2011 (8) TMI 659 - HC - Income Tax

Deduction under 80IA - Held That - The commission earned by the assessee cannot be considered as a profit or gain from any business of an industrial undertaking . - It is not the business of the industrial undertaking to earn commission. - Deduction not allowed - decided against the assessee.

Summary

Issues:
1. Eligibility for deduction under Section 80-IA of the Income Tax Act.
2. Interpretation of the expression "profit or gain derived from any business of an industrial undertaking."

Analysis:

Issue 1: Eligibility for deduction under Section 80-IA of the Income Tax Act
The appellant, a Private Limited Company engaged in the manufacture and supply of M.S. Wires and G.I. Wires, claimed a deduction under Section 80-IA for the income derived as net commission. The Assessing Officer disallowed the claim, stating that the commission income was earned as an agent for supplying goods and not part of the appellant's business activity. The Commissioner and the Tribunal upheld this decision, leading to the appellant's appeal. The appellant argued that the commission income was directly related to its business activities and thus eligible for the deduction under Section 80-IA. However, the revenue contended that the commission income was not attributable to the appellant's industrial undertaking business. The High Court concurred with the lower authorities, stating that the commission income earned by the appellant could not be considered as part of its business activity, thereby upholding the Tribunal's decision to deny the deduction under Section 80-IA.

Issue 2: Interpretation of the expression "profit or gain derived from any business of an industrial undertaking"
The High Court analyzed whether the commission earned by the appellant could be classified as "profit or gain derived from any business of an industrial undertaking" as per Section 80-IA. The court held that the commission income, being earned as a result of services rendered as an agent, did not align with the business of manufacturing and supplying wires undertaken by the appellant. Citing precedents and legislative intent, the court concluded that the commission income could not be considered as part of the appellant's industrial business, thus justifying the Tribunal's decision to deny the deduction under Section 80-IA. The court emphasized that the commission income did not fall within the scope of the expression in question, leading to a ruling in favor of the revenue and against the appellant.

In summary, the High Court upheld the Tribunal's decision to deny the appellant's claim for deduction under Section 80-IA, emphasizing the lack of nexus between the commission income earned and the appellant's industrial business activities. The court concluded that the commission income did not qualify as "profit or gain derived from any business of an industrial undertaking," leading to a ruling in favor of the revenue authorities.