2007 (7) TMI 644 - HC - Income Tax

Summary

Issues involved:
The judgment involves the interpretation of Section 80-IA of the Income Tax Act, 1961 regarding the eligibility for deduction of profits derived from trading activities in addition to manufacturing activities.

Assessment Year 1998-99:
The assessee, a Limited Company engaged in manufacturing knitted cloth from raw wool and trading goods, filed a return for the assessment year 1998-99. The Assessing Officer observed that the income claimed for deduction under Section 80-IA included profits from trading activities, which were not eligible. The CIT (A) allowed the deduction under Section 80-IA, citing similar decisions from the preceding year. The revenue challenged this decision before the Tribunal, which relied on the judgment in the case of M/s Liberty Shoes Ltd. to hold that profits from trading activities are not eligible for deduction under Section 80-IA. The Tribunal emphasized that only profits derived from the actual conduct of the industrial undertaking are eligible for the deduction.

Assessment Year 2000-01:
Similar facts were involved in the assessment year 2000-01. The Tribunal, following the precedent set by the Supreme Court in the cases of Sterling Foods and Pandian Chemicals Ltd., upheld the revenue's appeal and denied the deduction under Section 80-IA for profits derived from trading activities. The Tribunal clarified that the expression "derived from" in Section 80-IA only covers receipts directly related to the industrial undertaking's business activities.

Conclusion:
The High Court upheld the Tribunal's decision, stating that no substantive question of law arose for consideration. The Court agreed with the Tribunal's interpretation of Section 80-IA, emphasizing that only profits directly derived from the industrial undertaking's business activities are eligible for deduction. Therefore, the appeals were deemed without merit and dismissed.