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TMI Blog2009 (11) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... see includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services or construction and development of housing projects or operating an industrial park or commercial production or refining of mineral oil in the North Eastern Region or in any part of India on or after the 1st day of April, 1997 (such business being hereinafter referred to as the eligible business), to which this section applies, 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 the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6). xxxxxxxxxx (5)The amount referred to in sub-section (1) shall be- (i)(a)in the case of an industrial undertaking referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial Co. Ltd. vs. Commissioner of Income-Tax, Gujarat-II, (1978) 113 ITR 84. In that case the Apex Court was dealing with the provisions of Section 80-E of the Act prior to its amendment in 1967. The assessee was carrying on the business of generation and distribution of electricity. It sold out some of its machinery and building. The question which arose was whether the amount earned from the sale of the machines and buildings was attributable to the business of the Industry. The Apex court held as follows: "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor general relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression 'derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try was carrying out a priority industry and the question which arose before the Apex Court was whether the profits and gains arising from the import and sale of spare parts can be said to be attributable to the priority industry. Relying upon the law laid down in Cambay case the Apex Court held that the word 'attributable' has a wide meaning and concluded that the profits from sale of imported spare parts were attributable to the priority industries. In Commissioner of Income-Tax vs. Pandian Chemicals Ltd., (1998) 233 ITR 497, a Division Bench of the Madras High Court dealt with the question as to the gains eligible for deduction under Section 80HH of the Income Tax Act. In that case the assessee was required to make a deposit before the Electricity Board before power supply was given to it. The assessee earned interest on this deposit. The question was whether this deposit is an income derived from an industrial undertaking to be eligible for relief under Section 80HH. After analyzing the entire case law the Madras High Court held as follows: "A study of various case laws clearly indicates that a restricted meaning is given when the Legislature uses the expression, "derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to import entitlements, which it can sell. The sale consideration there from cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking." It is contended by Sh.Kuthiala that in the present case also the freight source of subsidy is the scheme framed by the Central Government and not the business of the industry and therefore the same cannot be said to be derived. In Commissioner of Income Tax vs. Andaman Timber Industries Ltd., (2000) 242 ITR 204, the assessee had claimed the benefit of Section 80HH on profits and gains derived from the industrial undertaking and had included the amount paid to it under the transport subsidy scheme. The Calcutta High Court referred to the judgment of the Apex Court cited hereinabove and held that the transport subsidy is not derived from the activity of the industrial undertaking though it may be attributable to it and therefore cannot be said to be treated as parts of the profits and gains derived from the industrial undertaking. The relevant portion of the judgment reads as follows: "The limited question for our consideration is whether the amount of transport subsidy is a profit for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (6). In other words, deduction under sub-section (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentives and investment linked tax incentives. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-sections (3) to (11A) [as they stood at the relevant time]. One more aspect needs to be highlighted. Each of the eligible business in subsections (3) to (11A) constitutes a stand-alone item in the matter of computation of profits. That is the reason why the concept of "Segment Reporting" stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). 14. Analysing Chapter VI-A, we find that Sections 80-IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for "computation of profits of the eligible business". It is evident that Section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section(2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". After the aforesaid detailed analysis, the Apex Court held that the duty draw backs could not be deemed to be profits derived from business. It is apparent that the Apex court held that it is only the profits generated i.e. operational profits which are entitled to the benefit under Section 80-1A. In Sterling Food the Apex Court has also laid down a test as to what is the source of income. In the present case the source of income transport subsidy is not the business of the assessee but the scheme framed by the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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