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TMI Blog2007 (6) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... levant information with regard to insurance claim and interest earned on FDRs are not available on record we restore the matter to the file of the Assessing Officer to readjudicate the issue in terms indicated above. If he comes to the conclusion that the insurance claim and interest on FDRs were received during the course of business of shipping operation of the assessee, deduction be allowed otherwise it would be treated as income from other sources. So far as variation in the figures of Return Income and assessee s income are concerned we are of the view that assessee is entitled for deduction u/s 33AC on the finally assessed income from business of operation of ships. In this regard the CIT(A) has also issued directions for rectification by the Assessing Officer. As such no further direction is required. We, however, of the view that the deduction is always available on the assessed income and not on the Returned income. Disallowance of claim u/s 35D - incurred public issue expenses - industrial undertaking - Whether business of operation of ships are considered to be industrial undertaking ? - HELD THAT:- In a common parlance the industrial undertaking means an under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IGH COURT] by the jurisdictional High Court. We, therefore, restore the matter to the file, the Assessing Officer to recompute deduction in terms indicated above. In the result, appeals of the assessee are partly allowed for statistical purpose and that of the revenue is dismissed. - SUNIL KUMAR YADAV AND D.K. SRIVASTAVA, JJ. Dinesh Ahit for the Appellant. Ms. Ruby Srivastava for the Respondent. ORDER Sunil Kumar Yadav, Judicial Member - These appeals are preferred by the assessee as well as the revenue against the respective orders of the CIT(A). Since common issues are involved in these appeals these were heard together and are being disposed of by this consolidated order. ITA Nos. 8045, 8046 8047/M/2003 2. These appeals are preferred by the assessee on almost common grounds. We, therefore, adjudicate them on the basis of issues involved therein. 3. In appeal No. 8045/M/2003 first ground relates to the validity of reopening of assessment. During the course of hearing this ground was not pressed by the learned counsel for the assessee. As such it is dismissed being not pressed. 4. Next issue in these appeals relates to the computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The learned DR placed reliance upon the order of the lower authorities. 7. Having given a thoughtful consideration to rival submissions and from a perusal of provision to section 33AC, we find from the language used in section 33AC that the eligible income is profit derived from the business of operation of ships. Profit from business means any profit generated during the course of business of operation of ships and does not confined only for operation of ships. The lower authorities have placed reliance upon the judgment of the Apex Court in the case of Sterling Foods ( supra ) which has no relevance to the present controversy as it was rendered with reference to sections 80-I and 80HH of the Act wherein the eligible profit must be derived from industrial undertakings and not from the business of industrial undertakings, meaning thereby the scope of eligible profit is wider in section 33AC in comparison to sections 80-I and 80HH. But during the course of hearing nothing has been placed on record by the learned counsel for the assessee whether the insurance claim was received by the assessee during the course of business of operation of ships. Similar is the position wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in view of the Supreme Court Judgment. As against this the amount allowable under section 35D works out to be Rs. 2,78,134 being 10 per cent of 2.5 per cent of capital employed. He accordingly made a request that the excess amount of Rs. 5,81,866 to be disallowed. With regard to entitlement of its claim it was submitted that operation of ships is also an industrial undertaking. Since the words industrial undertakings or industrial unit has not been defined in the Act, especially in the context of section 35D, one has therefore to look at the generic meaning of the words industrial undertaking or industrial unit and to look at the definition elsewhere in other provisions of the Act. Reliance was further placed upon Explanation 1 to section 10(15)( iv )( i ), according to which industrial undertaking means any undertaking which is engaged in manufacture and processing of goods or the operation of ships or aircrafts or construction or operation of rail systems. Therefore there is no reason why this definition cannot be applied to the provision of section 35D of the Act. Reliance was also placed on the judgment of Bombay High Court in the case of Ship Scrap Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and with precision shows that the undertaking or unit must be one which partakes the character of an industry. The terms "Industrial Undertaking" means an undertaking engaged in the business of manufacture or processing of goods. It was held by the Calcutta High Court in the case of CIT v. Textile Machinery Corpn. ( 80 ITR 428 ) that the words "industrial undertaking" in the Indian Income-tax Act should be interpreted to mean any venture or enterprise which a person undertakes to do which has relation to some industry or has some industrial consequences. In another case CWT v. C.S. Rao (147 ITR 437) it was held by Andhra Pradesh High Court that industrial undertaking is one which is engaged in the manufacture or processing of goods and the process of converting paddy into rice amounts to manufacture and also processing of goods. An "Industry" in one which has industrial consequences, that is, it carries on manufacture or processing of goods or articles. In case of Ujjagar Prints v. Union of India (179 ITR 341) it was held by the Supreme Court that the prevalent and generally accepted test to ascertain whether there is "Manufacture" is to find out whether the change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered to constitute an "Industrial Undertaking" or an "Industrial Unit". It is worth noting that in sections 80-I and 80J, industrial undertaking and ship have been separately mentioned, whereas in section 35D the word "ship" is conspicuous by absence. A reading of section 80-I makes it clear that out of the entire service sector only assessee engaged in operation of ship or running a hotel or repair of ocean going vessels are entitled to benefit under section 80-I and the rest are denied the benefit. Similarly, the entire service sector or trading sector companies stand exclude from the benefit of amortization under section 35D if such expenditure was incurred after the commencement of business. Since the assessee s business of shipping cannot be considered to constitute "industrial unit", the claim of Rs. 8,60,000 under section 35D of the assessee is not allowed and the same is added back to the taxable income. It may not be out of place to mention here that on identical facts in other shipping cases, the Hon ble CIT(A)XIV has confirmed the disallowance made by the Assessing Officer in the case of Great Eastern Shipping Co. Ltd. assessment year 1993-94 Appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has confirmed the disallowance. Now the assessee has preferred an appeal before the Tribunal. 12. The learned counsel for the assessee, besides reiterating the submissions raised before the lower authorities, has invited our attention to the provisions of sections 33AB, 80-IA, 80-IB and Explanation 1 to section 10(15)( iv ) with the submission that industrial undertaking has not been defined in section 35D. As such its real meaning should be understood in the light of the definition of industrial undertaking given in other provisions of the Act. Through Explanation 1 to section 10(15) industrial undertaking is defined and according to it industrial undertaking means any undertaking which is engaged in different type of activities including the operation of ships or aircrafts or construction or operation of rail system. The learned counsel for the assessee has also placed reliance upon the following decisions: ( i ) CIT v. J.B. Kharwar Sons [1987] 163 ITR 394 (Guj.) ( ii ) Ship Scrap Traders v. CIT [2001] 251 ITR 806 (Bom.) ( iii ) CIT v. Textile Machinery Corpn. [1971] 80 ITR 428 (Cal.) ( iv ) CWT v. C.S. Rao [1988] 174 ITR 612 (AP) ( v ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for definition of industrial undertaking, it was only for the purpose of particular section. General definition of industrial undertaking has not been given anywhere in the Act. Though as per Explanation 1 to section 10(15) of the Act operation of ships falls within the definition of industrial undertaking but it has been mentioned in this Explanation that this definition of industrial undertaking is only for the purpose of this clause, i.e., clause (4) of sub-section (15) to section 10. Even this definition of industrial undertaking is not extended to other clauses of sub-section (15) of section 10. It has restricted meaning and as such this definition cannot be extended or stretched to other provisions of the Act. We have also examined provisions of section 80-IA and we find that deduction under section 80-IA was eligible to profits and gains derived from any business of industrial undertaking or a hotel or operation of ships or developing, maintaining and operating any infrastructural facilities or scientific and industrial research and development or providing telecom-munication services, etc. Had the industrial undertaking meant any undertaking engaged in oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or production of new article. Definition of industrial undertaking was not in dispute. As such this judgment would not render any assistance. In the case of Ujjagar Prints v. Union of India [1989] 179 ITR 317 the Lordship of the Apex Court has simply defined the word manufacture but here the issue in dispute is with regard to general definition of industrial undertaking, "whether operation of ships falls with within the definition of industrial undertaking?". Again in the case of Ship Scrap Traders v. CIT [2001] 251 ITR 806 (Bom.), the issue in dispute was whether ship breaking amounts to manufacture or production of things or articles within the meaning of sections 80HH and 80-I. Again the definition of industrial undertaking was not in dispute. Whatever judgments are referred to by the assessee, they are not at all relevant to the present controversy. To understand the real meaning of Industrial Undertaking one should go either to the plain or general meaning or the meaning adopted in various provisions of the Act. As per plain and general meaning, industrial undertaking should be an undertak-ing engaged in the manufacture or processing of goods. The similar definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted as under for the sake of reference: "3.6 I have gone through the contention of the appellant as well that of the Assessing Officer and do not find any merit in the appellant s case. It is amply clear that the words used in sub-section 80-IB refers to computing the deduction from gross total income of the assessee. Further provisions of section 80AB contains the non obstante clause and governs all the deduction under Chapter VI-A. The provisions of section 80AB reads as under : Where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C". Deductions in respect of certain incomes in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 19. The learned DR, on the other hand, has placed heavy reliance upon the orders of the lower authorities. 20. Having given a thoughtful consideration to the rival submissions and the factual matrix of the case we find that the deduction under section 80-IB is claimed on the barges for which separate profitability statement was filed. In the case of Canara Workshops (P.) Ltd. ( supra ) the Lordship of the Apex Court have categorically held that when the assessee had more than one priority industry loss in one need not be set off against the profit of another for the purpose of granting relief under section 80-IB of the Act. In the light of this judgment if the assessee is maintaining separate set of accounts of different barges the loss suffered by other barges will not be set off against those barges which have earned profit and are eligible for deduction. While computing the deduction under section 80-IB on individual barges, computation is to be made as per Chapter VI-A of the Act. As per section 80AB the amount of income of a barge is to be computed in accordance with the provisions of the Act before making any deduction under this chapter and that shall al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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