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TMI Blog2012 (7) TMI 775X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80HH and 80I? 3. Whether on the facts and circumstances of the case, the Tribunal was right in holding that depreciation on guest house building has to be disallowed as per Section 37(4) of the Income Tax Act, 1961? 2. As far as the third substantial question of law is concerned, learned counsel appearing for the appellant fairly submits before this Court that the said issue is covered against the assessee by reason of the decision of the Supreme Court reported in [2005] 278 ITR 546 (Britannia Industries Ltd. Vs. Commissioner of Income-tax). Hence, this Tax Case Appeal stands rejected as far as the third substantial question of law is concerned. 3. The first two substantial questions of law raise a common issue as to the computing of the relief under Section 80HH and 80I. 4. There is no dispute over the fact that the assessee company is eligible for deduction under Section 80HH and 80I as well as investment deposit allowance under Section 32AB of the income Tax Act. While computing the deduction under Sections 80HH and 80I, the Assessing Authority reduced the profits of the newly formed industrial undertakings by making deduction under Section 32AB and reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plying Section 80AB to Section 80HH, the profits and gains of the undertaking that has to be computed for the purpose of working out the deduction under Section 80HH are those that have a direct nexus to the income derived from an industrial undertaking. In this connection, learned counsel referred to the decision reported in [2009] 317 ITR 218 (Liberty India Vs. CIT) (SC) to contend that the connotation of the words "derived from" is narrower as compared to that of the words "attributable to" and the profits and gains derived from the industrial undertaking under Section 80HH for the purpose of granting the relief to the extent of 20% deduction must cover sources not beyond the first degree. Since the relief under Section 32AB is not falling under the first degree of source, the question of including Section 32AB as part of the profits and gains does not arise. Thus the inclusion of income as profits and gains of business must follow the terminology used under the particular provision. Thus, read in the context of the decision of the Apex Court reported in [2009] 317 ITR 218 (Liberty India Vs. CIT) (SC) as well as [2004] 266 ITR 521 (IPCA Laboratory Ltd. Vs. Deputy Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the first degree. Thus on the question as to whether DEPB and duty drawback receipts would fall under the first degree source for the purpose of considering the same as part of the profits derived from the eligible business under Section 80IB, the Apex Court held that such profits belong to the category of ancillary profits of such undertakings. Extending the law laid down in the above-said decisions to the provision thus available under Section 80HH, we have no hesitation in accepting the case of the assessee. 11. A reading of Section 80HH shows that from the gross total income, deduction at a particular percentage is granted under the said Section to the eligible assessee from the profits and gains derived from that industrial undertaking. Thus, what is given as deduction is the profits and gains derived by the industrial undertaking, subject to the industrial undertaking satisfying other qualifications. 12. As already seen, the phrase "derived from", being narrower and in contradistinction to the term "attributable to" income which do not have a direct nexus to the industrial undertaking, cannot be regarded as having been derived from the industrial undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the deduction relief under Section 80HH and 80I. Hence, as far question No.1 and 2 are concerned, we allow the assessee's Tax Case Appeal. In the result, this Tax Case Appeal stands partly allowed. No costs. ksv To 1. The Income Tax Appellate Tribunal "A" Bench, Madras. 2. The Commissioner of Income Tax (Appeals)-V, Madras-34. 3. The Deputy Commissioner of Income Tax, Special Range-VI, Madras 600 034 ======================================================================================= CHITRA VENKATARAMAN, K.RAVICHANDRA BAABU, JJ. CHITRA VENKATARAMAN, J. We delivered the judgment in the above appeal on 4.6.2012. We held therein that in computing the profits and gains derived from the industrial undertaking for the purpose of grant of relief under Sections 80HH and 80I, relief under Section 32AB could not be included. After the delivery of the judgment, learned standing counsel appearing for the Revenue placed before us on 8.6.2012, the unreported decision of this Court rendered in T.C.(A) Nos.800 of 2004 and 175 to 177 of 2005 by order dated 13.3.2012, wherein similar question came up for consideration befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income for granting deduction under Chapter VIA, the deduction under Section 32AB is made on the overall income of the business of the assessee. Thus, Section 32AB cannot get into the reckoning of the profits and gains of the industry for the purpose of working out the deduction under Section 80HH and 80I. He further pointed out that the unreported decision had not considered the Apex Court's decision reported in 317 ITR 218 LIBERTY INDIA v. CIT., which would govern the issue herein. Thus, what is to be included as profits and gains of the industrial undertaking has to be decided in the context of use of the expression 'derived from' in the said Section 80HH, which means, all those profits and gains which come within the first degree of source alone has to be considered and not any other income of the industrial undertaking. 5. As far as reliance placed on the decision of the Apex court reported in 317 ITR 218 LIBERTY INDIA v. CIT. is concerned, we agree with the assessee's contention that the order in T.C.Nos.800 of 2004 and 175 to 177 of 2005 dated 13.3.2012 did not make any reference to the decision of the Supreme Court, which essentially deals with Sections 80AB, 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nswer is that it is that amount of income of the nature which qualifies for deduction. On a reading of Section 80AB with Section 80HH of the Income Tax Act, it is clear that income qualifying for deduction has to be one which has an intimate, direct nexus to the industrial activity of the qualified industrial undertaking. 9. In the decision reported in 161 ITR 320 COMMISSIONER OF INCOME TAX v. CANARA WORKSHOPS P. LTD., the Apex Court, on very simple terms, pointed out how the benefit under Chapter VI A is worked out in the context of relief under Section 80-E, which may be of relevance to other deduction provisions too. The Apex Court pointed out that the assessee must be a company which satisfies the eligibility criteria as provided for in that particular Section. The total income as computed in accordance with the 1961 Act, should include profits and gains attributable to the business of the assessee concerned or the industry mentioned. Thus, the total income as computed in accordance with the Income Tax Act, 1961, without taking into regard the provisions of Section 80E, should include profits and gains attributable to the business or the industry mentioned in that Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking for deduction, it being not derived from the industrial activity of a particular industrial undertaking for deduction under Section 80HH in the sense of not having direct nexus to the industrial activity of the undertaking. Learned counsel for the assessee pointed out that working out relief under Section 32 AB is based on the book profit computed in accordance with the provisions of Rule 36 of the Companies Act. Hence, income considered for Section 32 AB cannot be included in the income of the nature which qualified for deduction under Section 80HH. 13. We do not think that the Book profit computation as per the Companies Act should be taken as a good ground to exclude the same in working out the relief under Section 80HH of the Act, for the simple reason that, as per Section 80AB, the amount of income which goes for deduction is the income of that nature given under the particular deduction provision computed in accordance with the provisions of the Act, before making any deduction under Chapter VIA. The fact that calculation of Section 32AB relief is worked out as per the Book profit computed in accordance with the Companies Act, does not mean that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the income which has direct nexus with industrial undertaking alone has to be regarded as income derived from the industrial undertaking. This Court held that the interest received on the deposits which were made for the purpose of opening a Letter of Credit for the purpose of import of material, cannot be regarded as income derived from the industrial undertaking. This Court pointed out that direct and proximate link of the deposits is with the deposit in the Bank and not with the industrial undertaking; hence, cannot be included in the working out of profits and gains for the calculation of deduction under Section 80HH of the Income Tax Act. 15. Insofar as Section 80HHC is concerned, this Court made the distinction pointing out to Section 80HHC(3) as it stood during the relevant assessment year 1986-87, which included profits made out of export of goods with the profits and gains of the business or profession. This Court pointed out that interest derived from the bank deposits included in the computation and had been assessed under the head of "profits and gains of the business or profession" will have to be regarded as having been derived from export effected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 317 ITR 218 LIBERTY INDIA v. CIT. and this Court in 258 ITR 749 COMMISSIONER OF INCOME TAX v. NSC SHOES have not been considered by this Court in the unreported decision and the same had not been placed before the other Bench for its consideration, we once again heard the learned counsel on either side in full and we have no hesitation in holding that the entirety of the allowance under Section 32AB cannot be included as a routine manner in the profits and gains of the industrial undertaking derived for the purpose of considering the deduction under Section 80HH and 80I and that out of the total allowances, only that portion of the income which has direct nexus with the industrial undertaking alone could be considered under Section 80AB to work out the relief under Section 80HH and 80I. In the background of the decision of this Court reported in 258 ITR 749 COMMISSIONER OF INCOME TAX v. NSC SHOES and the Apex Court's decision in 317 ITR 218 LIBERTY INDIA v. CIT., we do not find that there exists any necessity for referring the case for consideration before the Full Bench. Even though learned standing counsel for the Revenue does not seek this we are duty bound to state this while ..... X X X X Extracts X X X X X X X X Extracts X X X X
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