1985 (9) TMI 35 - HC - Income Tax

Summary

Issues:
Interpretation of Section 80E of the Income-tax Act, 1961 regarding deduction for profits from specified industries. Whether profit from sale of import entitlements is part of income derived from a priority industry.

Analysis:
The case involved an assessee engaged in the manufacture of tea garden machinery, a priority industry under Section 80E of the Income-tax Act, 1961. The dispute arose when the Income-tax Officer included the profit from the sale of import entitlements in the assessee's income, denying deduction under Section 80E. The Appellate Assistant Commissioner ruled in favor of the assessee, stating that such profit was derived from the priority industry. The Income-tax Appellate Tribunal upheld this decision, citing a previous case precedent.

The Revenue contended that import entitlements were not directly linked to the priority industry's products and should not be eligible for deduction under Section 80E. They referenced previous cases where deductions were denied due to lack of direct connection between the income and the priority industry. However, the assessee argued that the profit from the sale of import entitlements was attributable to the business of the priority industry, as seen in decisions from various High Courts and the Supreme Court.

The High Court analyzed the legislative intent behind Section 80E, emphasizing the broader term "attributable to" over "derived from." They concluded that since the import entitlements were received through exporting products of the priority industry, the profit from their sale was attributable to the priority industry's business. This interpretation was supported by previous court decisions, including the Supreme Court's ruling in Cambay Electric Supply Industrial Co. Ltd.

Ultimately, the High Court ruled in favor of the assessee, affirming that the profit from the sale of import entitlements was part of the income derived from the priority industry of manufacturing tea garden machinery. The judgment highlighted the importance of the direct link between the income and the business of the priority industry in determining eligibility for deductions under Section 80E.