1978 (9) TMI 49 - HC - Income Tax

Appeal To AAC, Concessional Rate, Import Entitlements, Income Attributable To Manufacture Or Processing Of Goods, Industrial Company

Summary

Issues:
1. Whether the assessee qualifies as an industrial company for tax benefits under the Finance Act, 1974.
2. Whether the income derived from the sale of import licenses is attributable to the manufacturing activity.
3. Whether the Additional Commissioner of Income Tax (AAC) was justified in directing the Income Tax Officer (ITO) to reconsider the claim of deduction of bonus.

Analysis:

1. The case involved the assessment of an assessee engaged in manufacturing carpets claiming relief under the Finance Act, 1974. The Income Tax Officer (ITO) initially rejected the claim, but the Tribunal ruled in favor of the assessee. The Tribunal found that the assessee, primarily manufacturing carpets for export, incurred losses offset by the sale of import licenses received as part of the export incentive scheme. The Tribunal held that the income from the sale of import licenses was directly related to the manufacturing activity, making the assessee eligible for the concessional tax rate of 55%.

2. The main issue was whether the income from the sale of import licenses could be considered attributable to the manufacturing activity of carpets. The court referred to a Supreme Court case, Cambay Electric Supply Industrial Company Ltd. v. CIT, which interpreted the phrase "attributable to" as having a broader scope than "derived from." The court concluded that the income from the sale of import licenses was directly connected to the export of carpets and, therefore, attributable to the manufacturing activity. This supported the Tribunal's decision in favor of the assessee.

3. Another question raised was regarding the AAC's directive to the ITO to reexamine the claim of deduction of bonus based on past practice. The court upheld the AAC's authority to remand a case for further examination and fresh findings. The AAC's decision to consider the past practice of bonus deduction, which the ITO had not addressed, was deemed appropriate. The court ruled in favor of the assessee, affirming the AAC's directive to the ITO to investigate the past practice of bonus deduction.

In conclusion, the court upheld the Tribunal's decision regarding the assessee's eligibility as an industrial company for tax benefits, affirmed the connection between the income from the sale of import licenses and manufacturing activity, and supported the AAC's directive to the ITO regarding the deduction of bonus. The court ruled in favor of the assessee on all issues, entitling them to costs assessed at Rs. 200.