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TMI Blog2004 (6) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... . only. M/s. Dabur India Ltd. had organised term loan and working capital from the bankers and its associate concerns and also extended corporate guarantee to the respective bankers for extending financial assistance to the assessee company. The deposits given by the assessee out of business compulsion and the interest earned thereon even though not derived from industrial undertaking but was having direct and proximate connection with the business of industrial undertaking of the assessee, the assessee was therefore eligible for deduction u/s 80-IA on the interest earning. There is no dispute to the fact that after deducting interest received from the interest paid, there was debit balance of the interest. With regard to the proposition of netting off the interest, as per our considered view when profit is determined under the head 'Profits and gains of business or profession', what are included in it are the net receipts/payments of the various components that go to make the profit under that head. Thus, if the profits of business include certain receipts which have corresponding costs, or if the profits include certain credits and the business has also debits of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit and gains of the business of the industrial undertaking and how was it to be determined. For determining the above profits of business of industrial undertaking it is not possible to ignore sale of empty drums/containers, sale of useless materials which is closely and directly connected with and outcome of the manufacturing process itself. Thus, we find that there is a direct nexus between the sale of these items and carrying on of business of industrial undertaking. In the result, all the appeals of the Revenue are dismissed. - HON'BLE N.L. DASH, MEMBER (J) AND R.C. SHARMA, MEMBER (A) For the Appellant : S.K. Dash For the Respondent : S.C. Bhadra ORDER Per R.C. Sharma, Accountant Member 1. These are the appeals filed by the Revenue against the orders of the CIT (Appeals) for the assessment years 1995-96 to 1998-99. 2. The only grievance of the Revenue in all the appeals relate to the CIT (Appeals)'s action in directing the Assessing Officer to recompute the deduction under section 80-IA of the Income-tax Act. 3. Rival contentions have been heard and record perused. In the course of assessment under section 143(3), the Assessing Officer found that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss compulsion to give such deposit for the purpose of its business of industrial undertaking. As per the learned A.R., the assessee company was established only at the instance of M/s. Dabur India Ltd. for manufacturing and marketing of products under the technical know-how and trade name of Dabur. As per the learned A.R., Dabur India Ltd. was to provide corporate guarantee of ₹ 4 crores for the sanction of various financial assistance in favour of the assessee company. In turn, the assessee company was to give deposit as security money to Dabur India and its associate concern. Giving of deposit was the business compulsion and not out of sweet will of the assessee and therefore, there is no reason to deny deduction under section 80-IA on such income. As an alternate arrangement the learned A.R. submitted that there was no actual earning of interest in view of the fact that interest paid was much more than the interest received and there was always debit balance of interest expenditure incurred by the assessee. Thus, as per the learned A.R., strictly speaking there was no positive income on account of interest because after adjusting the interest earned out of the interest pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship.... 10. It is crystal clear from the language used in section 80-1 that the deduction is to be restricted to income which is derived from industrial undertaking. Now we have to examine what is the difference between provisions of sections 80-I and 80-IA. Minute reading of both the provisions clearly indicates that in the earlier section 80-I, the Statute has used the expression 'derived from' with a view to give a restricted meaning to the income of the Industrial Undertaking. However, in section 80-IA, expression used is 'profits and gains derived from any business of Industrial Undertaking'. It clearly shows that the intention of the Legislature while inserting the additional words in section 80-IA, i.e., 'any business of, was to give benefit of deduction not only to the profits and gains derived from Industrial Undertaking but also to give benefit of deduction in respect of the income having a close and direct nexus with the profit and gains of the Industrial Undertaking... 11. The word 'business' is a word of wide amplitude so as to cover any trade, industry, or any act of adventure in the nature of trade whereas the word 'industry' is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome on such deposits. Such deposits with M/s. Dabur India Ltd. and its associates was as per the business compulsion of M/s. Dabur India Ltd. as provided in the agreement. Such deposit was given in consideration of providing bank guarantee, organising finance and providing franchise to set up the industry by the assessee company, there is a direct and proximate nexus between the interest earned on such deposit and interest paid on the funds borrowed for running of the business of industrial undertaking. The Hon'ble Supreme Court in the case of Vellors Electric Corpn. Ltd. v. CIT [1997] 227 ITR 557, while considering the assessee's claim under section 80-I in respect of interest income earned on the investment in securities, held that there is a direct and proximate connection between the carrying on of business of generation and distribution of electricity by the assessee as a licensee under the Electricity Supply Act and the income derived by way of interest from the investment in the securities. It was also held that the profits and gains can be said to be from priority industry under section 80-I, if there is a direct and proximate connection between the profits and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial undertaking should be given restricted meaning and whenever the Legislature wanted to give wider expression, it employed the expression 'attributable to'. But there was no occasion before the Courts, brought to our notice, to consider further wider expression as used in section 80-IA, i.e., 'profits and gains derived from any business of an industrial undertaking'. As such the Rulings of these courts are not applicable to the instant case before us. 16. We also find that the assessee was under compulsion to provide such deposits for availing the financial assistance for running its industrial undertaking on which the assessee, in turn, has paid substantial interest. The interest payment during the year is much more than the interest received. Therefore, in reality, there is no interest earning when it is being adjusted against the interest paid. Receipt and payment of interest being of the same genesis. Even for accounting purpose, one has to deduct the interest received out of interest paid for arriving at the net interest expenditure. There is no dispute to the fact that after deducting interest received from the interest paid, there was debit balance of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h needs to be reduced for computing deduction in respect of business of industrial undertaking. There is also no dispute to the fact that the assessee company was having only source of income from the business of this industrial undertaking. 19. In view of the above discussion and the facts and circumstances of the case, and keeping in view the findings recorded by the CIT(A), we do not find any reason to interfere in his order. 20. In respect of other miscellaneous income arising from sale of empty drums/containers, sale of useless materials, we find that all the sale proceeds were only out of the business of industrial undertaking of the assessee. Therefore, even for determining the profits and gains 'derived from any business of industrial undertaking', manufacturing or producing any article or thing include sale proceeds of such article or thing of scrap generated during the course of such manufacturing activity. It is not possible to close eyes to the event which amounts to increase the sale consideration. After all what is to be determined is the profits and gains of business of industrial undertaking and there is no warrant to stop for the above purpose at sales of m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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