2012 (6) TMI 105 - HC - Income Tax

Computation of deduction under Section 80IA revenue contested that service charges for maintenance, charges for transportation, erection and commission charges, labour charges, sale of scraps during manufacturing are not to be included as profits and gains of the industrial undertaking for computation of deduction Held that - As decided in M/s Liberty India Versus Commissioner of Income Tax 2009 (8) TMI 63 (SC) deduction provided under Section 80IA being profit linked incentive there exists no flaw in the order of the Tribunal - the service charges, labour charges and transportation charges incurred were for erection testing and commissioning of the units sold and were part of the receipts of the industrial undertaking come within the meaning of the profits and gains derived by the undertaking or an enterprise from any business and scrap sales also qualify for consideration under Section 80IA of the Act in favour of assessee.

Summary

Issues:
Interpretation of Section 80IA of the Income Tax Act regarding inclusion of various charges as profits and gains of an industrial undertaking for deduction computation.

Analysis:
The case involved an appeal by the Revenue against the Income Tax Appellate Tribunal's order concerning the assessment year 1992-93. The main issue was whether charges like service charges, transportation charges, erection and commission charges, labour charges, and sale of scraps should be considered as profits and gains of the industrial undertaking for deduction under Section 80IA of the Income Tax Act.

The assessee, engaged in manufacturing coke-oven and cleaning systems, had these charges excluded by the Assessing Officer while computing the deduction under Section 80IA. However, the Commissioner of Income Tax (Appeals) and the Appellate authority agreed with the assessee, stating that these charges were part of the receipts of the undertaking. The first Appellate Authority held that the charges formed part of the profits, including the sale of scrap proceeds. The Tribunal upheld this view, leading to the Revenue's appeal before the High Court.

Referring to the decision in LIBERTY INDIA v. CIT, the High Court analyzed the scope of Section 80IA and 80IB of the Act. It emphasized that deductions under these sections are linked to profits derived from the eligible business, restricting the quantum of deduction to a specified percentage of profits. The Court also discussed that benefits like duty draw back, rebate, etc., should not be credited against the cost of manufacture, as they constitute independent sources of income beyond the first-degree nexus between profits and the industrial undertaking.

Based on the above analysis, the High Court confirmed the Tribunal's order, stating that the charges in question were incurred for the business and were part of the receipts of the industrial undertaking. Therefore, they qualified as profits and gains derived by the enterprise from the business referred to in Section 80IA of the Act. Consequently, the Court dismissed the Tax Case Appeal, emphasizing that the deduction under Section 80IA is profit-linked, and the charges in question met the criteria for deduction.

In conclusion, the judgment clarified the interpretation of Section 80IA of the Income Tax Act regarding the inclusion of various charges as profits and gains of an industrial undertaking for deduction computation. The decision aligned with previous rulings and emphasized that charges related to the business activities of the undertaking should be considered as part of the profits derived from the business for the purpose of claiming deductions under Section 80IA.