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2019 (4) TMI 1676 - HC - Income TaxDeduction u/s. 80-IB - Profit derived from the business of the industrial undertaking engaged in the manufacture and sale of Pig Iron - Profit from the sale of slag, which is a by-product in the manufacture of Pig Iron - whether the slag generated out of the manufacturing process would satisfy the test 'first degree source' or not and, if satisfies such test, would be eligible to deduction under Section 80-IB of the Act or not ? - HELD THAT - In view of the findings already rendered by the CIT(A), which are upheld by the Tribunal that the slag generated out of the manufacturing process, the profit earned from such sale, is derived from the Industrial Undertaking which is engaged in manufacturing of Pig Iron, the Revenue cannot be allowed to contend that the sale of slag would not be a part of profits earned from the manufacturing process and would not be eligible for deduction under Section 80-IB of the Act. The findings rendered by the CIT(A) and upheld by the Tribunal having attained finality, are binding on the Revenue. - Decided in favour of the appellant- Assessee.
Issues Involved:
1. Whether the profit from the sale of slag, a by-product in the manufacture of Pig Iron, qualifies for deduction under Section 80-IB of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Eligibility of Profit from Sale of Slag for Deduction under Section 80-IB: Facts: - The Assessee filed the original return for the assessment year 2004-05, declaring a total income of ?20,79,53,900. - A revised return was filed claiming deduction under Section 80-IB for ?5,74,90,089, related to the manufacture of Pig Iron. - The Assessing Officer excluded the profit from the sale of slag from the deduction under Section 80-IB. - The Commissioner of Income Tax (Appeals) [CIT(A)] included the profit from slag in the deduction. - The Income Tax Appellate Tribunal (ITAT) reversed the CIT(A)'s decision, leading to this appeal. Arguments: - The Assessee argued that the manufacture of Pig Iron and the generation of slag are integrated processes, and thus, the profit from the sale of slag should be considered as derived from the business of manufacturing Pig Iron. - The Revenue contended that the profit from slag, being a by-product, does not qualify for deduction under Section 80-IB, which is limited to profits derived directly from the primary manufacturing process. Legal Precedents: - The Assessee relied on the Supreme Court judgments in CIT vs. Sterling Foods, Pandian Chemicals Ltd. vs. CIT, and Liberty India vs. CIT, emphasizing the direct nexus required between the profits and the manufacturing process. - The Revenue cited judgments from the Madras High Court and Himachal Pradesh High Court, arguing that the sale of by-products does not meet the criteria for deductions under Section 80-IB. Court's Analysis: - The Court analyzed Section 80-IB, which allows deductions for profits derived from eligible businesses, emphasizing the narrower interpretation of "derived from" compared to "attributable to." - The CIT(A) had found that the slag was generated from the manufacturing process of Pig Iron, and thus, the profit from its sale should be included in the deduction. - The ITAT's decision to exclude the profit from slag was found contradictory to its own findings and the principles laid down in relevant Supreme Court judgments. Conclusion: - The Court held that the slag generated during the manufacturing process of Pig Iron is an integral part of the manufacturing activity. - The profit from the sale of slag satisfies the "first degree source" test and thus qualifies for deduction under Section 80-IB. - The ITAT's decision was reversed, and the Assessee's appeal was allowed, affirming that the profit from the sale of slag should be included in the deduction under Section 80-IB. Disposition: - The substantial question of law was answered in favor of the Assessee and against the Revenue. - The appeal was disposed of accordingly.
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