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TMI Blog2015 (8) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... which flows from the scheme framed by the Himachal Pradesh Government and is, therefore, not a profit derived from the business but is an ancillary profit of the business. Question answered in favour of the Revenue. The assessee is not entitled to the benefit of section 80- IC in respect of the sales tax rebate obtained by it. - Decided against assessee. Eligibility for interest on FDRs - Held that:- assessee had received interest on FDRs kept with the bank as margin money. He treated the same as income from other sources and not profit derived from industrial undertaking. Accordingly, he disallowed the deduction. The Tribunal remanded the issue to the Assessing Officer for fresh adjudication in accordance with law and by keeping in view a decision of this Court referred to therein. As the matter has been kept open, no question of law arises X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT was also not right in law in not appreciating the ratio of Hon'ble Supreme Court in the cases of M/s Liberty India vs. CIT 225 CTR 233 (SC), CIT vs. Sterling Foods 153 CTR 439, 237 ITR 589 , Vellore Electric Corporation Ltd. vs. CIT 227 ITR 557 (SC). (iv) Whether in the facts and circumstances of the case, the ITAT was right in law in holding that the income from Sales Tax Deferment Rebate received by the assessee is allowed to be included as profits derived from industrial undertaking and eligible for deduction u/s 80IC of the Income Tax Act, 1961, when the assessee received it from the Himachal Govt. for the benefit of any incentive of Sales Tax leviable on the sale of manufactured goods under Himachal Pradesh General Sales Tax Act, 1968 and the income derived from such rebate is not an income derived from industrial undertaking. However, the immediate source of this rebate was the scheme of Govt. to give such rebate and not the conduct of the business of the industrial undertaking. (v) Whether in the facts and circumstances of the case, the ITAT was right in law in directing the AO to pass a fresh order, on the issue of bank interest, in terms of the judgment of jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given an option either to avail deferment of payment of tax or to opt, by making an application in the prescribed form, to pay 65% of the tax liability for any tax period of the financial year and upon making such payment the unit would be deemed to have paid the full tax due from it accordingly. The assessee opted to pay 65% of the VAT liability and the remaining 35% i.e. a sum of ₹ 24,98,964/- had been credited in the profit and loss account derived by the industrial undertaking. The assessee contended that the retention of 35% VAT has a direct nexus with the sales and is an integral part of the industrial unit and is, therefore, eligible to be deducted under section 80-IC. The submission is not well founded. Sub-section (2) of Section 80-IC specifies the undertakings and enterprises to which the section is applicable. It is applicable to the assessee/respondents. 6. Section 80-IC (1) and (3) to (7) reads as under:- 80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States.-(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of Section 80-IB or under Section 10-C, as the case may be, exceeds ten assessment years. (7) The provisions contained in sub-section (5) and subsections (7) to (12) of Section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section." 7. The operative words are "profits and gains derived by an undertaking or an enterprise from any business referred to in subsection (2)." The profits and gains must, therefore, be derived "from" the business. The word "from" means, inter alia, a starting point, a point of attachment or a source or origin. A sales tax rebate cannot be said to be derived from any business. A sales tax rebate can be said to be in respect of a business or in favour of a business or in relation to a business, a facility to a business and incentive to a business. The rebate does not originate from the business. The source or origin of the rebate is from the policy or notification granting the same. The source or origin is not the business. If the legislature int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incentives in the form of tax deductions essentially belong to the category of "profit linked incentives". Therefore, when s. 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under s. 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract s. 80-IB(6). It is the profits arising from the business of a ship which attracts sub-s. (6). In other words, deduction under sub-s. (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentives and investment linked tax incentives. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-ss. (3) to (11A) (as they stood at the relevant time). One more aspect needs to be highlighted. Each of the eligible business in sub-ss. (3) to (11A) constitutes a stand-alone item in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-s. (5) of s. 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub-s. (5) of s. 80-IA, which are also required to be read into s. 80-IB. [see s. 80-IB(13)]. We may reiterate that ss. 80I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of ss. 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-s.(2), would be entitled to deduction under sub-s. (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, subs.(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income derived by the assessee by the sale of import entitlement was profit and gain derived from its industrial undertaking of processing seafood and can be included in the income of the assessee for the purpose of computing the relief under Section 80-HH of the Act. Section 80-HH(1) reads as under:- "80-HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.-(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with 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." (emphasis supplied) The material words in section 80-HH and in section 80-IC are the same, namely, "where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel …. ….". The Supreme Court held:- "9. On behalf of the appellant(s) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industries set up in remote areas where rail facilities were not available and some percentage of the transport expenses was subsidized by the Central Government. The question was whether the freight subsidy is income derived from the business of the industrial undertaking and can be included in the profit eligible for deduction under section 80-IA. The Division Bench held that the source of transport subsidy is not the business of the assessee but the scheme framed by the Central Government. Applying the test laid down by the Supreme Court in the aforesaid judgment, the Division Bench held that the subsidy received by the assessee was not a profit derived from the business since it was not an operational profit and that the source of the subsidy is not the business of the assessee but the scheme of the Government. We are in respectful agreement with these observations of the Himachal Pradesh High Court. 13. The two decisions of the Delhi High Court in (2009) 317 ITR 353 and (2010) 324 ITR 283 were delivered before the judgment of the Supreme Court in Liberty India vs. Commissioner of Income Tax (supra). They did not take the judgment into consideration. They must be deemed to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language with respect to the provisions referred to in such cases except Cambay Electric Supply, [1978] 113 ITR 84 (SC) read as "profits and gains derived from an industrial undertaking" as against the language appearing in section 80-IB of the Act which is "profit and gains derived from any business". We respectfully agree with the view of the Division Bench in Eltek SGS, [2008] 300 ITR 6 (Delhi) which has held that the test of proximity, i.e., direct nexus with the industrial activity is not necessary while claiming deduction under section 80-IB of the Act." The judgment was followed by a Division Bench of the Delhi High Court in Commissioner of Income-Tax vs. Sportking India Ltd., [2010] 324 ITR 283 (Delhi). 14. For the reasons we have already stated, we are, with respect, unable to agree with the decisions of the Delhi High Court. In our view, they are also contrary to the judgment of the Supreme Court referred to above and, therefore, must be deemed to have been impliedly overruled. In Commissioner of Income Tax vs. Dharam Pal Prem Chand Ltd. (supra), the Division Bench agreed with the findings of the authorities that the refund of excise duty is &qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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