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TMI Blog2019 (4) TMI 1676X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and upheld by the Tribunal having attained finality, are binding on the Revenue. - Decided in favour of the appellant- Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... lag' was not derived from the business of the industrial undertaking. The Tribunal distinguished the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. 1988 169 ITR 158 Bom. The Assessee, thus, preferred this Appeal under Section 260-A of the Act before this Court. 4. Mr. R.G. Ramani, learned counsel for the Assessee invited our attention to the orders passed by the Assessing Officer, CIT(A), and the order passed by the Income Tax Appellate Tribunal. It is submitted by the learned counsel that the Tribunal reversed the decision of the CIT(A) only on the ground that the decision of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra) was concerned with the then prevailing Section 80-I of the Act, which provided for deduction with reference to "profit and gains attributable to any priority industry"; whereas in the case of the Assessee, the applicable Section 80-IB provides for deduction with reference to "profits and gains derived from the business". The Tribunal also held that the meaning of the words "derived from" is much narrow, compared to the meaning of the words "attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the words "derived from". 8. It is submitted that the slag generated out of the manufacturing process had a direct nexus with the manufacturing of the Pig Iron. He placed reliance on the Judgment of the Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT, 262 ITR 278 (SC) and in particular paragraphs 6 and 7. The Supreme Court in the said Judgment construed the expression 'derived from'. He also placed reliance on the Judgment of the Supreme Court in the case of Liberty India and ors. vs. CIT, 317 ITR 218 (SC) and in particular paragraphs 3 and 11. He submits that the Supreme Court in the said Judgment had considered the issue i.e. whether profit from Duty Entitlement Passbook Scheme and Duty Drawback Scheme could be said to be profit derived from the business of the Industrial Undertaking eligible for deduction under Section 80-IB of the Income-tax Act,1961. He submits that the Supreme Court in the said Judgment held that on analysis of Sections 80-IB and 80-IA it becomes clear that any industrial undertaking which becomes eligible on satisfying sub-Section (2), would be entitled to deduction under sub-Section (1) only to the extent of profits derived fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, was eligible for deduction under Section 80-IB of the Act. It is submitted that in the said Judgment in the case of Vidyut Corporation (supra), this Court disallowed the deduction on the interest on unsecured loan having found that the same was not derived from the first degree source. He submits that the slag was part and parcel of the manufacture of Pig Iron and thus was eligible for deduction under the said provision. 12. Ms. S. Linhares, learned counsel for the Revenue, on the other hand, invited our attention to the findings rendered by the Assessing Officer, CIT(A) and the Tribunal and would submit that the findings rendered by the Assessing Office, while rejecting the claim in so far as the deduction claimed on the slag generated in the process of manufacturing and by the Tribunal while allowing the Appeal preferred by the Revenue by distinguishing the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra), are correct and does not warrant any interference. 13. The learned counsel placed reliance on the following Judgments in support of contention that the slag generated out of the manufacturing activity, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India : Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. (3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) beginning with the initial assessment year subject to the fulfillment of the following conditions, namely :- (i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may, by notification in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit earned from such sale holding that it is a part of profit derived from the Industrial Undertaking which is engaged in the manufacturing of pig iron, and has rightly held that the slag could be considered as part of profit derived from manufacturing activity of the Industrial Undertaking, the Tribunal contrary to such findings rendered by it, and upholding the findings rendered by the CIT(A), has allowed the Appeal of the Revenue by distinguishing the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra). In our view, the conclusion drawn by the Tribunal in the impugned order is contrary to the finding rendered by it, shows perversity. 20. The Supreme Court in the case of Liberty India and ors. vs. CIT (supra), had considered a substantial question of law i.e. "Whether profit from Duty Entitlement Passbook Scheme and Duty Drawback Scheme could be said to be profit derived from the business of the Industrial Undertaking eligible for deduction under Section 80-IB of the Income-tax Act,1961". The Supreme Court considered the provisions of Section 80-AB, 80-I, 80-IA and 80-IB in the said Judgment. After analysing Chapter VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not ? 24. In our view, in view of the findings already rendered by the CIT(A), which are upheld by the Tribunal that the slag generated out of the manufacturing process, the profit earned from such sale, is derived from the Industrial Undertaking which is engaged in manufacturing of Pig Iron, the Revenue cannot be allowed to contend that the sale of slag would not be a part of profits earned from the manufacturing process and would not be eligible for deduction under Section 80-IB of the Act. The findings rendered by the CIT(A) and upheld by the Tribunal having attained finality, are binding on the Revenue. 25. The Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (supra), has also construed the word "derived" after adverting to the Judgment of the Privy Council in CIT vs. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325, in which it was held that the inquiry should stop as soon as the effective source is discovered. In our view, the slag generated during the process of manufacturing activity of pig iron, was part of the manufacturing process and was a by-product of pig iron and integrated part of the manufacturing activity conducted by the Assessee and thus the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale price, the first degree test which has been laid down by the Supreme Court in the case of Liberty India and ors vs. CIT (supra). 28. In the said Judgment, the Division Bench, however, rejected the deduction claimed in respect of the interest received by the Assessee on unsecured loans under Section 80-IB by holding that the interest received by the Assessee on unsecured loans, cannot be regarded as being derived from Industrial Undertaking and would fail to meet the first degree test laid down by the Supreme Court in the case of Liberty India and ors vs. CIT (supra). In our view, the principles laid down by the Division Bench of this Court in the said Judgment in the case of CIT vs. Vidyut Corporation (supra) applies to the facts of this case. Since the slag generated out of the manufacturing activity of pig iron satisfies the test "first degree source", the assessee was entitled to seek deduction on the profits generated out of the sale of such slag under Section 80-IB of the Act. The slag generated has a direct nexus with the manufacturing process of pig iron. 29. In so far as the Judgment of the Division Bench of this Court in the case of Commissioner of Income Tax vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Madras High Court in the case of M/s. Computer Graphics Limited vs. The Assistant Commissioner of Income Tax Company Circle IV(2) relied upon by the learned counsel for the Revenue is concerned, the substantial question of law before the Madras High Court was "whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the appellant was not entitled to deduction under Section 80-IB of Income-tax Act 1961 on the ground that conversion of jumbo rolls into salable packets/rolls of standard sizes was not manufacture or production of article or thing?" The Madras High Court, in the said Judgment, held that the activity of converting jumbo rolls into marketable small sizes cannot be regarded as a marketing activity and as such, the Assessee was not entitled to the benefit of Section 80-I. In our view, the reliance placed by the learned counsel for the Revenue on the said Judgment is totally misplaced and would not even remotely apply to the facts of this case. 33. In so far as the Judgment of the Himachal Pradesh High Court in the case of Mrs. Poonam Arora vs. Income Tax Officer and others (supra) relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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