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TMI Blog1997 (2) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... n the return of income the assessee had claimed deduction of Rs. 1,61,49,222 under section 32AB of the Income-tax Act. The assessee had claimed to have utilised a sum of Rs. 1,63,75,625 for the purpose of section 32AB. Details of which are as under: "Part-A : Amount Utilised Total purchase as per list Rs. 83,59,033 Less : Advance considered last year 19950 " Cases where payments (5,39,283) for P & M not made 519333 Rs. 5,99,283 Rs. 78,19,750 Add : Advance paid towards pur- chase of plant & Machinery Rs.15,55,875 Rs. 93,75,625 Add : Deposit with IDBI made vide receipt No. DB/ 1.70 dated 16-5-89 (evidence on record) 70,00,000 Rs. 163,75,625 " However, 20% of profit was worked out at Rs. 1,61,62,646. Hence deduction under section 32AB was claimed at Rs. 1,61,62,646. The Assessing Officer found that a sum of Rs. 15,55,875 was paid by the assessee as advance towards purchase of plant and machinery. He was of the opinion that the amount of advance cannot be said to be the "amount utilised" for deduction under section 32AB. Accordingly, he reduced the sum of Rs. 15,55,875 from amount utilised for the purpose of section 32AB. On appeal the CIT(Appeals) directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------ It is not in dispute that the above machineries were purchased in the subsequent years. Now the question is whether the advance of Rs. 15,55,875 given during the year under consideration, can be considered as "amount utilised" for the purchase of plant and machinery within the meaning of section 32AB. Section 32AB, as it stood at the relevant time, reads as under : " 32AB (1) Subject to the other provisions of this section, where an assessee whose total income includes income chargeable to tax under the head "Profits and gains of business or profession", has, out of such income,---- (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery is the amount utilised for the purpose of section 32AB(1)(b). It is not in dispute that the machineries were in fact supplied in the subsequent years and the advance of Rs. 15,55,875 was actually adjusted against the cost of such machineries. In view of these facts we find no infirmity in the order of the CIT(Appeals) directing the Assessing Officer to consider the advance of Rs. 15,55,875 for the purpose of working out deduction under section 32AB. We may also, mention that the ITAT, Indore Bench in the case of Reliable Cigarette & Tobacco Industries (P.) Ltd. and the ITAT, Nagpur Bench in the case of CP. Foundry Works have taken the similar view. Accordingly, Ground No. 1 of the Revenue's appeal is rejected. 7. Ground No. 2 reads as under :--- " 2. The ld. CIT(Appeals) erred in directing the Assessing Officer to include the amount of Rs. 10,22,476 representing misc. income of the assessee company for the purpose of computation of relief under section 80HH and 80I without proper appreciation of complete facts of the case and provisions of law. " The facts in this respect are that the assessee derives income from manufacturing of jelly filled telephone cable. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55. He further submitted that the decision of the Hon'ble Madhya Pradesh High Court in the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT [1983] 143 ITR 590 has wrongly been applied by the CIT (Appeals). 9. The ld. Counsel for the assessee submitted that the only source of income of the assessee is this industrial undertaking which is manufacturing jelly filled telephone cable. The amount deposited for power connection with MPEB or the amount deposited with IDBI for purchase of machinery has a direct nexus with the industrial undertaking of the assessee. Further, the advance of idle money for a temporary period is also income derived from industrial undertaking itself and, therefore, the CIT(Appeals) was perfectly justified in directing the Assessing Officer to consider the above interest income for the purpose of deduction under section 80HH and 80I. 9.1 He alternatively submitted that the assessee has advanced the above money out of the borrowed funds and, therefore if at all the interest received on the above deposits is to be excluded, it can be only the net income if any, i.e., the interest received by the assessee should be reduced from the interest payment by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business of generation and distribution of electricity. " Now, under section 80HH and 80I the legislature has used the words "derived from" as against the use of the words "attributable to" in section 80-I. Therefore it has to be concluded that the legislature intended to give the narrower meaning to the profit of the industrial undertaking. By using the words "derived from" the deduction is restricted to the profits and gains which is arising on running of the industrial undertaking. 10.1 The ld. CIT(Appeals) whiling allowing relief to the assessee has relied upon the decision of the Hon'ble Madhya Pradesh High Court in the case of Gwalior Rayon Silk Mfg. (Wvg) Co. Ltd. It has been contended by the ld. D.R. that the ld. CIT(Appeals) has wrongly applied this decision of the Hon'ble Madhya Pradesh High Court. 11. We have carefully gone through the said decision. The facts of the case under reference before the Madhya Pradesh High Court were as follows : The assessee was a company which was deriving income from manufacturing and export of art silk fabrics. The dispute was with regard to the determination of value of the turnover of goods exported. The Assessing Officer wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is directly related to the import activities or the import business of the assessee. It may be that it was because of the export business that the assessee got import licences, yet the connection of the income resulting from import entitlements to the export business is indirect and the direct source of this income is the import business. The amount of Rs. 28,81,308, being profits arising from import entitlements cannot, therefore, be included in the value of the turnover of exports under r.2(3). " 12. Now let us examine the facts of the case under appeal before us applying the test laid down by the Hon'ble Madhya Pradesh High Court. In the case under consideration before us, the assessee has earned interest income on short-term deposit with bank, loan given to Body Corporate, deposit with IDBI and security deposit with MPEB. In the genealogical tree of this income direct source of income is the deposit. Even if the deposit was made during the course of running of the industrial undertaking, the interest income cannot be said to be arising out of the running of the industrial undertaking. The industrial undertaking has only indirect relationship with the earning of interest inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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