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TMI Blog2013 (7) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the industrial undertaking to qualify for deduction under Section 80-I of the Act ?" 3. The service charges, which have been received by the appellant (Kribhco) was in respect of Kribhco operating and maintaining the heavy water plant, also known as the Hazira Ammonia Extension Plant (HAEP), owned by the Heavy Water Board, Department of Atomic Energy, Government of India. The issue is whether these service charges can be regarded as profits and gains of Kribhco 'derived from an industrial undertaking' and, consequently, whether Kribhco would be entitled to any deduction under Section 80-I of the Income-tax Act, 1961. 4. In respect of the assessment year 1993-94, the extent of the above service charges was Rs 6,36,45,631/-. Initially, the appellant (Kribhco) claimed deduction under Section 80-I of the said Act in respect of the said service charges. Subsequently, during the assessment proceedings, the assessee revised the claim by excluding these charges for the purposes of deduction under Section 80-I and treated them as its income from other sources. The Assessing Officer, while computing the profits eligible for deduction under Section 80-I of the said Act, reduced the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service charges was or was not directly linked with the manufacturing activities carried out and the industrial undertaking of the appellant. For this reason, while keeping all contentions from both sides expressly open, the Supreme Court set aside the impugned judgment of the Delhi High Court and remanded the matter to the Tribunal for reconsideration of the matter in accordance with law. 7. It is, thereafter, that the matter was reconsidered by the Tribunal which disposed of the appeal in respect of the assessment years 1993-94 being ITA No.6130/Del/1997 by an order dated 26.02.2010. It is that order which is impugned before us insofar as the assessment year 1993-94 is concerned. A similar order was passed in respect of the assessment year 1994-95 in ITA No.3902/Del/2010 dated 20.10.2010. 8. The appellant has an Ammonia / Urea Plant at Hazira. Just next to it and within its premises, the Hazira Ammonia Extension Plan, which manufactures heavy water, has been set up and established by the Heavy Water Board, which is part of the Department of Atomic Energy, Government of India under the said agreements dated 05.08.1986, 11.07.1990 and 14.09.1994. After examining the agreements b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned to Kribhco's Ammonia / Urea Plant; 4. The Heavy Water Plant cannot exist without the Ammonia / Urea Plant as the technology used for manufacture of heavy water is based on Ammonia Hydrogen Exchange Mono-thermal process and the deuterium required for manufacture of heavy water is supplied by the ammonia / urea plant and is a by-product in manufacture of ammonia / urea; 5. However, the Ammonia / Urea Plant is not dependent on the Heavy Water Plant as the Heavy Water Plant does not produce any byproduct, which is necessary for manufacture of Ammonia / Urea. In other words, the manufacture of Ammonia / Urea is not dependent on the Heavy Water Plant; 6. The appellant had employed its staff for carrying out the operation and management of the Heavy Water Plant for which the appellant was compensated by way of the said service charges; 7. From the terms of the agreement entered into between the Heavy Water Board and the appellant for the operation and maintenance of the Heavy Water Plant, it is clear that Kribhco was not concerned with the profit or loss which was to be incurred by the Heavy Water Board insofar as the Heavy Water Plant was concerned. The profit or loss arising fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He submitted that Section 80-I(1) referred to the profits and gains derived from an industrial undertaking. Section 80-I(2) stipulated that the industrial undertaking should fulfill the conditions set out in that sub-section. It is nobody's case that those conditions have not been satisfied. According to Mr Ganesh, neither Section 80- I(1) nor Section 80-I(2) of the said Act stipulates or requires that the industrial undertaking in question must be owned by the assessee. He sought to contrast the provisions of Section 80-I(2) with those Section 80-I(3) which talks of the ownership of the ship. Similarly, Section 80-I(4) also refers to the ownership of the hotel. However, there is no such requirement of ownership insofar as an industrial undertaking is concerned. 10. It was also contended by Mr Ganesh that there could be no quarrel with the proposition that the industrial undertaking must be the proximate and effective source of the profits and gains. In this context, he submitted that in the present case, Kribhco had, in reality entered into a revenue sharing agreement or arrangement with the Heavy Water Board for sharing the revenues of the Heavy Water Plant. Furthermore, every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Heavy Water Board for operating and maintaining the Heavy Water Plant. We have also indicated that these service charges were directly proportional to the quantum of Heavy Water produced in the Heavy Water Plant. 13. Our attention was drawn, as pointed out above, also to clause 16, which specifically provided that the Heavy Water Board shall be the owner of the Heavy Water Plant. There is also no dispute with this inasmuch as the Tribunal has returned a finding of fact that the Heavy Water Plant belongs to the Heavy Water Board and not to Kribhco. The latter was only operating and maintaining the Heavy Water Plant on behalf of the Heavy Water Board for which it was receiving service charges. The question is whether these service charges could be treated as the profits and gains of Kribhco derived from an industrial undertaking and whether the same would be eligible for deduction under Section 80-I of the said Act. 14. The learned counsel referred to the Supreme Court decision in the case of Pandian Chemicals Limited v. Commissioner of Income-tax: 262 ITR 278 (SC) 278 to explain as to what is meant by the expression "derived from", as appearing in Section 80-I of the said Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. ..." In this backdrop, it was contended that the "service charges were not within the first degree" and, therefore, could not be said to be derived from the industrial undertaking. 16. Consequently, the learned counsel for the revenue submitted that the question be answered in favour of the revenue and the appeals be dismissed. 17. Having considered the arguments advanced by the counsel for the parties, we feel that the key issue is whether the ownership of an industrial undertaking is a relevant factor for the purposes of construing the provisions of Section 80-I of the said Act. We find ourselves to be in agreement with the submission made by Mr Ganesh that Section 80-I does not speak of the ownership of an industrial undertaking. On a plain reading of Section 80-I(1) of the said Act, it is apparent that the first question is - what is the gross total income of an assessee ? The next question is: does it include any profits or gains derived from an industrial undertaking ? Neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object behind Section 80-I of the said Act is to encourage establishment of industrial undertakings. That object is clearly satisfied in the present case. Section 80-I grants an incentive for promoting industrialization and, as observed by the Supreme Court in Bajaj Tempo Limited, Bombay v. the Commissioner of Income-tax, Bombay City-III, Bombay: 1992 (3) SCC 78, "a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally". It is upon a consideration of this aspect also that we have arrived at the conclusion that the service charges received by Kribhco were profits and gains derived from an industrial undertaking and were eligible for a deduction under Section 80-I of the said Act. 19. Insofar as the decisions cited by the learned counsel for the revenue are concerned, the said decisions do not, in any way, detract from the position indicated by us. 20. Therefore, we feel that as the issue of ownership is irrelevant, the service charges received by Kribhco from the Heavy Water Board, would have to be regarded as profits or gains derived from an industrial undertaking so as to qualify for deduction under Section 80-I o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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