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TMI Blog2014 (11) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... rder - Both in relation to Vatva unit and Mandali unit the computation commences by taking profit as per statement of income filed alongwith return of income - the Tribunal has erred in reducing the other income received by the appellant as the entire income is incidental to manufacturing activities and therefore the deduction u/s 80-I is required to be allowed on the gross total income before deduction of 80-HHA and income from others – Decided in favour of assessee. Interest from IDBI – Held that:- The institution with which the assessee was carrying on business is required to be borne in mind - The interest from Bajaj Institution has direct nexus with the business and therefore the interest is required to be considered as derived from business – Decided in favour of assessee. The income earned from fixed deposit placed for business purpose cannot be treated as income from other source but must be seen as part of the assessee’s business income - the assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions and therefore the income received thereupon cannot be termed to be income from other sources – Decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the appellant and the revenue pertained to interpretation of provisions of section 80HHA and 80-I of the Act for granting deductions. 3. These appeals have been admitted for consideration of the following substantial questions of law: Tax Appeal No. 186 of 2003 (1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA and section 80-I of the Income Tax Act, 1961 in respect of item of interest income of ₹ 2306847/- being business interest from trade debtors and other interest of ₹ 95189/- being interest on misccellaneous receipts ? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA and section 80-I of the Income Tax Act, 1961 in respect of item of interest from IDBI amounting to ₹ 50225/- ? Tax Appeal No. 187 of 2003 Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of section 80HHA and section 80-I of the Income Tax Act, 1961 by holding that the gross interst income is to be excluded while computing the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le computing the gross total income and secondly at the time of computing deduction under section 80-I cannot be done. 4.1 Mr. Patel has also relied upon the unreported decisions rendered by co-ordinate Benches of this High Court dated 21.08.2012 in Tax Appeal No. 257 of 2000 with Tax Appeal No. 256 of 2000 and dated 12.03.2014 passed in Tax Appeal No. 1468 of 2006 and allied matters. Reliance has also been placed on the decision of the Apex Court in the case of Commissioner of Income Tax vs. Karnal Co-operative Sugar Mills Ltd reported in 243 ITR 2 (SC). 5. Mr. Manish Bhatt, learned Senior Advocate appearing with Ms. Mauna Bhatt, learned advocate for the respondent revenue in these appeals supported the impugned orders passed by the Tribunal and submitted that so far as the issue regarding interest from Bajaj institution is concerned, this Court may consider the decision of the Apex Court in the case of Liberty India vs. Commissioner of Income Tax reported in (2009) 317 ITR 218 (SC). 6. We have heard learned advocates for both the sides and perused the papers on record. The issue involved in Tax Appeals Nos.186 of 2003 and 371 of 2002, so far as question no. 1 is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 twenty per cent thereof. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970 6 but before the 1st day of April, 1990], in any backward area; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward area: Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area; (iv) it employs ten or more workers in a manufacturing process carried on with the aid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (6) Where any goods held for the purposes of the business of the industrial under- taking or the hotel are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial under- taking or the hotel and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial undertaking or the hotel does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of the industrial undertaking or the business of the hotel shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the Assessing] Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel in the manner hereinbefore specified presents exceptional difficul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of this section, a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company. 7. In view of the above decision, we are of the opinion that the Tribunal has erred in reducing the other income received by the appellant as the entire income is incidental to manufacturing activities and therefore the deduction under section 80-I is required to be allowed on the gross total income before deduction of 80-HHA and income from others. Therefore, question no.1 in Tax Appeals Nos.186 of 2003 and 371 of 2002 is required to be answered in the affirmative i.e. in favour of the assessee and against the revenue. 8. So far as question no. 2 of Tax Appeal Nos. 186 of 2003 and 371 of 2002 is concerned, the institution with which the assessee was carrying on business is required to be borne in mind. The interest from Bajaj Institution has direct nexus with the business and therefore the interest is required to be considered as derived from business. Question no.2 is therefore answered in the affirmative i.e. in favour of the assessee and against the revenue. 9. So far as the question raised in Tax Appeal No.187 of 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income from other sources and must be seen as part of the assessee's business of manufacturing and selling of chemicals. The decision of the Apex Court in the case of Pandian Chemicals Ltd. (supra) would not be applicable. In the said case, the Apex Court was interpreting the phrase 'derived from' used in section 80HH of the Act. It was in this background that the Apex Court held that the words 'derived from' must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. It was on that basis that the Apex Court held that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking. 10. Thus, it is clear that the income earned from fixed deposit placed for business purpose cannot be treated as income from other source but must be seen as part of the assessee s business income. In the present case also the assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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