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TMI Blog1997 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... Electricity Board should be treated as income derived from an industrial undertaking for the purpose of relief under section 80HH?" The assessee is a private limited company engaged in the manufacture and sale of potassium chlorate used in the manufacture of matches. For the assessment year 1979-80, the assessee made a claim of depreciation on factory roads, on the ground that the roads should also be treated as a part of the buildings. The Income-tax Officer rejected the claim and in the first appeal, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee. The Appellate Tribunal, on the appeal by the Revenue, following a decision of this court in CIT v. Lucas TVS Ltd. (No.2) [1977] 110 ITR 346 maintained the order of the Commissioner (Appeals) and as against that part of the order of the Appellate Tribunal, the first question of law has been referred to us. In so far as the second question is concerned, the point involved is whether the amount of subsidy received by the assessee from SIPCOT should be taken into consideration in determining the costs of the assets for the purpose of claiming depreciation. The Income-tax Officer held that the amount of subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, we answer the first question of law referred to us in the affirmative and against the Revenue. In so far as the second question of law is concerned, it is also concluded against the Revenue by a decision of the Supreme Court in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830. Following the decision of the Supreme Court, we answer the second question of law referred to us in the affirmative and against the Revenue. The third question pertains to the interpretation of section 80HH of the Act. The question relates to the eligibility of the assessee to claim deduction under section 80HH of the Act in relation to the interest on the deposit made with the Tamil Nadu Electricity Board. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that section 80HH uses the expression, "derived from" and in considering the question whether the assessee would be entitled to claim deduction under section 80HH of the Act, it must be only with reference to the profits and gains derived from the industrial undertaking, the assessee would be entitled to the relief. According to learned counsel for the Revenue, the interest income is derived from the deposit and is not derived from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y established industrial undertakings or hotel business in backward areas.---(i) 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." It is no doubt true that the assessee made the deposit with the Electricity Board in compliance with the Regulations of the Board for the supply of power. There is also no dispute that the supply of power is essential for running the industry and without the industry being run, the question of profit arising from that undertaking does not arise. It is also true that the assessee has deposited the money out of statutory compulsion to get the necessary supply of power which is vital for running of the industry. In spite of the nexus between the making of the deposit and running of the industry, the question remains whether the interest income earned on such deposit can be said to be derived from the industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its use in the definition indeed demands an enquiry into the genealogy of the product, but the enquiry should stop as soon as the effective source is discovered and the profit or gain can be said to have been "derived" from an activity carried on by a person, if the said activity is the immediate and effective source of the said profit or gain. This court also held that there must be a direct nexus between the activity and the earning of the profit or gain and the income, profit or gain cannot be said to have been derived from an activity merely by reason of the fact that the said activity may have helped to earn the said income or profit in an indirect or remote manner. This court also held that the expression, "derived from the business" should receive a restricted meaning and it refers to an income directly relatable to the business activities of the assessee. The above view was reiterated by this court in Chola Fish and Farms P. Ltd. v. CIT [1996] 217 ITR 609. The Karnataka High Court in Sterling Foods v. CIT [1984] 150 ITR 292 considered the expression, "derived from" in section 80HH of the Act and Jagannatha Shetty J. (as his Lordship then was), speaking for the Bench hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of section 80J of the Act. Hence, the decisions in South India Shipping Corporation Ltd.'s case [1995] 216 ITR 651 (Mad) and Tamil Nadu Dairy Development Corporation Ltd.'s case [1995] 216 ITR 535 (Mad), both cited supra, are not helpful to the assessee. The decision of this court in CIT v. Seshasayee Paper and Board Ltd. [1994] 207 ITR 80, was dealing with the interest on deposit with the Electricity Board. While considering the question whether such interest would be entitled to deduction under section 80-I of the Act, this court has held that the assessee would be entitled to claim deduction on the interest income earned as the expression found in section 80-I was "attributable to" and this court held that the relief under section 80-I for priority industry is not confined only to the profit income derived from the industry and it has a wider import. This court in the case of CIT v. L. M. Van Moppes Diamond Tools Ltd. [1984] 145 ITR 195 held that the cash subsidy received by an assessee would be eligible for the relief under section 80E of the Act and this court was considering the expression, "attributable to" occurring in section 80E of the Act. Similarly, the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 822 and held that the scope of expression, "derived from" is more than settled not only by the decision of the Kerala High Court, but by the decisions of the Supreme Court and Privy Council. The Kerala High Court held that the profit realised from the sale of the export house premium and from the sale of the import premium cannot be said to be derived from the business activities with reference to industrial undertaking. A study of various case laws clearly indicates that a restricted meaning is given when the Legislature uses the expression, "derived from". Though the assessee has necessarily to make the deposit with the Electricity Board for running the industry and the power supply will not be made without the deposit in favour of the Electricity Board, the income derived from the deposit with the Electricity Board cannot be said to have been derived from the industrial undertaking. The immediate source of interest is the deposit itself, and the effective source of the genealogy of the source of the interest income is the deposit and not business, as the industrial undertaking is removed by one step from the source of income for the interest. Hence, the interest income ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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