9911796707
TMI Blog2011 (11) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... said Act and whether the findings of the learned Tribunal to this effect were wholly unreasonable, based on irrelevant consideration, contrary to the facts and evidences on record and/or otherwise perverse? (ii) Whether on a correct interpretation of Section 80IA of the Income Tax Act, 1961, the assessee-company was rightfully entitled to enjoy deduction in the sum of Rs.9,02,62,300/- in respect of profit and gains derived from the eligible business of Silvasa Unit and in respect of assessment year 2000-01? The short fact of the case is as follows:- The appellant assessee-company is engaged in business of manufacturing and selling lubricants for vehicles under brand names of Veedol and Mitsubishi Oil. The base oil for carrying out the aforesaid manufacturing operations is mostly imported from abroad more particularly, from Singapore, UK, USA and other European countries. The assessee-company, at all material times had five manufacturing units situated at Ramkristopur, Howrah (W.B.), Deonar in Maharashtra, Faridabad in U.P., Royapuram in Chennai and Silvasa in the backward area of the Union Territory of Dadra & Nagar Haveli. For manufacturing Mitsubishi Oil, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax (Appeal) preferred appeal before the learned Tribunal on various grounds. The learned Tribunal passed impugned order. Mr. N.K. Poddar, learned Senior Advocate appearing for the assessee in support of the appeal contends that the assessee-company maintains separate books of accounts relating to transaction effected at various branch offices under the relevant provision of the Companies Act, 1956. The Unit at Silvasa situated in the Union Territory of Dadra & Nagar Haveli of the appellant-company, has got the manufacturing activities and their expenses are also incurred by the assessee separately and such accounts are also audited separately. At the end of each financial year the audited accounts of each of the manufacturing units are brought to Calcutta for consolidation at the Head Office of the appellantcompany; and during such consolidation the receipts and expenses of the Head Office are also consolidated with receipt and expenses of the respective manufacturing units. Such accounts are first consolidated region-wise that is northern region, eastern region, western region, and southern region and thereafter consolidated with the accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing centers/units, including inter alia the Silvasa Unit with reference to which alone the deduction under Section 80IA of the said Act has been claimed by the assessee-company. He contends further that the corporate, administrative and overhead expenses incurred at Head Office were never allocated to any of the manufacturing units and/or respective regions, in the books of accounts maintained by the assessee-company in the usual course of its business either at the manufacturing units/centers and/or at the Head Office. However, such corporate, administrative and overhead expenses incurred and recorded in the Head Office books of accounts maintained in the usual course of business in Calcutta were bifurcated only in the statements prepared for management information purposes and for internal control, in proportion to sales. Similar allocations were done for the subsequent years under appeal. Nowhere in the books of accounts and/or in the audited statements drawn in the form of profit and loss account and balance-sheet, the Head Office corporate, administrative and overhead expenses recorded in the Head Office books maintained in the usual course of business in Calcutta have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are narrower in connotation as compared to the words attributed to. In other words, by using the expression "derived from" Parliament intended to cover sources not beyond the first degree. Under the scheme of the said Act the tax is levied on the income, profit and gains and not on gross receipt. Under Section 2(24) of the Act the word "income" includes profits and gains which combines receipts and expenses. According to him only those receipts can be considered for the purpose of allowing deduction under Section 80 IA/80 IB of the said Act which have a direct nexus of a first degree source with eligible industrial undertaking; by the very simple principles, the expenses derived from such receipts should also have direct nexus of a first degree source, connection to receipts of the industrial undertaking in question. By the same principles, the expenses to be deducted from such receipts, should have a direct nexus of a first degree source connection to the receipts of industrial undertaking. In support of his submission he has relied on the following decisions of the Supreme Court:- 1. Rajapalayam Mills Ltd. v. CIT (1978) 115 ITR 777 (SC) 2. CIT v. Patiala Flour Mills Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income under Sections 28, 29 read with Section 47 of the Income Tax Act, cannot be deducted in computing the profits derived from the eligible industrial undertaking for the purpose of Sections 80IA/80IB of the said Act. In support of his aforesaid contention he refers to Supreme Court decision reported in Rajapalayam Mills Ltd. v. CIT (1978) 115 ITR 777 (SC) and CIT v. Patiala Flour Mills Co. Ltd. (1978) 115 ITR 640 (SC), a mere commercial connection between the income and the industrial undertaking would not be sufficient. What is to be computed for the purpose of allowing deduction under Sections 80IA/80IB is the profits and gains derived from any business of industrial undertaking. Such income/profits gains can be computed only by deducting from receipts and income, which have direct nexus (connection of first degree source) with the industrial undertaking, the expenses, which too have direct nexus with such receipts/income of the industrial undertaking. Since all business income/receipts cannot form part of profits derived from industrial undertaking all business expenses cannot be deducted in computing any profits. The expenses incurred and recorded at the Calcutta Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aggregate sum of Rs.43,69,645/- both of Silvasa Unit in respect of assessment year 1999-2000 were independently and separately recorded directly in the books of accounts of the Silvasa unit. The advertisement, selling and marketing expenses of Silvasa Unit were debited directly in the books of that unit for the assessment year 2000-2001. He further contends that nature of advertisement, selling and marketing expenses recorded in the Head Office books in each of the said years had no direct nexus or connection whatsoever or relationship of first degree source with any of the manufacturing units. Mr. Dipak Som, learned Senior Advocate appearing for the Revenue supports the judgment and findings of the learned Tribunal. He contends that the meaning of the words "derived from" is something different from what the learned counsel for the appellant-assessee explains. He refers to the Blacks Law Dictionary 6th Edition for the meaning "derive" and contends that it will appear therefrom meaning of the said word is to receive from a specified source or origin. He refers to a decision of the High Court in case of Mst.Sarju Bai v. Commissioner of Income Tax reported in 151 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower authorities as well as cited at Bar by the learned A.R. and D.R. As per provisions of Section 80IA, deduction is to be allowed on the profit of an Undertaking referred to in sub-section (iv) of Section 80IA. Thus the intention of the legislature is to give deduction in respect of profit and gains from the Industrial Undertaking or Enterprise engaged in infrastructure development etc. For arriving at correct profit of the Industrial Undertaking, the expenditure related to such Undertaking is to be properly accounted for. Only by making entry under the head 'Corporate Expenses', the assessee is not allowed to increase the profit of the Industrial Undertaking, just by debiting the same in the Head Office Account, the expenses which are actually attributable to the Industrial Undertaking on the profit of which deduction is eligible under Section 80IA. We had carefully gone through the details of corporate expenditure which has been narrated by the learned CIT (Appeal) in his order at page 4 and found that no reasoning has been given by the learned CIT (Appeal) for treating this expenditure as not related to the Silvasa Unit. No justification has also been given by the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer. We are of the view accepting argument of Mr. Poddar such decision is perverse and it is legally impermissible to accept it. We have read the judgment and order of the Assessing Officer and also the Commissioner of Income Tax (Appeal), carefully we find that earlier direction of the learned Tribunal has not been followed with appropriate application of mind. Actually it appears the direction was that the Assessing Officer must examine the accounts either of corporate/Head Office accounting or of Silvasa Unit to ascertain essential expenditure incurred at the corporate office for running Silvasa Unit. It seems to us that no endeavour has been made to do so. The learned Tribunal has gone wrong lending misplaced support to the concept of "best judgment", because of non-availability of the materials or relying upon the accounting of the assessee. We think that this is not the way to find essential expenditure actually incurred for the Silvasa Unit alone. We, accordingly, set aside the judgment and order of the learned Tribunal and allowed the appeal partly. In view of above discussion and reasoning we do not think the decisions cited by Mr. Poddar are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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