" in the context of income tax deductions under section 80HH of the Income-tax Act, 1961.

The judgment addressed the issue of whether cash assistance, duty drawback, and air subsidy should be considered as income 'derived from' the industrial undertaking for the purpose of deduction under section 80HH of the Income-tax Act, 1961. The court referred to the decision in the case of CIT v. Jameel Leathers and Uppers [2000] 246 ITR 97, where it was held that while these benefits were attributable to the business carried out by the assessee, they were not directly derived from the operation of the industrial undertaking. The court emphasized the distinction between "derived from" and "attributable to," citing the decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. It was noted that the benefits received were under a scheme formulated by the Government and did not originate directly from the industrial undertaking itself. The court also highlighted that the Central Board of Direct Taxes had issued a circular clarifying deductions under section 80HHC, which did not impact the interpretation of section 80HH. The judgment emphasized Parliament's authority to prescribe conditions for tax deductions and concluded that the benefits in question were not to be regarded as derived from the industrial undertaking but from the Government schemes. The court upheld the distinction between "derived from" and "attributable to," as reiterated in the case of CIT v. Sterling Foods [1999] 237 ITR 579, and ruled in favor of the Revenue, denying the deduction under section 80HH to the assessee.