2013 (7) TMI 143 - HC - Income Tax

Deduction u/s 80HH, 80-I and 80-IA - interest on the fixed deposit - Profits and gains derived from any business of an industrial undertaking - Held that - there is hardly any doubt about the sweep of expression profits and gains derived from any business of an industrial undertaking referred to in sub-section (4) - if the profit is linked or having nexus with the business, as in the present case, because of the pre-condition of the business activity to keep margin money in fixed deposit, which, in turn, derives interest is also covered by Section 80IA, cannot be countenanced. For, it cannot be treated as first source income, which is the quintessence for attracting the benefit and incentive provided under Section 80IA of the Act - Following decision of Liberty India vs. Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT and CIT vs. Shahi Export House 2010 (8) TMI 785 - DELHI HIGH COURT - Decided in favour of revenue.

Summary

Issues:
Interpretation of expression "profits and gains derived from an industrial undertaking" in Section 80HH, 80-I, and 80-IA of the Income Tax Act.

Analysis:
The core issue in this case revolves around the interpretation of the expression "profits and gains derived from an industrial undertaking" as stated in Section 80HH, 80-I, and 80-IA of the Income Tax Act. The Appellate Tribunal, based on the arguments presented by both parties, ruled against the assessee, holding that income earned through interest on fixed deposits, related to business transactions of the industrial undertaking, cannot be considered as income derived from the business but rather from other sources of the assessee. The Tribunal emphasized that the income must be generated directly from the business activity to qualify for deductions under the mentioned sections.

Analysis:
Regarding Section 80-IA, the Supreme Court's decision in Liberty India vs. Commissioner of Income Tax (2009) 9 SCC 328 is crucial. The Apex Court differentiated between "profit derived from" and "profit attributable to" the business activities of an industrial undertaking. It clarified that "derived from" has a narrower scope compared to "attributable to," indicating that the profit must directly stem from the business operations. The Court highlighted that Section 80IA is a comprehensive provision containing both substantive and procedural elements. This interpretation was necessitated by the profit-linked incentives provided to the covered category of assessees. The Court's analysis emphasized that the profit must be generated from the business activity itself, not from secondary sources, to qualify for benefits under Section 80IA.

Analysis:
The judgment also addressed the argument presented by the appellant, referencing the interpretation of Section 80HHC in the case of CIT vs. Shahi Export House (2010) 195 Taxman 163 by the Delhi High Court. However, the Court clarified that Section 80HHC is distinct from Section 80IA and operates as a self-contained provision. The Court reiterated that for income to be eligible for deductions under Section 80IA, it must be directly linked to the primary business activity, emphasizing the importance of the income being a first-degree source. The decision in Liberty India (supra) was deemed authoritative in settling the issues raised in the case, leading to the dismissal of the appeal based on the interpretation provided by the Supreme Court.