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TMI Blog2010 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... t) which provided that heavy water plant was to be constructed at Kribhco for and on behalf of and at the cost of the Heavy Water Board and on the land belonging to Kribhco, which was to be made available by it for establishment of heavy water project. The complete responsibility for erecting and commissioning of the heavy water plant was entrusted by the Government of India to Kribhco, vide agreement dt.11th July, 1990entered into between Kribhco and Heavy Water Board for and on behalf of the Heavy Water Board. The recitals of this agreement made it clear that all the feed stock materials required by the heavy water plant were to be supplied by Kribhco ammonia/urea plant. Another agreement dt.14th Sept., 1994was entered into between Heavy Water Board and Kribhco for operation and maintenance of heavy water plant. As per this agreement it was the responsibility of Kribhco to operate and maintain the heavy water plant. In consideration for the services rendered by Kribhco it was agreed that Heavy Water Board would pay service charges depending upon the output of heavy water, which Kribhco would manage to achieve by operating the heavy water plant. 3. During the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) 207-Ed.] has remanded the matter to the Tribunal for reconsideration by observing as under: "7. Heavy water plant was constructed by the appellant for and on behalf of the Board. Ownership of the HWP vested during the asst. yr. 1993-94 in the Board. However, if one reads the above three agreements, prima facie one finds that the HWP (Hazira Ammonia Extension Plant) owned by the Board is an extension of the ammonia plant of the appellant. The peculiar features emerging from the above three agreements are that, synthesis gas flows through the pipes of ammonia plant to HAEP. Similarly, synthesis gas which is produced inside the ammonia plant and which contains deuterium is taken to the HAEP where deuterium is extracted with the help of a solution and the balance gas is once again returned to the ammonia plant of the appellant. This indicates two things. Firstly, that HAEP cannot survive without the feeder plant, namely, ammonia plant. Similarly, the ammonia plant cannot survive so far as the manufacture of heavy water is concerned without HAEP because after extraction of deuterium the balance quantity of synthesis gas is returned to the ammonia plant. This aspect needed in-depth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in-depth examination of various aspects indicated hereinabove. Prima facie it appears that, under the earlier dispensation, which prevailed at the relevant time, the HAEP was an extended link of the ammonia plant and in that context, as stated above, both the plants were interdependent on each other. This matter is also of some importance. It concerns not only the interdependence of the plants but it also gives rise to an important question of law as to the interpretation of s. 80-I in the context of heavy water plant and the ammonia plant, particularly when it concerns synthesis gas flowing from ammonia plant to the HWP, extraction of deuterium from synthesis gas and return of the balance synthesis gas to the ammonia plant: The diagram of the process is also given in agreement dt.14th Sept., 1994. This diagram indicates the process of manufacturing of heavy water. Before concluding, we may make it clear that the reasons given by us hereinabove are tentative observations made in the context of this case being a standalone case having no prior precedents. We have made tentative observations only to support our order remanding the case to the Tribunal. Therefore, we keep all conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urea/ammonia unit and two units must necessarily be considered to inextricably inter-connected and operationally inseparable. Consequently, the service charges received by the assessee for operating the heavy water plant can, in a very real, practical and business sense, be considered to be profits derived from ammonia/urea unit without which the earning of these service charges would be absolutely impossible. Therefore, it was contended that the service charges received by the assessee from Heavy Water Board are derived from urea/ammonia unit of Kribhco and are eligible for deduction under s. 80-I of the Act. 10. On the other hand, the learned CIT-Departmental Representative has submitted that heavy water plant is independent of the urea plant owned by the assessee. Kribhco has been supplying the necessary inputs, which is a by-product of urea/ammonia plant for production of heavy water. The assessee has received the service charges in respect of control and management of the heavy water project. Therefore, the service charges received have no connection with the industrial undertaking of the assessee. She placed reliance on the decision of Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or township in February, 1989, December, 1988, March, 1989, 1991 and July, 1993. Further this agreement entrusted the construction/commissioning of the Hazira Heavy Water Plant by Kribhco for and on behalf of the Heavy Water Board. The recitals of this agreement make it clear that all the feedstock materials required by the heavy water plant were to be supplied by Kribhco's ammonia/urea plant. This agreement also makes it clear that the complete control and responsibility for the erection and commissioning of the heavy water plant were entrusted by the Heavy Water Board to Kribhco. The cost of erection of heavy water project has also been reimbursed by the Heavy Water Board as per agreement entered in the parties. 11.2 Kribhco vide letter dt.3rd Dec., 1998addressed a letter to Collector,Suratfor regularization of transfer of land from Kribhco to DAE, Government of India. In letter dt.6th Jan., 2005addressed jointly by heavy water plant and the assessee it also mentions that actual cost of acquisition of land along with development expenses shall be paid by heavy water plant. Formalities for transfer of land will be taken care of at the time ownership of plant is settled, It has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as (Annex. J)." 11.3 From these facts it is clear that cost of the land for the heavy water project was reimbursed by Heavy Water Board in March 1990 to Kribhco. Thus the land which was acquired by Kribhco on behalf of Heavy Water Board belonged to Heavy Water Board, Department of Atomic Energy, Government of India. It is a different thing that the land for heavy water project as well as township was acquired through Kribhco for and on behalf of Heavy Water Board for security reasons. The Kribhco was holding the land in trust for security reasons as high secrecy was to be maintained. Therefore, the ownership on industrial undertaking for manufacture of heavy water project vests with Government of India, Department of Atomic Energy since inception and not with the assessee. 11.4 It is a fact that the heavy water project and the ammonia/urea plant of the assessee are both integrated with each other. The heavy water project is owned by Department of Atomic Energy and the ammonia/urea plant by the assessee. Whatever quantity of deuterium has been produced by ammonia/urea plant of the assessee the same has been used in the manufacture of heavy water. There is no dispute that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... water project for which assessee is being compensated by way of service charges. The assessee had no ownership on output of heavy water manufactured by heavy water plant. The raw material, the machinery and the final product i.e., heavy water are owned by the Heavy Water Board, Department of Atomic Energy. The assessee was to receive only management fee for operation and management of heavy water plant. Heavy Water Board had provided the facilities to the staff employed by way of township, schooling, hospitals etc. by constructing such facilities. From the terms of agreement entered into with the Heavy Water Board and Kribhco for operation and maintenance of heavy water plant, it is clear that the assessee was not concerned with the profit or loss, which was going to be incurred by heavy water plant. The profit or loss arising from operation of heavy water project belongs to Heavy Water Board, Department of Atomic Energy and not to the assessee. The assessee was concerned with the service charges, which were entirely dependent on output of heavy water. Higher the production of heavy water, higher would be the service charges receivable by the assessee. The maintenance of bank accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the assessee earned by sale of finished goods. By applying the ratio of decision of Hon'ble Madhya Pradesh High Court in CIT vs. Alpine Solvex Ltd., it is held that the service charges received by the assessee from Heavy water Board cannot be treated as actual profits derived by heavy water plant. 13. Under s. 80-I of the IT Act, 1961, where the gross total income of an assessee includes any profits or gains derived from industrial undertaking, there shall in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20 per cent thereof. Thus in order to get benefit of deduction under s. 80-I of the Act the profits and gains should be derived from industrial undertaking. Hon'ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) has held that the expression "attributable to" has a wider import than the expression "derived from" thereby by intending to cover receipts from sources other than actual conduct of business of specified industry. Further Hon'ble Supreme Court in the case of Pan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing deduction under s. 80-I in respect of service charges received by the assessee. 15. The alternative argument advanced by the assessee is that the assessee will be entitled to deduction under s. 80-I of the Act even in the cases where the industrial undertaking is taken on lease. In the instant case, the Heavy Water Board, Department of Atomic Energy has entrusted the assessee the responsibility for operation and maintenance of heavy water plant for which service charges have been paid. The service charges paid are part of cost of manufacture of heavy water and not the final profits derived from manufacture and sale of heavy water. The main activity of the assessee is to manufacture urea in its ammonia/urea plant. The assessee's industrial undertaking is not engaged in manufacture of heavy water. Therefore the assessee cannot be said to have been engaged in the business of manufacture of heavy water on job-work basis. It would have been a different matter if the assessee was engaged in manufacture of urea on job-work basis in own industrial undertaking or in an undertaking taken on lease. This is not a case here. Hence the alternate plea of the assessee is also dismissed. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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