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TMI Blog2004 (10) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... m was interpreted by the Hon ble Supreme Court in CIT v. Sterling Foods [ 1999 (4) TMI 1 - SUPREME COURT] . Thus, interest on deposit with the MP Electricity Board does not qualify for deduction u/s 80-I Marketing and Corporate offices - It is admitted that while preparing the profit and loss accounts for the purpose of claiming exemption u/s 80-I of Act, all income and expenditure as allocated by the corporate office and marketing division though not directly relatable to the Vijaipur unit, were taken into consideration. The transfer of expenditure to Vijaipur unit is said to be on the basis of the installed capacity as per the practice which was being followed. Therefore, the income and expenditure transferred by the corporate office and the marketing office to Vijaipur unit ignoring the fact that for the purpose of claiming the exemption u/s 80-I, it is only income derived from the industrial undertaking that has to be reckoned in computation as such the income and expenditure which are not directly relatable to Vijaipur unit cannot but be ignored. Thus, the expenditure allocated by the corporate office and the marketing division ought to have been excluded from the debit side o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilizer plants at Nangal, run by Fertilizer Corporation of India, were also transferred to the applicant. In these applications we are concerned with the Fertilizer plant in Vijaipur, District Guna, which was entrusted to the applicant to execute the country's first inland gas based fertilizer project. The applicant has a corporate office and Marketing division at Noida. The role of the corporate office is to manage all activities relating to corporate affairs which includes statutory compliance with the Companies Law, Income-tax Law and coordination between Ministry and Government agencies. The role of Marketing division is to promote the products of the company and to handle trading of the products which are not manufactured by the company. The expenses incurred by each of the division are accounted for initially in the respective divisions and they are debited to each of the unit including Vijaipur. In the same manner expenses incurred in the corporate office and marketing office are also accounted for in the respective divisions. As a policy the company prepares consolidated accounts at the year end and all the expenses incurred in the corporate office as well as marketing divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 3. Hire charges of construction equipment 3,97,746 S. No. Name of the item Income included under the head 'other income' 4. Hire charges of heavy vehicles 24,713 5. Medical charges 2,77,011 6. Sale of scrap 8,39,021 (4)Whether question under section 80-I is to be allowed on a further sum of ₹ 51,51,289 on account of other miscellaneous income ? Questions (1), (2) and (4) in AAR/533/2001 are similar to the aforementioned question except, the fact that amounts in them are different. Insofar as question No. 3 is concerned while there are 6 items in AAR/532/2001, there are only 2 items in AAR/533/2001. We shall advert to those facets presently. 2. The Commissioner of Income-tax forwarded his comments to the applications, stating that the applicant raised two types of questions. In the first category fall questions (1), (3) and (4) which relate to claim of deductions on various types of income which may be attributable to but are not derived from the eligible industrial undertaking; question (2) which involves exclusion of certain expenditure for the purpose of arriving at permissible deductions under section 80-I, falls in the second category. The assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuted. (1A) Notwithstanding anything contained in sub-section (1), in relation to any profits and gains derived by an assessee from- ( i)an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or (ii )a ship which is first brought into use; or (iii )the business of a hotel which starts functioning, on or after the 1st day of April, 1990 but before the 1st day of April, 1991 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-five per cent thereof : Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words 'twenty five per cent', the words 'thirty per cent' had been substituted . (2) to (5)****** (6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to avail maximum benefit under the section. It will be useful to notice here that the expression 'derived from' was interpreted by the Hon'ble Supreme Court in CIT v. Sterling Foods [1999] 237 ITR 579 1. Thus : "...There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus was not direct but only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. There under, the assessee was entitled to import entitlements, which it could sell. The sale consideration there from could not be held to constitute a profit and gain derived from the assessee's industrial undertaking". (p. 580) 5. Question No. (1), referred to above, relates to interest on deposit with the MP Electricity Board. 6. Mr. Ved Kumar Jain who appeared for the applicant fairly conceded that in view of the judgments, the point is covered against the applicant by the judgments in the following cases : 1.Sterling Foods' case (supra). 2.Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 2782 (SC). 7. Ms. Shumana Sen, DCIT, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure allocated by the corporate office and the marketing division ought to have been excluded from the debit side of the profit and loss accounts for working out the profits of industrial undertaking for the purpose of computing special deduction under section 80-I. In regard to question No. 1, it was conceded that the said interest income did not qualify for deduction under section 80-I, it, therefore, follows that the allocation of interest expenditure from corporate office is untenable. Question No. 3 in AAR/532/2001 Whether the following incomes credited to P&L account of the industrial undertaking and held by the Assessing Officer as not derived from the Industrial Undertaking, for the purpose of working out deduction under section 80-I, should not be excluded from its profits to the extent of expenses incurred for earning these incomes and debited to Profit and Loss account. S. No. Name of the item Income included under the head 'other income' (Rs.) 1. Interest on bank deposit 13,30,480 2. Interest on others 57,86,115 3. Hire charges of construction equipment 3,97,746 4. Hire charges of heavy vehicles 24,713 5. Medical charges 2,77,011 6. Sale of scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (AO) by showing the corresponding expenditure entries in the books of account, the same will be included in computing special deduction under section 80-I. We record her submission. 11. In light of above discussions we rule on :- (1)question No. 1 in AAR/532/2001 that interest of ₹ 7,22,506 and in AAR/533/2001 of ₹ 7,05,191, earned on deposits with MP Electricity Board do not qualify for deduction under section 80-I of the Income-tax Act, 1961. (2)question No. 2 in AAR/532/2001 that the expenses of ₹ 2,76,03,364 and ₹ 12,12,74,426 (it is stated that the correct figure is ₹ 11,02,56,561) allocated by marketing office and corporate office and interest expenditure of ₹ 1,65,99, 045 allocated by the corporate office and on question No. 2 in AAR/533/2001 that expenses of ₹ 2,56,44,186 and of ₹ 12,94,59,292 allocated by corporate office and marketing office and interest expenditure of ₹ 8,49,30,952 allocated by corporate office should be excluded from the debit side of the profit and loss account of the industrial undertaking for the purpose of deduction under section 80-I of the Income-tax Act, 1961; the fact that the allocat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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