2011 (8) TMI 498 - AT - Income Tax

Scrap Sale - deduction under 80IB - Held that - where scrap has direct nexus with the industrial operations thereby implying that to the extent scrap is in the nature of bye-product of industrial operations the same would qualify for deduction under section 80IB. Assessee carried on eligible business under 80IB-Interest received on bank Fixed Deposits. - Held - Income from other sources -Hon ble Supreme Court in the case of Liberty India V/s CIT (2009 - TMI - 34471) wherein it was held that section 80IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words derived from is narrower as compared to that of the words attributable to . - interest income is not derived from the eligible business and accordingly the assessee is not entitled to the deduction under section 80IB of the Act.

Summary

Issues:
1. Disallowance of deduction under section 80IB(4) for Scrap Sales.
2. Disallowance of deduction under section 80IB(4) for interest received on bank Fixed Deposits.

Analysis:
1. The appellant, a family trust engaged in business activities, filed a return declaring total income of Rs. NIL for the assessment year 2006-07. The Assessing Officer (AO) selected the case for scrutiny and disallowed the claim for deduction under section 80IB(4) for Scrap Sales of Rs.76,88,500. The AO held that the sale of scrap does not form part of business income for the purpose of deduction under section 80IB(4). On appeal, the Commissioner of Income Tax (A) confirmed the AO's decision. The appellant challenged this decision before the Appellate Tribunal. The Tribunal noted that the issue was not clear and restored it to the AO for verification. The Tribunal directed that if the scrap had a direct nexus with industrial operations, it would qualify for deduction under section 80IB. The Tribunal allowed the appeal for statistical purposes, setting aside the issue to the AO for fresh consideration.

2. The AO also disallowed deduction under section 80IB(4) for interest received on bank Fixed Deposits amounting to Rs.5,980. The AO treated this interest income as "Income from other sources." The Commissioner of Income Tax (A) upheld this disallowance. On appeal, the Tribunal referred to the decision of the Hon'ble Supreme Court in Liberty India v/s CIT (2009) and held that the interest income was not derived from the eligible business, hence not entitled to deduction under section 80IB. The Tribunal dismissed the appeal, following the precedent set by the Supreme Court.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, setting aside the issue of Scrap Sales to the AO for fresh consideration. The Tribunal rejected the claim for deduction under section 80IB(4) for interest income on bank Fixed Deposits, in line with the decision of the Supreme Court. The appellant's appeal was partly allowed, with the Tribunal's order pronounced on 24th August 2011.