1994 (10) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Whether the gross value of the assets should alone be taken as capital for the purpose of grant of relief u/s 80J of the Income-tax Act, 1961.
2. Whether the profit on the sale of import licences was derived from the assessee's manufacturing activity for the purpose of deduction of relief u/s 80J of the Income-tax Act, 1961.

Summary:

Issue 1: Gross Value of Assets as Capital for Relief u/s 80J
The court did not delve into detailed discussion on whether the gross value of the assets should alone be taken as capital for the purpose of grant of relief u/s 80J of the Income-tax Act, 1961. This issue was settled by the Supreme Court in the case of *Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC)*, and the law established therein must be strictly applied.

Issue 2: Profit on Sale of Import Licences and Manufacturing Activity
The court examined whether the profit on the sale of import licences amounting to Rs. 5,70,704 was derived from the assessee's manufacturing activity for the purpose of deduction u/s 80J. The Tribunal had concluded that the sale proceeds of the import entitlements should be considered as derived from the business of the industrial undertaking within the meaning of section 80J. The Tribunal relied on dictionary definitions and judicial interpretations, including the Supreme Court decision in *Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84*, which distinguished between "attributable to" and "derived from".

The court, however, disagreed with the Tribunal's view, emphasizing that the expression "derived from the business" in section 80J should receive a restricted meaning. The income must be directly relatable to the business activities of the assessee. The court cited several judgments, including *CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 (PC)* and *CIT v. Kunwar Trivikram Narain Singh [1965] 57 ITR 29 (SC)*, to highlight that the effective source of income must be directly connected to the business. The sale of import licences was deemed an act wholly unconnected with the business activities of the assessee, lacking an immediate and direct nexus.

Thus, the court held that the Tribunal erred in granting the benefit of such income to the assessee under section 80J of the Act. The reference was answered against the assessee, with no costs awarded.