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TMI Blog2017 (7) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee as the same is the outcome of the deposits made for business purposes The said income earned from the security deposits against the business expenses and in is eligible to be set off particular the interest expenditure incurred by the assessee on the loan amount borrowed from the bank / financial institutions. Allow this ground of the assessee and hold that the interest income earned by the assessee on security deposits from H P SEB is to be treated as business income of the assessee and the assessee is entitled to set off the same against the business expenditure. Reducing the income from interest from H P SEB, rent received, Misc. receipt etc. from the profits of the unit eligible for deduction u/s 80IC - HELD THAT:- Though the assessee is entitled to netting of such income against business expenditure but the assessee is not entitled to include the said income in the eligible profits of the undertaking in view of the laws laid down by the Hon ble Supreme Court in the case of Pandian Chemicals Ltd Vs. CIT [ 2003 (4) TMI 3 - SUPREME COURT] Income from rent received - same analogy can be applied and the same is not the income derived by the undertaking and, hence, is not el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome on account of interest received from fixed deposits. The Ld. DR has not pointed out any case law contrary to the above proposition of law laid by the Hon ble Jurisdictional High Court. The issue is, thus, squarely covered in favour of the assessee Treating the activity of twisting and texturing of yarn as manufacturing activity for the purpose of deduction u/s 80IC - HELD THAT:- As relying on EMPTEE POLY-YARN P. LTD. [ 2008 (2) TMI 313 - BOMBAY HIGH COURT] there is no infirmity in the order of the CIT (A) in holding that the conversion of yarn into thread by the assessee company amounts to manufacturing activity and, therefore, the income earned form such activity is eligible for deduction u/ s 80IC of the Act. There is no merit in this ground of appeal of the Revenue and the same is accordingly dismissed. Eligibility of the insurance claim u/ s 80IC - HELD THAT:-The purpose of insurance is always to get indemnified against any unforeseen loss. However, the question before us is whether such reimbursement / insurance claim has been paid to the assessee on account of Capital loss or Revenue loss. We accordingly direct the Assessing officer to examine as to whether the insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame against the interest expenditure incurred by the assessee on the loan amount obtained from the banks for business purposes. The Assessing officer disallowed the claim of the assessee for treating the said income as 'business income' and further to include the said income into the eligible claim for deduction u/ s 801C of the Income-tax Act, 1961 (in short 'the Act'). Assessee assailed the order of the Assessing officer on this issue before CIT (A), but remained unsuccessful. 6. We have heard the rival contentions and perused the records. Admittedly, the said interest income of the assessee from the security deposits made with the Electricity Board is not an income derived by the undertaking, hence, is not eligible to be included into the eligible profit for deduction u/ s 801C of the Act. The law laid down by the Hon'ble Supreme Court in the case of 'Pandian Chemicals Ltd Vs. CIT' 262 IT R 278 (SC) is squarely applicable on the above issue. However, it is pertinent to observe here that the compulsory security deposits made by the assessee with the Electricity Board for obtaining / running of the electricity connection were not made by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not press this issue because of smallness of the amount, however, the issue on merit regarding the admissibility of the said receipt towards deduction u/ s 801C be kept open. We, accordingly dismiss this issue of Misc. receipts of R s. 1,590/- holding that the dismissal of the above claim will not have any precedential value. The issue regarding the admissibility of such a claim is kept open to be adjudicated at appropriate time / case. 7. The assessee in this appeal has also taken an additional ground agitating the action of the lower authorities in not treating the interest reimbursement of ₹ 32,42,351/- received under Technology Upgradation Fund Scheme (TUFS)' as capital receipt. 8. So far as the issue involved in additional ground relating to interest reimbursement under TUFS scheme is concerned, we find from the impugned order that the said receipts are under the scheme of Ministry of Textiles called as 'The Technology Upgradation Fund Scheme' (TUFS) getting reimbursement of certain percentage of interest, charged by the leading institutions of the Government, and on fulfillment of certain conditions. The claim of the assessee is that the said recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ources' as considered by the A.O. 2. That the [d. CIT(A) has erred in law and facts in allowing deduction 801C by holding that process undertaken by the assessee is a manufacturing activity ignoring the facts that conversion of yarn into thread does not amount to manufacturing as it is does not bring into existence a new or distinct product and further ignoring the decision of Hon 'ble Supreme Court in the case of 'CIT vs. Emptee Poly Yarn (P) Ltd'., in Civil Appeal No. 786 of 2010 dated 20.01.2010, wherein it has been held that twisting and texturising of yarn would not constitute 'manufacture' in every case. 3. That the [d. CIT(A) has erred in law and facts in directing the A.O. to treat the claims receipts (insurance claimed received, brokerage received on ocean freight), the interest reimbursement under TUFS and the interest received from the customers and suppliers to be the income derived from industrial undertaking and eligible for deduction u/s 801C ignoring the decision of Hon 'ble Apex Court in the case of 'CIT vs. Sterling Foods Ltd.', 237 ITR 579, Pandian Chemicals Ltd., vs. CIT' (2003) 262 ITR 278 (SC) and 'M/s Combay E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an average price of R s. 575 per kg. He further relied upon the decision of the Hon'ble Bombay High Court in the case of 'CIT vs. Emptee Poly Yarn (P) Ltd' reported in 170-Taxman-332-BOM, wherein the Hon 'ble Bombay High Court has observed as under: "From the material considered it would be clear that POY has different physical and chemical properties and when POY chips undergoes the process of texturising and/or twisting, the yarn i.e. twisted and/or texturised or both results in a product having different physical and chemical properties. In other words the process applied to POY either for the purpose of texturising or twisting constituted manufacture as the article produced is recognised in the trade as distinct commodity pursuant to the process it undergoes and which amounts to manufacture. Under the Central Excise Act, the Union of India itself treat the POY as distinct from PO Y, drawn twisted or textured or both. From all the material we have no hesitation in arriving at a conclusion that the process which POY undergoes in the process of texturising and twisting results into a new and distinct product and regarded in the Trade as distinct from the commod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MT Spinning Co. Ltd Vs. Addl CIT' (supra) and find that the issue relating to the treatment of the income received on account of brokerage received on ocean freight has been discussed in the said order, wherein in para I I of the said, the Coordinate Chandigarh Bench of the Tribunal while relying upon the earlier order of the Chandigarh Bench of the Tribunal and in the case of same assessee in ITA No. 678/2014 vide order dated 10.02.2015 has held that such brokerage is basically rebate allowed by the Shipping company as well as, on account of sale of sample, which is directly related to the business activity of the company, thus, is eligible for deduction u/ s 801B of the Act. No contrary decision to the above proposition has been brought to our knowledge by the Ld. DR. Hence, respectfully following the said decision, we hold that the income earned by the asses see from brokerage on ocean freight is eligible for deduction u/ s 801C of the Act. 20. So far as the issue relating to interest reimbursement under TUFS scheme is concerned, we find that this issue has already been dealt by us while adjudicating the additional ground in ITA No. 530/Chd/2012 for assessment year 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments from customers and suppliers amounting to ₹ 3, 95,297/-as 'Business Income' instead of 'Income from Other Sources' as considered by the A.O. 2. That the [d. CIT(A) has erred in law and facts in allowing deduction 801C by holding that process undertaken by the assessee is a manufacturing activity ignoring the facts that conversion of yarn into thread does not amount to manufacturing as it is does not bring into existence a new or distinct product and further ignoring the decision of Hon 'ble Supreme Court in the case of 'CIT vs. Emptee Poly Yarn (P) Ltd'., in Civil Appeal No. 786 of 2010 dated 20.01.2010, wherein it has been held that twisting and texturising of yarn would not constitute 'manufacture' in every case. 3. That the [d. CIT(A) has erred in law and facts in directing the A.O. to treat the claims receipts (insurance claimed received, brokerage received on ocean freight), the interest reimbursement under TUFS and the interest received from the customers and suppliers to be the income derived from industrial undertaking and eligible for deduction u/s 801C ignoring the decision of Hon 'ble Apex Court in the case of & ..... 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