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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 ..... ese appeals pertain to the assessment years 1993-94 and 1994-95. ITA No.1248/2010, which relates to the assessment year 1993-94, has been taken to be the lead matter and the facts of that case would be considered. The other appeal, ITA No.614/2011 is on virtually identical lines. 2. By virtue of an order dated 06.09.2011, a Division Bench of this court, while admitting the said appeals, framed the following substantial question of law:- Whether in the facts and circumstances of the case, the Tribunal was justified in holding that service charges received from the Heavy Water Board of Department of Atomic Energy could not be considered as profit derived 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant filed a Special Leave Petition [SLP (C) No. 3802/2007] which got converted into a Civil Appeal (Civil Appeal No.6244/2008). That appeal was disposed of by an order dated 21.10.2008. The Supreme Court took the view that the Tribunal and the High Court had not examined all the relevant contracts between the appellant and the Heavy Water Board because the appellant, in the first instance, had only produced the agreement dated 18.09.1994, but had failed to produce the contracts dated 05.08.1986 and 11.07.1990. The Supreme Court felt that the said contracts needed to be examined in depth in order to determine the basic issue as to whether the receipt of 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nthesis gas, after deuterium has been extracted therefrom by the Heavy Water Plant. One pipe line, which has been shown at S.No.10, is an interconnection of the Fire Water Line. Essentially, the manufacturing process is that synthesis gas enriched with deuterium, which is a by-product of the Ammonia / Urea Plant belonging to the appellant is utilized by the Heavy Water Plant for the purposes of extracting deuterium. The deuterium so extracted is used in the manufacture of Heavy Water at the Heavy Water Plant. The heavy water so produced is the property of the Heavy Water Board. Insofar as the synthesis gas is concerned, after deuterium is extracted from it, the same is returned 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, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in the hands of the Heavy Water Board for manufacture of Heavy Water and, consequently, the said service charges received by Kribhco for the operation and management of the Heavy Water Plant was a step removed from the business of the industrial undertaking of the assessee, namely, the Ammonia / Urea Plant of Kribhco. The Tribunal held that the said service charges for operation and maintenance could not be said to be covered under the first degree of operations. 9. Mr Ganesh, senior advocate, appearing on behalf of the appellant submitted that the Tribunal had misconstrued the provisions of Section 80-I by bringing in the question of ownership of an industrial undertaking. 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel referred to the agreement dated 14.09.1994 entered into between Kribhco and the Heavy Water Board. He drew our attention, in particular to clauses 11 and 16 thereof. Clause 11 of the said Agreement deals with the remuneration and it provides that in consideration of Kribhco operating and maintaining the Heavy Water Plant, the Heavy Water Board, would pay to Kribhco, remuneration set out in Item-I, Schedule-I thereto. It also stipulates that the remuneration would be payable only as long as Kribhco continued to operate and maintain the Heavy Water Plant. We have already indicated that there is no dispute on this aspect of the matter that Kribhco was receiving service charges from 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 Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expression. It was contended that there must be an immediate and direct nexus to the essential activity of the industrial undertaking for any profit or gains therefrom to qualify for deduction under Section 80-I of the said Act. The learned counsel for the revenue also referred to the decision of the Supreme Court in Liberty India v. Commissioner of Income-tax: (2009) 317 ITR 218 (SC). In that decision, the Supreme Court, in the context of Section 80-IB, which, for our purposes, is similar to Section 80-I, observed as under:- 14. It is evident that section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words derived 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression derived from . We find that the service charges are directly relatable to the operation and management of the Heavy Water Plant, which is an industrial undertaking. The service charges are directly linked to the quantum of heavy water produced by Kribhco by operating and maintaining the Heavy Water Plant. Therefore, in our view, there is a direct nexus between the service charges and the industrial undertaking. As such, we are of the view that the service charges are nothing but profits and gains derived by Kribhco from the industrial undertaking (that is, the Heavy Water Plant) and, the ownership of the Heavy Water Plant is of no relevance. 18. We must also note that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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