1981 (7) TMI 56 - HC - Income Tax

Summary

Issues involved: Interpretation of income under section 80-I of the Income-tax Act, 1961 for sub-contracts and sale of scraps.

Summary:
The High Court of Madras considered a case involving the interpretation of income under section 80-I of the Income-tax Act, 1961 for sub-contracts and sale of scraps. The assessee, a company engaged in manufacturing air-compressor equipment for automobile vehicles, received income from sub-contracts and sale of scraps. The Income Tax Officer (ITO) initially allowed relief under section 80-I for the income from sub-contracts but later sought to rectify the assessment, granting relief only on specific amounts related to priority industry income. The assessee appealed, and the Appellate Authority Commissioner (AAC) ruled in favor of the assessee. The Tribunal upheld the AAC's decision, leading to the matter being referred to the High Court by the Commissioner of Income-tax.

Regarding the sale of scraps, the High Court referred to the Supreme Court's interpretation in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, emphasizing that income "attributable to" a priority industry is wider than "derived from." The Court held that the sale of scraps, being a by-product of the priority industry, qualifies for relief under section 80-I.

In analyzing income from sub-contracts, the High Court considered the Supreme Court's decision in CIT v. Universal Radiators P. Ltd. [1981] 128 ITR 531. The Court noted that as long as the sub-contracts were related to items falling within the scope of a priority industry, the income from such contracts should be considered attributable to the priority industry. Therefore, the High Court rejected the contention that income from sub-contracts should be treated similarly to interest income, as there was a clear link between the sub-contracts and the priority industry in the present case. Consequently, the Court ruled in favor of the assessee, affirming that the income from sub-contracts also qualifies for relief under section 80-I.