Income Tax Appellate Tribunal - Delhi
Mentha And Allied Products Pvt. Ltd. vs Income-Tax Officer on 25 March, 1991
Equivalent citations: [1992]43ITD33(DELHI)
ORDER
M.C. Agarwal, Judicial Member
1. These are cross appeals by the assessee and the Revenue, respectively, arising out of the assessee's assessment for the assessment year 1984-85. We have heard learned counsel for the assessee and the learned Departmental Representative and have perused the material placed before us.
2. The first contention raised in the assessee's appeal is whether receipts on account of cash compensatory support (Rs. 3,34,739) and income from sale of import licences (Rs. 3,66,063) are incomes from an industrial undertaking to be eligible for relief under Sections 80HHA and 80-I of the Income-tax Act, 1961. In the Revenue's appeal, in ground No. 6, a grievance is made of the order passed by the Commissioner of Income tax (Appeals) directing the Assessing Officer to include receipts on account of duty drawback in the profits of the industrial undertaking for purposes of quantification of admissible deductions under Sections 80HHA and 80-I.
3. Under the aforesaid Sections, the assessees are entitled to certain deductions from the profits and gains of an industrial undertaking and the question is whether the three receipts are of the nature of profits and gains derived from an industrial undertaking.
4. Regarding the amount received by the assessee on account of duty drawback, the matter is covered by an earlier order of the Tribunal dated January 20,1989, passed in I. T. A. No. 720/(Delhi) of 1986 in the assessee's own case for the assessment year 1982-83. The Tribunal, in that case, upheld the order of the Commissioner of Income-tax (Appeals) holding the receipt of amounts on account of duty drawback to be profit from the industrial undertaking. Following the aforesaid order of the Tribunal, we uphold the order of the Commissioner of Income-tax (Appeals) on this point and reject the plea raised by the Revenue.
5. As regards cash compensatory support, the issue stands covered by a Special Bench order of this Tribunal in Gedore Tools (India) P. Ltd. v. IAC [1988] 25 ITD 193, in which the Tribunal had held that amounts received by an assessee on account of cash compensatory support were not trading receipts and were, therefore, not taxable under the Income-tax Act, 1961. The Tribunal observed that the cash compensatory support is received by an exporter in its capacity as a registered exporter and such receipts could not be treated as supplementary trading receipts received by it as a trader in the course of business. The Tribunal further observed that it could not also be said that though these receipts did not form part of the assessee's sale proceeds, they were linked directly with its sales or that they accrued or arose at the moment of the sales themselves. Therefore, the amount received by the assessee as cash compensatory support cannot be treated as profits and gains of an industrial undertaking. In CIT v. Wheel and Rim Co. of India Ltd. [1977] 107 ITR 168 (Mad), relied upon by learned counsel for the assessee, the issue was about cash subsidy received under a different scheme. It was held that cash subsidy is profit derived from export of goods. Here we are concerned with profits and gains derived from an industrial undertaking. Hence, the ratio of that judgment does not help. Cash compensatory support is receivable by a person who exports goods out of India. He may or may not own an industrial undertaking. The ratio of Wheel and Rim Co. (supra) shows that the amount received as cash compensatory support may be treated as part of profit arising from export trade, but it cannot be treated as profit and gains derived from an industrial undertaking. Therefore, the Commissioner of Income-tax (Appeals) was right in holding that reliefs under Sections 80HHA and 80-I are not admissible on such receipts. We uphold his order on this point.
6. We now come to the profit arising to the assessee from the sale of import entitlements. Under the scheme of the Government of India, for the promotion of exports, an exporter is allowed to import goods of certain value and, for that purpose, the Government grants import licences to such exporters. The exporters utilise such licences either for importing goods by themselves or they assign the licences to others for a price. In the case before us, the assessee has sold such licences and received Rs. 3,66,063 as sale consideration. The question is whether this receipt can be said to be profits and gains derived from an industrial undertaking. The authorities below have held that these receipts are not profits and gains of the industrial undertaking. Learned counsel for the assessee contended that the assessee is exporting goods produced in its industrial undertaking and it is in consideration of those exports that the assessee gets import licences and, therefore, the profit arising from the sale of such licences should be treated as profit arising from the industrial undertaking. This contention is not correct. The profit arises not from the sale of goods produced by the assessee but from the sale of import licences which is a different commodity. The sale of import licence is an entirely different and independent activity and the profit derived from the sale of such import licence cannot be deemed to be income derived from the industrial undertaking. The source of profit must be directly the industrial undertaking itself and a remote nexus would not be sufficient. In Sterling Foods v. CIT [1984] 150 ITR 292, the Hon'ble Karnataka High Court has held that profit arising from the sale of import entitlements is not profit derived from the industrial undertaking.
7. On behalf of the assessee, reliance was placed on the aforesaid judgment of the Hon'ble Madras High Court in the case of Wheel and Rim Co. of India Ltd. [1977] 107 ITR 168. In that case, it was held that profit arising from the sale of import entitlements was profits and gains derived by the assessee by export of goods. Here the assessee is claiming relief with reference to profits and gains derived from an industrial undertaking. Therefore, the judgment of the Madras High Court does not help the assessee. Reliance was also placed on Addl. CIT v. Abbas Wazir (P.) Ltd. [1979] 116 ITR 811 (All), in which the question was whether the assessee's income was assessable at a concessional rate applicable to an industrial company. The assessee manufactured and exported carpets. Those transactions resulted in a loss but there was a surplus which arose on account of the price realised by the assessee from the sale of import entitlements and also by receipt of cash subsidy granted to the assessee. It was held that the receipt of cash subsidy and price of import entitlements were attributable to the industrial undertaking and hence the surplus was liable to be taxed at a concessional rate. In this case also, the controversy was thus of a different nature. The Karnataka High Court judgment ([1984] 150 ITR 292) is directly on the point and supports the case of the Revenue. We, therefore, uphold the orders of the authorities below on this point and reject the assessee's plea.
8. The next ground raised in the assessee's appeal is as below :
" That the learned Commissioner of Income-tax (Appeals) has erred in not giving his finding about unabsorbed deductions for carrying over for adjustment in succeeding assessment years in terms of Section 80WA."
9. No argument was raised by the assessee on this point and since there is nothing in the orders of the authorities below to show that there are any unabsorbed deductions, we do not find any relevance for such ground. The same is hereby rejected.
10. In this appeal, the assessee had moved an application on October 27, 1989, praying for admission of the following additional ground :
" That the learned Income tax Officer and the Commissioner of Income-tax (Appeals) had failed to recognise and give due legal relief owing to the fact that cash compensatory support received by the appellant amounting to Rs. 3,74,739 was in the nature of capital receipt and that it was not taxable in spite of its being included in the profit and loss 'account by the appellant-company."
11. At the hearing, no argument was raised to press this application probably because of the retrospective amendment of the Income tax Act, 1961, by the Finance Act, 1990, with the result that such amounts have specifically been included in the definition of income in Section 2(24} of the Income-tax Act, 1961. We, therefore, reject the application for admission of the additional ground and, in the alternative, also reject the additional ground on merits because of the retrospective amendment of law.
12. No other point arises in the assessee's appeal and the same is hereby dismissed.
13. In the Revenue's appeal, the first ground relates to the disallowance of charges for testing of boiler. The assessee had spent Rs. 38,040 in connection with the testing of its boiler by the Inspector of Boilers. The Assessing Officer disallowed a sum of Rs. 27,546 observing as below :
" The assessee-company has debited in the profit and loss account a sum of Rs. 27,546 in the head office set and Rs. 10,494 in the pharmaceutical division totalling Rs. 38,040 under the head 'Testing charges of Boiler', In this connection, it was submitted during the course of assessment proceedings that the boiler is more than 75 years old and after a long time re-patching work in the assessee's boiler was got done by Messrs. Gomti Engineers, Kanpur, and the photocopy of their bill has been enclosed. It was further submitted that testing of boiler is got done after a lapse of several years. Thus, it is clear that the nature of these expenses is of capital nature, which will give enduring benefit to the assessee and it is accordingly capitalised. However, the depreciation on this amount will be admissible as per Rules."
14. On appeal, the Commissioner of Income-tax (Appeals ) has held that the entire expenditure was of the nature of revenue expenditure and he, therefore, deleted the addition. The expenditure is so patently of a revenue character that the learned Departmental representative did not find any argument in support of this plea and frankly stated that he has nothing to say on 'the subject. Agreeing with the Commissioner of Income-tax (Appeals ) on this point, we uphold the order under appeal on this point.
15. The next ground raised in the Revenue's appeal is about the disallowance of one-fourth of the expenditure on rent and taxes in respect of the Delhi building. The Assessing Officer made a disallowance of Rs. 8,148 being one-fourth of the total expenditure of Rs. 32,593 for personal use of the premises by the directors of the assessee. On appeal, the Commissioner of Income tax (Appeals) has deleted the amount following his order for the assessment years 1981 82 and 1982-83. At the hearing, it was pointed out that, for those assessment years, the Revenue did not challenge the order of the Commissioner of Income tax (Appeals) on this point. The learned Departmental Representative did not point out what were the reasons given by the Commissioner of Income tax (Appeals ) in the earlier year and how they were untenable. He also did not point out whether the said building was, in fact, being used by the directors and, if so, under what terms of contract, if any, with the assessee company. We, therefore, do not find any ground for restoring the disallowance. The order of the Commissioner of Income-tax (Appeals) on this point is, therefore, upheld.
16. The next ground in this appeal is about the disallowance of Rs. 7,93,793 out of damages for breach of contract payable by the assessee to a foreign buyer Messrs. M. W. Hardy and Co., New York. The facts are that, vide contract dated June 1, 1983, the said M. W. Hardy and Co. ("Hardy", for short) placed an order with the assessee for the supply of 1,50,000 ounces of Brucine Sulphate. The price agreed was 1.08 U. S. $ per ounce. By a Notification dated July 21, 1983, the Government of India fixed a minimum export price for Brucine Sulphate at 2 U.S. $ per ounce. The Government notification provided that in respect of contracts entered into on or Before June 7, 1983, exports at prices below the aforesaid minimum price would be permitted provided such contracts are registered with the Basic Chemicals Pharmaceuticals and Cosmetic Export Promotion Council, Bombay, within 15 days from the date of issue of the said notification. The assessee failed to get the said contract dated June 1, 1983, registered with the aforesaid council, as a result of which it could not perform its part of the contract by supply of the goods. A dispute arose between the assessee and Hardy who claimed damages for breach of contract. Later, another contract dated February 23, 1984, was reached between the assessee and Hardy which provided as below :
" Terms of agreement :
Both parties agreed to the following solution :
1. Mentha has confirmed and acknowledged that there was a breach of contract on his part for the supply of 1,50,000 ozs. Brucine Sulphate at U. S. dollars 1.08 per oz. c.i.f. air New York. In order to compensate Hardy for the non-fulfilment of the contract 3153, Mentha agreed to a payment to Hardy of U. S. dollars 75,000.00 as full compensation for non-compliance of said contract 3153 dated June 1, 1983. This compensation of U. S. dollars 75,000.00 for 1,50,000 ozs. is equivalent to U. S. 50 cents per ounce.
2. The total amount of compensation money of U. S. dollars 75,000.00 will be paid by Mentha to Hardy on a pro rata basis against future orders at the current floor price of U. S. dollars 2.00 per oz. f.o.b. India and Hardy will be entitled to immediate reimbursement by Mentha through the bank negotiating the letter of credit at the rate of U. S. 50 cents per ounce for the quantity of the new order or orders which Hardy may place with Mentha. For each ounce shipped, there will be a reimbursement by Mentha to Hardy at 50 cents per ounce.
3. The advising bank in India will be directed to reimburse Hardy immediately by wire transfer of funds, the sum of U. S. 50 cents per ounce for the total quantity as stated on Mentha's commercial invoice to be presented for payment under Hardy's letter of credit. Reimbursement of this compensation payment to Hardy by the advising bank in India is to be made simultaneously with the payment of Mentha. This reimbursement condition will be incorporated in the letters of credit which Hardy may open in favour of Mentha.
4. The procedure for compensation payment to Hardy by Mentha as stated in (3) above will continue until orders for up to the total quantity of 1,50,000 ozs. Brucine Sulphate are placed by Hardy on Mentha.
5. It is clearly understood and agreed that Hardy is neither obligated nor committed in any manner or form to place orders with Mentha for any quantity of Brucine Sulphate should Hardy so decide. If Hardy does not purchase any material from Mentha then there' shall be no compensation due to Hardy as per the terms of this agreement and its claim for non-fulfilment of contract 3153 shall be considered as withdrawn.
This agreement shall remain valid for all orders which Hardy may place with Mentha until December 31, 1984, unless extended by mutual consent. This agreement is subject to the approval of the Reserve Bank of India and Mentha pledges to exert its best efforts to secure such speedy approval. "
17. Hardy placed an order on March 5, 1984, on the assessee for the supply of 1,50,000 ounces of Brucine Sulphate and the assessee's contention was that since the agreement was arrived at and Hardy placed the order also within the accounting year that ended on March 31, 1984, the assessee had become liable to pay 75,000 U. S. dollars as damages to Hardy and it claimed a sum of Rs. 8,06,885 being the rupee equivalent of 75,000 U. S. dollars as expenditure. The Assessing Officer, after looking into the facts and taking note of the various terms of the aforesaid agreement, particularly Clause (5) thereof, held that the liability arises only when Hardy's order for purchase of Brucine Sulphate for a particular amount stands executed. He, therefore, allowed a proportionate amount of Rs. 13,092.58 as deduction in proportion to the goods actually supplied to Hardy within the accounting period. On appeal, the learned Commissioner of Income-tax (Appeals) observed that the issue is whether the liability was a determined liability in the relevant previous year or not and he held that the order having been placed by Hardy within the accounting period itself, the liability had arisen and the assessee was entitled to deduction for the whole amount. The Commissioner of Income-tax (Appeals), therefore, deleted the disallowance of Rs. 7,93,793 made by the Assessing Officer.
18. The Revenue challenges the aforesaid order of the Commissioner of Income-tax (Appeals). During the course of the hearing of the appeal, on February 27, 1990, the Revenue moved an application for admission of the following as an additional ground :
" That, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in law in deleting the disallowance of Rs. 7,93,793 being the compensation payable to the foreign party without appreciating the facts that the said compensation was not approved by the Reserve Bank of India and that it was in. contravention of the provisions of the FERA."
19. We heard learned counsel for the parties on this point. The point raised in the additional ground could, even otherwise, be raised by the learned Departmental Representative as it is well within the scope of the existing ground No. 3 and the approval of the Reserve Bank of India was a matter that was contemplated in the agreement dated February 23, 1984. Learned counsel for the assessee, therefore, could not point out any reason why the additional ground should not be allowed. We, therefore, allow the aforesaid application and admit the additional ground.
20. The learned Departmental Representative contended that a fresh agreement was arrived at between the parties under which, though a total sum of 75,000 U. S. dollars was agreed to be paid as damages, yet the liability for the whole amount did not arise immediately because the payment was subject to approval by the Reserve Bank of India and was also subject to Hardy purchasing the goods or, in other words, the assessee supplying the same to Hardy in terms of the contract. He referred to the last sentences of Clauses (2) and (4) of the aforesaid agreement. Under Clause (4), it is mentioned that if Hardy does not purchase any material from the assessee then there shall be no compensation due to Hardy as per the terms of this agreement. He also pointed out that, in terms of Clause (5) of the agreement, the agreement was subject to approval by the Reserve Bank of India and in case the Reserve Bank of India did not grant permission to the assessee to make the aforesaid payment of damages or in the manner prescribed in the agreement, the agreement would become void and could not be enforced. On the other hand, learned counsel for the assessee contended that, by virtue of the agreement, the liability to pay was fastened on the assessee and, therefore, the amount was allowable as an expenditure. He relied, inter alia, on CIT v. Loke Nath and Co. (Construction) [1984] 147 ITR 624 (Delhi) arid Hind Mercantile Corporation Ltd. v. CIT [1963] 49 ITR 23 (Mad). The judgment in Loke Nath and Co. [1984] 147 ITR 624 (Delhi), was about the payment of compounding fee to the Municipal Corporation which was allowed as a business expenditure; In Hind Mercantile Corporation's case (supra) also, the question was whether damages for breach of contract were allowable as business expenditure. In the case before us, the allow ability of the expenditure is not in dispute. What is in dispute is whether the expenditure in question has actually been incurred according to law in the year under consideration. As is apparent from the terms of the agreement dated February 23, 1984, the agreement was subject to the approval of the Reserve Bank of India. Unless such approval was received, the assessee could not pay damages to Hardy even by adjustment from the bills raised on Hardy. Further, the new contract was not a simple contract for payment of damages. It was virtually a novation of the earlier contract and Hardy who had earlier to pay 1.08 U. S. dollars per ounce was now to pay 2.00 U. S. dollars per ounce and get an adjustment of 0.5 U. S. dollar per ounce. In the result, Hardy actually paid only 1.5 U. S. dollars per ounce and the assessee got 42 cents per ounce more than the original price even after adjustment of the damages. The damages were to be adjusted from the price of each shipment and if Hardy did not purchase the goods, it would not be entitled to any compensation. The mere placing of an order does not amount to purchase of the goods. The purchase would be complete when the goods are shipped and the price is paid. We are, therefore, of the view that, from the terms of the contract dated February 23, 1984, it cannot be said that the liability for the Whole amount of 75,000 U. S. dollars had accrued against the assessee. The assessee was, therefore, in our view, not entitled to deduction of the whole-amount of contemplated damages and, therefore, the disallowance made by the Assessing Officer was proper. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) on this point and restore that of the Assessing Officer.
21. The next ground (No. 4) in the Revenue's appeal is about the disallowance of Rs. 12,944 made by the Assessing Officer from the foreign travelling expenses of the directors. The Assessing Officer considered ten per cent, of the expenditure as personal expenditure of the directors. For this assumption, he did not specify any material. On appeal, the learned Commissioner of Income-tax (Appeals) has deleted the disallowance, following his order for the assessment year 1982-83. For that year, the matter had come before this Tribunal and it was restored to the Income-tax Officer for examining the details to be furnished by the assessee in terms of Rule 6D of the Income-tax Rules. For the year under consideration, the Assessing Officer has observed that the details of foreign tour expenses by the directors and staff have been furnished. He has not pointed out any instance of the expenditure having been incurred in excess of the limit specified in Rule 6D of the Income-tax Rules or in excess of the sanction given by the Reserve Bank of India. In our view, therefore, there was no justification for this disallowance and the learned Departmental Representative could not point out how the same could have been sustained. The Commissioner of Income-tax (Appeals) order on this point is, therefore, upheld.
22. The next ground (ground No. 5) relates to the manner of the computation of relief under Sections 80HHA and 80-I. The Income-tax Officer has computed, without objection from the assessee, the assessee's income under two categories, one is the income at the head office and the other is the income at the branch. The branch has been described as the Pharmaceutical Division of the assessee, i.e., the industrial undertaking. This appears to have been done because the assessee maintained separate sets of accounts for the head office and the factory, called the branch office. In the head office set, there was a loss while, in the branch set, there was a profit and the Income-tax Officer quantified the admissible relief by adjusting the loss in the head office set from the profit in the branch set. He also adjusted the unabsorbed loss of the preceding year before quantifying the relief under the said Sections. The assessee objected to these adjustments and, on appeal, the Commissioner of Income-tax (Appeals), following his order for the assessment year 1982-83, directed that these adjustments should not be made for quantifying the reliefs. In the present appeal, the Revenue challenges this direction of the Commissioner of Income-tax (Appeals).
23. The decision of the Commissioner of Income-tax (Appeals) for the assessment year 1982-83 was the subject-matter of appeals before the Tribunal in I. T. A. Nos. 5002 and 5003 of 1986 decided, vide order dated September 17, 1990, and a Bench of this Tribunal reversed the Commissioner of Income-tax (Appeals) order and restored the order of the Assessing Officer, holding that the reliefs under Sections 80HHA and 80-I were admissible only on the net income computed in accordance with the provisions of the Act. Thus, the issue is squarely covered against the assessee by the Tribunal's order in the assessee's own case for the preceding year. In Century Iron and Steel Ltd, v. ITO [1989] 31 ITD 117, a Special Bench of this Tribunal had also taken the same view. Learned counsel for the assessee relied on a judgment of the Hon'ble Supreme Court in CIT v. Canara Workshops P. Ltd. [1986] 161 ITR 320, in which it was held that, for calculating the relief under Section 80E in respect of priority industries, the profit from one priority industry could not be adjusted against the loss of another priority industry. The Supreme Court's judgment is, thus, on a very different set of facts. So far as the assessee's head office is concerned, it was told to us by learned counsel for the assessee that the head office was only selling goods manufactured at the assessee's industrial undertaking called the branch. Therefore, the income or loss determined from the head office and the branch office are not from different industrial undertakings or from different sources. Manufacture of goods and their sale is part of a single business of the assessee and, therefore, it is only after clubbing the results at the head office and the branch that the correct income or loss of the industrial undertaking can be arrived at. Similarly, the losses, if any, suffered in the preceding years have to be adjusted under the provisions of the Act to come to the net income taxable for the year under consideration. It is only out of such net income that the reliefs can be allowed. Therefore, following the Tribunal's order for the earlier year and also on our own view, we set aside the directions of the Commissioner of Income-tax (Appeals) on the point and restore the manner of computation of the reliefs as adopted, by the Income-tax Officer.
24. Ground No. 6 in the Revenue's appeal has already been disposed of as the same was discussed along with the assessee's appeal.
25. Ground No. 7 in the Revenue's appeal raises a contention that the assessee cannot get deductions under Sections 80J and 80-I simultaneously. The Assessing Officer had not granted any relief under Section 80J on the ground that a separate balance-sheet in respect of the pharmaceutical division was not filed and that the conditions required for the admissibility of relief under Section 80J were not satisfied. On appeal, the learned Commissioner of Income-tax (Appeals) held that relief under Section 80J was being allowed from earlier years and there was no requirement of filing a separate balance-sheet once the assessee gives the details of capital employed from which the deductions can be computed. According to him, all such details were on record and he, therefore, directed the Assessing Officer to allow the relief.
26. In the grounds of appeal, it is stated by the Revenue that relief under both the Sections is not allowable because of the provisions of Section 80J(4)(iii) and Section 80-I(2)(iii). Under Section 80-I, relief is admissible in respect of an industrial undertaking which fulfils certain conditions. One of the conditions which is contained in sub-Clause (iii) of Sub-section (2) is that the industrial undertaking begins to manufacture or produce certain types of goods at any time within the period of nine years next following March 31, 1981. This means that relief under Section 80-I would be admissible in respect of an industrial undertaking which commences production of goods from April 1, 1981, or thereafter within a period of nine years. On the other hand, under Section 80J(4)(iii), the relief is admissible in respect of an industrial undertaking which has begun or begins to manufacture or produce articles at any time within a period of 33 years next following April 1, 1948. Thus, only industrial undertakings commencing production up to March 31, 1981, would be entitled to relief under Section 80J. The Revenue is, therefore, correct in saying that both the reliefs are not simultaneously available. According to the learned Departmental Representative, the assessee started production after April 1, 1981, and hence relief under Section 80-I was admissible. Learned counsel for the assessee did not dispute these facts arid stated that, since vide order dated September 23, 1987, a copy of which has been placed at page 37 of the paper book, relief under Section 80-I has been withdrawn, therefore, this ground has become infructuous; The said order speaks only of the relief under Section 80-I and does not talk about the relief under Section 80J, as ordered by the Commissioner of Income-tax (Appeals). We, therefore, set aside the direction of the Commissioner of Income-tax (Appeals) about grant of relief under Section 80J to the assessee.
27. The next ground (No. 8) raised by the Revenue is that, while allowing deductions under Sections 80HHA, 801 and 80J, the Commissioner of Income-tax (Appeals) has failed to take note of Section 80WA, which restricted the total deduction to 70 per cent, of the total income. The learned Commissioner of Income-tax (Appeals) has not himself quantified the reliefs admissible and, therefore, there was no occasion for him to consider whether the total relief would exceed 70 per cent, of the total income. Since we have held that the assessee is not entitled to relief under Section 80J, the contingency of the relief exceeding 70 per cent, would not arise. In any case, we make it clear that it would be open to the Assessing Officer to restrict the relief within the limits prescribed by Section 80WA.
28. The last ground raised by the Revenue is about the chargeability of interest under Sections 217 and 139(8). In the assessment order, the Income-tax Officer directed the levy of interest under Section 215. In I. T. N. S.-150, however, interest was charged under Sections 139(8) and 217. On appeal, the Commissioner of Income-tax (Appeals) held that no liability can be imposed upon an assessee simply by an insertion in the demand notice. He, therefore, cancelled the levy of interest under Sections 139(8) and 217 and the Revenue challenges the order of the Commissioner of Income-tax (Appeals) on this point. The learned Departmental Representative contended that I. T. N, S.-150 forms part of the assessment order and, therefore, the charge of interest in that form is valid even if there was no such direction for the levy of interest in the assessment order. Learned counsel for the assessee, on the other hand, referred to a judgment of the jurisdictional High Court of Allahabad in CIT v. Himalaya Drug Co. [1982] 135 ITR 368, in which it has been held that Form I. T. N. S. 150 was meant only for calculation of the tax payable and could not be equated with an order charging interest. In that case the Hon'ble High Court held that charging of interest under Section 139(8) is not automatic and the Income-tax Officer is expected to apply his mind to the facts and circumstances of the case. So far as Section 217 is concerned, the Section itself states that the levy of interest can be ordered where, on making the regular assessment, the Income-tax Officer finds certain facts as mentioned in Clauses (a) and (b) thereof. Therefore, the Act specifically requires the Income-tax Officer to apply his mind and to find certain facts which, in the case before us, as the assessment order would show, the Income-tax Officer failed to find. In our view, therefore, the Commissioner of Income tax (Appeals) was right in cancelling the levy of interest under Sections 217 and 139(8).
29. No other ground arises for decision in the Revenue's appeal. In the result, the Revenue's appeal is partly allowed.
P. J. Goradia, Accountant Member
30. I have gone through the order passed by my learned brother. I hold a different view with regard to determination of eligible profits under Sections 80HHA and 80-I of the Act. The different view is in respect of the amounts received by the assessee for cash compensatory support and gain from the sale of import entitlements. In my opinion, the same are includible in eligible profits of an industrial undertaking. After discussion, I pass this order.
31. The relevant facts with regard to the assessee's nature of business are not in dispute. Though the assessee maintains two sets of books of account, both relate to manufacturing activities of the industrial undertaking and that is why they are rightly clubbed together. This finding is also found in paragraph 20 of the order passed by my learned brother. Therefore, the profits shown in the two sets of books of account belong only to the industrial undertaking. It is held by the tax authorities as also by my learned brother that the cash compensatory support and gain from the sale of (import entitlements) REP licences cannot be treated as part of eligible profits which should be derived from an industrial undertaking, as the words used in the statute make only those profits eligible for appropriate relief which are derived from the industrial undertaking. On this aspect, it would be worthwhile to note that, by the Finance Act, 1990, both the receipts are retrospectively sought to be treated as profits and gains of business, and that is why appropriate amendments are made not only in Section 2(24) of the Act but also in Section 28 of the Act. These amendments were made because of the decision of the Special Bench of the Tribunal in the case of Gedore Tools (India) (P.) Ltd. [1988] 25 ITD 193 (Delhi), where it was held that the receipts by way of cash compensatory support would not form part of trading receipts. But since now this unsettled position is superseded by retrospective amendments, the legislative intent being made clear, the legal principle laid down in that decision should not be made applicable to the facts of this case. When a businessman undertakes a trading transaction, he takes into consideration business economics and principles of costing. In export business, the transactions of sale are nowadays undertaken at loss. But when other benefits are available to a businessman he would also take into consideration all the benefits available on account of export sales. He shall sell the goods by way of export only if he earns profit on the sale of products, i.e., profit as understood by businessmen. For example, if the cost of sale is Rs. 100 and the international market price in respect of the product is only Rs. 60, the assessee obviously would not sell the products by way of export. But if he finds other benefits by way of some incentives, may be from any direction, then the value of the same shall also be considered. In this case, if the value of those incentives is say Rs. 50, then as against the cost of sale of Rs. 100, the businessman would get Rs. 110 and, therefore, the transaction would be found to be profitable and then only he will enter into the contract of export sale. Remember this would not be done if the assessee is able to sell at a still higher price locally, say Rs. 120. Hence, the only motivating factor is benefit accruing from the sale. In my opinion, it would be difficult to say that the profits received by way of incentives given by Government on account of exports do not form part of the profits from the industrial undertaking. The scheme framed by the Government for granting benefits in export trade is only a mode to suit Government needs and the businessman is not concerned with it except its effect on the costing he has in mind. Again, the fact that similar incentives are also available to the traders not owning industrial undertakings when they effect exports should not have an adverse effect when the case being considered is of a person who is not a trader but who is having income only by way of profits on the sale of goods manufactured in the industrial undertaking. Rather, this fact strengthens the view that such incentives are nothing but part of profits accruing on export sale. (See recent Central Board of Direct Taxes Circular in [1990] 184 ITR (St.) 137 on 80HHC-export profits).
32. The Assessing Officer was obsessed with the language used in the Section, namely, " profits derived from industrial undertaking " ; this term being narrower than the term " attributable to ", such receipts or gains could not form part of eligible profits. In my opinion, this controversy is unnecessarily brought in. Considering the scheme of the Act and the legislative intent in the retrospective amendments of various Sections in Chapter VIA, it appears to me that such controversy need not be gone into. Even, in the circular issued by the Central Board of Direct Taxes, when-Section 80HHA had been inserted by the Finance (No. 2) Act, 1977, with effect from April 1, 1978, in paragraph 20 of the circular, after referring to the provisions of Sub-sections (6) and (7) of Section 80HH, it is stated that".... these provisions would empower the Assessing Officer to determine the eligible profits that would be attributable to qualifying industrial undertakings. . . .". The Commissioner (Appeals) has merely relied-upon the order passed by the first appellate authority during the previous year and, as stated earlier, the complexion of the controversy is now totally changed, since we find clearly what the legislative intent was even earlier to the retrospective amendments made by the Finance Act, 1990. In view of this, case laws are not discussed.
33. On the other grounds, as also in the grounds in the Revenue's appeal, I agree with the order passed by my learned brother.
ORDER OF REFERENCE TO THIRD MEMBER
34. Hon'ble President is requested to do the needful in respect of the following point of difference :
" Whether, on the facts and circumstances of the case, the amount received by the assessee by way of cash compensatory support and income from sale of import entitlements could form part of eligible profits for deduction under Sections 80HHA and 80-I of the Act ?"
ORDER OF THIRD MEMBER G. Krishnamurthy, President
35. This appeal has come before me for my opinion as a Third Member, under Section 255(4) of the Income-tax Act, 1961, as there was a difference of opinion on the following point between the Members of the Tribunal who heard the appeal :
" Whether, on the facts and circumstances of the case, the amount received by the assessee by way of cash compensatory support and income from sale of import entitlements could form part of eligible profits for deduction under Sections 80HHA and 80-I of the Income-tax Act, 1961 ? "
36. The learned Judicial Member, Shri M. C. Agarwal (as he then was), wrote the leading order mentioning all the relevant facts and since they 'are not in dispute, I briefly narrate them supplemented by the facts found by the Income-tax Officer and his observations.
37. The assessee company derives income from purchase and sale of natural mentha oil in its head office and also from the manufacture and sale of basic drugs in its branch. The assessee, among others, claimed relief under Sections 80HHA and 80-I in respect of cash compensatory support of Rs. 3,74,739 and sale of import licences of Rs. 3,66,063. The Income tax Officer declined the claim on the ground that the receipt of these two sums could not be said to be derived from the industrial undertaking of the assessee, although they could be said to be attributable to the industrial undertaking. Since the words used in Sections 80HHA and 80-I are " derived from" the assessee would not be entitled to the relief. He observed that the receipts in question were on account of various, incentive schemes announced by the Government to promote exports and were in no way the direct source of profit of the industrial undertaking. He relied upon the decision of the Karnataka High Court in the case of Sterling Foods v. CIT [1984] 150 ITR 292, It was held in this case that the expression " derived from " used in Sections 80HHA and 80-I is narrower than the word " attributable to ". He also placed reliance upon a decision of the Andhra Pradesh High Court in the case of Nava Bharat Enterprises (P.) Ltd. v. CIT [1983] 143 ITR 804. In other words, the view taken by the Income tax Officer was that these receipts were only incentives received by the assessee because of export business carried on by the assessee and not income directly received by way of profits from the business carried on by the assessee from out of the industrial undertaking.
38. The appeal before the Commissioner of Income-tax (Appeals) having been unsuccessful, the assessee had appealed to the Tribunal. The learned Judicial Member held that the cash compensatory support, as held by a Special Bench of the Income-tax Appellate Tribunal in the case of Gedore Tools (India) (P.) Ltd. v. IAC [1988] 25 ITD 193 (Delhi), was not a trading receipt and was, therefore, not taxable under the Income-tax Act, 1961. There the Tribunal held that the cash compensatory support was received by an exporter in its capacity as a registered exporter and such receipts could not be treated as supplementary trading receipts received by it as a trader in the course of its business. Therefore, the amount received by way of cash compensatory support by the assessee could not be treated as profits and gains derived by the industrial undertaking. Reliance was placed before the Tribunal on the ruling of the Madras High Court in the case of CIT v. Wheel and Rim Co. of India Ltd. [1977] 107 1TR 168, in support of the view that the cash compensatory support must be taken as arising out of the business carried on by the assessee. The learned Judicial Member distinguished this case observing that the cash received there was under a different scheme and under that scheme, the cash subsidy was profit derived from export of goods but not profits and gains derived from an industrial undertaking.
39. In so far as sale of import entitlements was concerned, the learned Judicial Member held that, under the scheme of the Government of India, an exporter is allowed to import goods of certain value if he had exported certain goods. The exporter was entitled to utilise such licences either for importing goods for his use or sell them in the market for a price and the amount so received of Rs. 3,66,063 was by way of sale of these licences and the sale of those licences could not be said to be receipts or profits arising out of the working of the industrial undertaking. The learned Judicial Member made a distinction between the profit arising from the sale of the goods produced by the assessee and the realisation by the sale of import licences. The sale of import licences was entirely a different and an independent activity and the profit derived therefrom could not be deemed to be the income derived from the industrial undertaking. The source of the profit must be directly the industrial undertaking itself and a remote nexus would not be sufficient. For this view, he placed reliance on the case of Sterling Foods v. CIT [1984] 150 ITR 292 (Kar), a case decided by the Karnataka High Court where the Karnataka High Court held that the profit arising from the sale of import entitlements was not a profit derived from the industrial undertaking. Holding that the Karnataka High Court judgment was directly on the point, he upheld the rejection of the claim of the assessee by the Revenue.
40. But the learned Accountant Member could not agree with the views expressed by the learned Judicial Member. He found that the assessee maintained two sets of accounts for its manufacturing activities and they were both clubbed together for the purpose of finding out the profit and, therefore, the income must be said to belong only to the industrial undertaking. He further held that, by the Finance Act of 1990, an amendment was brought in treating the receipts both of cash compensatory support and of sale of import licences, retrospectively as profits and gains of business which meant that the distinction sought to be placed upon the source for these receipts was no more available, other than referable only to the business and since the business in this case was the carrying on of manufacturing activity, these receipts were directly relatable to that activity and, therefore, eligible for the relief claimed under Sections 80HHA and 80-I. He also held that these amendments became necessary to overcome the decision of the Special Bench of the Income-tax Appellate Tribunal in the case of Gedore Tools (India) (P.) Ltd. [1988] 25 ITD 193 (Delhi), relied upon by the learned Judicial Member. Therefore, the legal principle laid down in that case was not applicable to the present case. He also held how a businessman, when he undertakes the transactions of export, would take into consideration the business economics and principles of costing and he would carry on the business of exports only with the intention of getting the incentive of these cash compensatory support and sale of import licences and, therefore, they formed part of the same activity and could not be seen divorced from it. When similar incentives were given in the case of traders who are not owning any industrial undertaking and were being exempted, a person who is having industrial undertaking should not suffer a greater disadvantage and, therefore, such incentives must be seen as and also forming part of the profits accruing on export sale. He also placed reliance upon a circular issued by the Central Board of Direct Taxes published in [1990] 184 ITR (St.) 137. He observed that the language used in Sections 80HHA and 80-I would not make much difference and that controversy would not arise in a case of this nature when the underlying object and scheme for enacting the Sections was borne in mind. For these reasons, he disagreed with the view expressed by the learned Judicial Member and preferred to decide the matter in favour of the assessee.
41. Now, the controversy has come before me and I have heard learned counsel for the assessee and also the learned Departmental Representative. It is necessary to reproduce the provisions of Sections 80HHA and 80-I to understand what the Legislature has intended and whether the assessee had complied with the conditions, if any, imposed by those Sections for the grant of relief contemplated therein :
" 80HHA. (1) Where the gross total income of an assessee includes any profits and gains derived from a small-scale industrial undertaking to which this Section applies, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing thelotal income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof. ..."
42. The other provisions of the Section are not reproduced here as they are not relevant for my present purpose. It will be seen from the wording of Section 80HHA that the" gross total income " of an assessee must include " any profits and gains derived from a small-scale industrial undertaking ", for, then alone will the assessee be entitled to the deduction of twenty per cent, of such profits and gains so included. The controversy now is whether the word "derived from" would include the cash compensatory support as well as the sale proceeds of import licences.
43. In the case of Sterling Foods v. CIT [1984] 150 ITR 292 (Kar), a case relied upon by the learned Judicial Member, the assessee-firm there was engaged in the processing and export of prawns and other sea-foods. The assessee earned some import entitlements granted by the Central Government under the Export Promotion Scheme. The import entitlements so secured could either be used by the assessee or they could be sold to others. The assessee sold those import entitlements and earned some profits. The Income-tax Officer allowed relief under Section 80HH of the Act in respect of the entire receipts inclusive of the sale proceeds of the import entitlements. But the Commissioner, in exercise of his power under Section 263 of the Act, took the opinion that the assessee was not entitled to the relief under Section 80HH in respect of the receipts from the sale of import entitlements. He set aside the assessment and directed the Income-tax Officer to redo the assessment after excluding the proceeds of the sale of import entitlements. Appeals by the assessee were unsuccessful up to the stage of the Income-tax Appellate Tribunal, for following the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co, Ltd. v. CIT [1978] 113 ITR 84, the Tribunal rejected the contention of the assessee. Then the matter came by way of reference to the High Court and the question of law referred was (at page 293 of 150 ITR) :
" Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under Section 80HH of the Income-tax Act, 1961?"
44. Section 80HH(1) was in pari materia with Section 80HHA which I have quoted above. Section 80HH(1) was in the following terms :
" 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."
45. Except for the words " or the business of a hotel ", Section 80HHA(1) and Section 80HH(1) are exactly similar. The difference between these two Sections is that while Section 80HH covered an industrial undertaking or business of a hotel, Section 80HHA applied only to small scale industrial undertakings located in certain areas specified by the Government but the conditions for the eligibility of the deduction are the same, namely, that the gross total income of the assessee must include profits and gains "derived from" such industrial undertaking. Thus, the words " derived from an industrial undertaking" came up for interpretation before the Karnataka High Court.
46. The word "derived" has already been interpreted as far back as in 1948-by the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325. It was held that interest on rent of agricultural land was not an agricultural income as it was not revenue " derived" from land. In reaching that conclusion, the Privy Council observed that the word " derived " is not a term of art. Its use in the definition demands an enquiry into the genealogy of the product but the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of interest, land indeed appears in the second degree, but the immediate and effective source is rent which has suffered the accident of non-payment and rent is not land within the meaning of the definition. There is no commercial connection between interest and the rented land and effective source -- not land -- has become apparent". After quoting the above observations of the Privy Council, the learned judges of the Karnataka High Court observed that the Privy Council assigned a restricted meaning to the word " derived ". Then the learned judges of the Karnataka High Court referred to the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 115" ITR 84, where also the Supreme Court gave the same meaning to the word " derived " while interpreting the scope of Section 80E of the Act as it then stood. In this case, the Supreme Court had an occasion to explain the distinction between the expression " attributable to " and the expression " derived from ". The learned judges then quoted the Supreme Court decision and then con-' eluded that the expression " derived from " has a definite, but narrow meaning and it did not receive or could not receive a flexible or wider concept. The learned judges then observed (at page 296 of 150 ITR) : " If a word or expression has received judicial interpretation by the highest court or Tribunal and thereafter it is found to have been used in the legislative enactments, it must be presumed that the Legislature must have used that word or expression with the same meaning as judicially determined unless the context apparently requires any other meaning. " Then their Lordships examined the Scheme of the Government of India granting the import entitlements and found that the Scheme was not as such connected with the export of sea-food and it was generally for encouraging exports and, therefore, the profit derived on the sale of these import entitlements did not have any connection with the export of sea-food and, therefore, could not be said to be profit or gain derived from the export of sea-food although it is business income earned by the assessee in the course of its business. (underlining * by me).
47. The Karnataka High Court then proceeded to observe that when a relief was announced by the fiscal statute, the requirements of it must be strictly satisfied before the relief is allowed and it is not sufficient to establish a commercial connection between the profits earned and the industrial undertaking. When the law required that "such profits must have been derived from the industrial undertaking, that requirement has to be satisfied and the industrial undertaking must itself be the source of that profit and it must directly yield that profit, but not a means to earn any other profit". The learned judges placed reliance upon a decision of the Kerala High Court in Cochin Co. v. CIT [1978] 114 ITR 822, where also the expression "derived" received a similar narrow interpretation and where also the Kerala High Court held that an activity carried on by a person must be the immediate and effective source of the profit and not somehow connected with it. There must be a direct nexus between the activity and the earning of the profit. If profit is earned in an indirect or remote manner, such profit cannot be said to be the profit derived from the immediate and effective source, namely, the business. The Karnataka High Court also noted that the decision of the Kerala High Court was followed by the Bombay High Court in the case of Hindustan Lever Ltd. v. CIT1980] 121 ITR 951. The Bombay High Court had observed in that case that the expression "derived from" cannot be accepted as equivalent to "referable to". The Madhya Pradesh High Court also has taken a similar view in the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT [1983] 143 ITR 590.
48. Now it is of interest to note that very strong reliance was placed before the Karnataka High Court upon the decision of the Madras High Court in the case of CIT v. Wheel and Rim Co. of India Ltd. [1977] 107 ITR 168, as was placed before me by the learned Chartered Accountant appearing on behalf of the assessee. The Karnataka High Court distinguished this case and held it to be totally inapplicable. It pointed out that the Madras case was a case of claiming rebate under the provisions of Section 2(5){a) of the Finance Act, 1966. Under the scheme framed by the Central Government to encourage export of goods, the assessee became entitled to import licences and, on the sale of that import licences, the assessee made a profit of Rs. 4,00,000 and the assessee claimed rebate on the value of the exported goods. The Madras High Court accepted the assessee's claim and held that the assessee was entitled to the relief since the receipt by way of profits due to the sale of import entitlements was directly referable to the export of the cycle rims made by the assessee and, consequently, they can be said to be profits and gains derived from the export of cycle rims even on the basis of any theory of proximity. But the Bombay High Court in Hindustan Lever's case [1980] 121 ITR 951 and the Madhya Pradesh High Court in Gwalior Rayon Silk's case [1983] 143 ITR 590 referred to above have not accepted this view and have dissented from it. The Karnataka High Court likewise preferred to dissent from this view. Thus the view of the Madras High Court was not accepted by three High Courts, namely, Bombay, Madhya Pradesh and Karnataka.
49. Now, with this background of the judicial view, what conclusion should I draw with regard to the meaning of the word "derived from" to decide the controversy before me. As against the Madras view which is in favour of the assessee, the views expressed by three other High Courts are in favour of the Revenue. Thus, there is a direct conflict of judicial opinion. In the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, the Supreme Court has pointed out that, while interpreting fiscal statutes, if there are two views possible, the view in favour of the assessee must be preferred. If this Rule of interpretation is applied to the facts of the case before me and indeed, I should, and also having regard to the historical background that promoted the amendment by declaring that the cash compensatory scheme and the profit derived on the sale of import licence would be treated as business income as against the contrary view expressed by the Special Bench of the Tribunal in the case of Gedore Tools [1988] 25 ITD 193 (Delhi), I must hold that the Cash Compensatory Scheme and the sale of import licence are entitled to the relief under Sections 80HHA and 80-I. I have not quoted Section 80 I because there also the words used are " profits and gains derived from an industrial undertaking or a ship or the business of a hotel. . . ". Therefore, the meaning to be ascribed to the words "derived from" has to be, in view of the judicial controversy, decided in favour of the assessee.
50. What is more fascinating and telling are the facts before the Madras High Court in the case of CIT v. Wheel and Rim Co. of India Ltd. [1977] 107 ITR 168. The assessee there was a company carrying on the business of manufacture and sale of cycle rims. By way of compensating the loss it suffered by exporting its goods abroad, it became entitled to a certain sum from the Engineering Export Promotion Council. On the basis of its export performance, it obtained an import licence and, on the sale of that licence, it made certain profit. In the assessment year 1966-67, the assessee claimed rebate on the value of the exported goods and on the two receipts referred to above on the basis of the provisions of Section 2(5)(a) of the Finance Act, 1966. The Income-tax Officer held that the cash subsidy of Rs. 1,60,717 and the profits from the sale of import entitlements amounting to Rs. 4,83,856 did not constitute profits and gains derived by the assessee by export of its goods for the purpose of claiming the rebate under the said Section. This view was confirmed by the Appellate Assistant Commissioner but the Appellate Tribunal took a different view. On a reference to the High Court at the instance of the Income-tax Department, the High Court held that the assessee is entitled to the relief provided for in Section 2(5)(a) of the Finance Act, 1966, on both the amounts. Section 2(5)(a) of the Finance Act of 1966 under which the assessee claimed the relief was in the following terms :
"2. (5)(a) In respect of any assessment for the assessment year commencing on the first day of April, 1966, in the case of an assessee being a domestic company or an assessee other than a company -
(i) where his total income includes any profits and gains derived from the export of any goods or merchandise out of India, he shall be entitled to a deduction, from the amount of income-tax with which he is chargeable of an amount equal to the income tax calculated at one-tenth of the average rate of income-tax on the amount of such profits and gains included in his total income."
51. It will be seen that the words used in Section 2(5)(a)(i) quoted above used the same words as were used under Sections 80HH, 80HHA and 80-I particularly the words "any profits and gains derived from". (underlining * by me).
52. The argument addressed before the Madras High Court on behalf of the Department that the words " profits and gains derived from the export of any goods or merchandise " occurring in Section 2(5)(d) clearly restricted the scope of the profits and gains was not accepted by the Madras High Court in the following words, quoted from page 172 of the report :
" In our opinion, this argument is without substance. In the first place, as we pointed out already, the receipt by way of subsidy and the receipt by way of the profits due to the sale of import entitlement are directly referable to the export of the cycle rims made by the assessee and consequently they can be said to be profits and gains derived from the export of cycle rims even on the basis of any theory of proximity. Secondly, by virtue of the fact that the amount of profits and gains derived from the export have to be ascertained only in accordance with the provisions of the Income-tax Act, 1961, and not independent of it, in view of the provisions contained in Section 2(5)(d) of the Finance Act, 1966, and Rule 3(2) made by the Central Board of Direct Taxes pursuant to Section 2(5)(d), these two receipts have to be treated as profits referable to or derived from the said export."
53. Thus, even though the attention of the Madras High Court was drawn to the restricted scope of the words "derived from" to press the Department's view, that was not accepted by the Madras High Court. I have quoted in detail the observations made by the Madras High Court only to show that there were two divergent views on the same point, namely, as to the meaning of the word " derived from ". In such a situation, the ruling of the Supreme Court referred to above should prevail, namely, that as a second appellate authority and acting as a Third Member, I have to prefer that interpretation which is in favour of the assessee although the majority of the judicial opinion was against that view.
54. In a way, the reasoning adopted by the learned Accountant Member appears to be more pragmatic and nearer to reality and is in accord with the view expressed by the Madras High Court. The relief provided under Section 80HHA was allowable for ten previous years beginning with the previous year in which the industrial undertaking begins to manufacture or produce articles (Sub-section (3)). This Section is intended mainly to give an impetus to the establishment of small-scale industrial undertakings in the country for rapid industrialisation, particularly of the rural areas, which also help to provide employment and resolve the problem of unemployment raging in our country. If such an industrial undertaking exports goods, such export was only meant to take advantage of the incentive schemes so that its profits are maximised. In other words, when it deliberately undertook exports, it knew that it was not making profits and that it would be compensated by the incentives announced by the Government. Therefore, to say that the profits are not derived from the small-scale industrial undertaking is difficult to comprehend. It is not as if the assessee had exported some goods other than the goods manufactured to obtain import entitlements and cash compensatory support and was claiming relief thereupon out of the profits of the small-scale industrial undertaking. This not being the case and the case being that the goods manufactured by the assessee alone were exported on which alone the assessee got this cash compensatory support and import licence, it is a little difficult to appreciate the view that the immediate and proximate source for the receipt of the cash compensatory support and import licence was not the activity of the industrial undertaking. Since the receipt of cash compensatory support and import entitlements is not de hors the activity of the industrial undertaking, it has to be held that it is derived from the industrial undertaking. Looked at from this angle, even the decision of the Karnataka High Court appears to help the assessee's viewpoint because the Karnataka High Court found in the case before it that the incentives received by the assessee were not attributable to the export of sea-foods but was a general incentive given to every exporter which does not appear to be the case here.
55. I am, therefore, of the opinion that the view expressed by the learned Accountant Member is a more preferable and justified view than the view expressed by the learned Judicial Member even though that view was not the solitary view taken by the High Court without any opposite view.
56. The matter will now go before the regular Bench for disposal of the appeal in accordance with the view of the majority.