Income Tax Appellate Tribunal - Ahmedabad
Mayank Electro Ltd. vs Ito on 14 December, 2000
Equivalent citations: (2001)71TTJ(AHD)612
ORDER
Vimal Gandhi, V.P. The assessee-company moved stay applications seeking stay of recovery of demand of Rs. 5,73,029 and Rs. 4,50,868 in assessment years 1995-96 and 1997-98 respectively. These demands have arisen on account of disallowance of Rs. 9,81,474 and Rs. 18,44,111 made out of the deduction claimed under section 80-IA of the Income Tax Act. The above amounts represented interest received on delayed payment of sale price of goods sold by the assessee. It was claimed to be part of sale receipts and thus eligible for deduction under section 80-IA of the Income Tax Act. This claim was accepted in the original assessment made for assessment year 1995-96 completed vide order dated 20-1-1997, However, during the course of assessment of the assessee for assessment year 1997-98, the assessing officer held the view that above interest on delayed payment was not "income derived" from the industrial undertaking as envisaged under the statutory provisions and was thus not eligible for the deduction. The assessment for assessment year 1995-96 was reopened by issuing notice under section 148 of the Income Tax Act in March 1998. Thereafter, the reassessment was made. The claim in other assessment year was rejected in the regular assessment proceedings.
2. The assessee-company in the relevant period was engaged in manufacture of electric lighting and fitting accessories. The lone customer of the assessee was Bajaj Electricals Ltd. There is no dispute that assessee is eligible for deduction under section 80-IA of the Income Tax Act on manufacturing activities carried on by the assessee, 2.1. That as per the contract embedded in invoice M/s Bajaj Electricals Ltd. was supposed to make payment on sale consideration within a stipulated time and in case of delay, it was liable to compensate the appellant-company by payment of interest at the rate of 18 per cent per annum on the outstanding bills for the period of delay.
2.2. The assessing officer was of the view that for claiming deduction under section 80-IA of the Income Tax Act, the gross total income of the assessee should include any profit and gains "derived from" any industrial undertakings which manufacture or produce article or a thing. In other words, the income should be derived from manufacturing activity which is eligible for deduction under section 80-IA of the Income Tax Act.
2.3. The assessee in support of its claim, relied upon decision of various High Courts such as CIT v. Seshasayee Paper & Board Ltd. (1994) 207 ITR 80 (Mad), English Electric Co. v. CIT (1987) 168 ITR 513 (Mad), CIT v. Rane (Madras) (1999) 238 ITR 377 (Mad) wherein it has been held that delayed payment by customers is eligible for claiming deduction under section 80-I but these decisions were not squarely applicable to section 80-IA and the emphasis under the latter provision was on the 'income derived from manufacturing activity. According to the assessing officer, purchase of raw materials, consumption thereof, production of goods and the sale of it can be said "manufacturing activity". But once sale is effected, manufacturing activity is over. The charge of interest on delayed payment is after the process of sale and so it cannot be said part of or income derived from the manufacturing activity.
2.4. The assessing officer placed strong reliance on decision of Hon'ble Supreme Court in the case of CIT v. Sterling Foods (1999) 9 DTC 218 (SC) : (1999) 237 ITR 579 (SC) as also on the decision of Hon'ble Supreme Court in the case of Hindustan Lever Ltd. v. CIT (1999) 239 ITR 297 (SC) wherein it was held that income derived from sale of import entitlement/licences was not income derived from export of goods. There must be for the application of the words "derived from" a direct nexus between the profits and gains and the industrial undertaking. The assessing officer in the order for assessment year 1995-96 concluded as under:
"Therefore, I am of the view that the interest received by the assessee from his customers on account of delayed payments has remote possibility of linking the interest receipts as derived from manufacturing activity. And therefore, it is not eligible for claiming deduction under section 80-IA. Accordingly, I propose to tax the entire receipt under this head which is at Rs. 9,81,474. The payment of interest is on borrowed fund which is used for running of its manufacturing activity and so it is considered that the payments of interest is for the purpose of carrying out the manufacturing activity, whereas the charging of interest is not part of the manufacturing activity."
2.5. Similar order was passed in assessment year 1997-98.
3. The assessee impugned the above assessment in appeal before the learned Commissioner (Appeals) who upheld the orders of the assessing officer through a consolidated order dated 20-8-2000. The learned Commissioner (Appeals) also mainly relied upon the decisions noted by the assessing officer. The reasoning given by the learned Commissioner (Appeals) for agreeing with the assessing officer are summarised as under :
"1.3 I have considered the facts and the merits of the case. Admittedly, the provisions of sections 80-I and 80-IA are different. It is also an admitted fact that the interest has been earned on the late receipt of sale proceeds. There is no direct nexus between the manufacturing activities and the receipt of interest. The deduction under section 80-IA is allowable from income derived from manufacturing activities. For carrying on production and selling the goods, earning of such interest is not relevant at all. The provisions of section 80-IA are different from the provisions of section 80-I. The decision in the case of M/s. Arthi Organics Ltd. was given in respect of relief allowable under section 80-I. This decision is not applicable to the facts of the case of the appellant. On going through the decision of Hon'ble Supreme Court in the case of M/s. Sterling Foods and Hindustan Lever Ltd. (supra) I find that the appellant is not entitled to deduction under section 80-IA on the receipt of interest income. Such receipt of interest income has nothing to do with manufacturing activities.
1.4 But for earning this interest income, the manufacturing activities of the appellant would not have been effected at all. The claim of the appellant that the receipt of interest is nothing but a part of the sale proceeds (enhanced rate of sale price), is without any basis. The appellant has received the interest on late recovery of sale proceeds. Such interest income cannot be said to have been derived from industrial undertaking. The immediate source of this interest income was the recovery of the sale proceeds and not the industrial undertaking. The fact that such amount may be assessed as business income is not sufficient to hold that the interest income was derived from actual conduct of the business undertaking. Considering the facts and the merits of the case, provisions of the law and decisions of the Hon'ble Courts, I agree with the assessing officer that the appellant is not entitled for deduction on the receipt of interest income for both the years. The orders of the assessing officer on this point for both the years are upheld. The assessing officer should have disallowed deduction under section 80-IA only on net interest income. On this point, neither the details of expenses incurred for earning the interest have been filed nor it can be said that the appellant had incurred any extra expenditure on earning the interest income. The appellant has to make efforts to recover the sale proceeds and the receipt of interest is incidental without any extra effort (as per the agreement) along with the recovery of sale proceeds. This claim of the appellant being untenable, is rejected."
(Emphasis, here italicised in print supplied)
4. The assessee has brought the issue in appeal before the Tribunal and pressed its stay applications. It was contended that interest was part and parcel of sale consideration. In fact, it was augmentation of sale receipts when the original consideration is not paid in time. The payment of interest was on term of transaction of sale. There cannot be any income or profit from manufacturing activity unless sale consideration of the manufactured articles is taken into account. The learned counsel for the assessee relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Govinda Choudhary & Sons (1993) 203 ITR 881 (SC). The said decision has further been followed by Hon'ble Kerala High Court in the case of United Construction Contractors v. CIT (1994) 208 ITR 914 (Ker). The learned counsel for the assessee further placed on record the following decisions of different High Courts and of Tribunal :
(i) CIT v. Buckau Wolf New India Engg. Works Ltd. (1984) 150 ITR 180 (Bom),-
(ii) Asstt. CIT v. Buckau Wolf New India Engg. Works Ltd. (1986) 157 ITR 751 (Bom);
(iii) CIT v. Buckau Wolf New India Engg. Works Ltd. (1991) 187 ITR 464 (Bom);
(iv) Dy. CIT v. M/s. Mira Industries (ITA No. 3314/Ahd/1997);
(v) Dy. CIT v. Arti Organics Ltd. (ITA No. 1888/Ahd/1993);
(vi) Ratnamani Metals & Tubes Ltd. v. Deputy CIT (ITA No. 4484/Ahd/1994); and
(vii) CIT v. Rane (Madras) Ltd. (supra).
5. The learned Departmental Representative opposed above submissions and reiterated that interest received on delayed payment of sale consideration was not "income derived" from manufacturing activities. He also relied upon the two decisions of Hon'ble Supreme Court cited in the assessment order and referred to above.
6. After the hearing of the stay, we found that the short point to be determined in these appeals was whether the interest was "income derived from industrial undertaking" for purposes of section 80-IA of the Income Tax Act. Accordingly, we thought it fit to put to the parties that instead of disposing of the stay applications why appeals should not be disposed of. Both the parties agreed that appeals may be disposed of on the basis of admitted facts and case law cited at the Bar. The appeals were accordingly taken as heard with the rider that both the parties were permitted to give citations in support of their respective stand till 5-12-2000.
7. We have considered the case law cited on behalf of the parties. On behalf of the revenue , reliance has mainly been placed on two decisions of Hon'ble Supreme Court, the first being case of CIT v. Sterling Foods (supra). In the above case their Lordships of the Hon'ble Supreme Court had to consider whether "sale of import entitlement" could be treated as the income derived by the assessee for purposes of section 80HH of the Income Tax Act. Their Lordships held as under :
"The question, therefore, was whether the income derived by the assessee by the sale of the import entitlements was profit and gains derived from its industrial undertaking of processing sea food. The Division Bench of the High Court came to the conclusion that the income which the assessee had made by selling the import entitlements was not a profit and gain which it had derived from its industrial undertaking. For that purpose, it relied upon the decision of this court in Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC). It was there held that the expression "attributable to" was wider in import than the expression "derived from ". The expression of wider import, namely, "attributable to", was used when the legislature intended to cover receipts from sources other than the actual conduct of the business. The Division Bench of the High Court observed that to obtain the benefit of section 80HH the assessee had to establish that the profits and gains were derived from its industrial undertaking and it was just not sufficient that a commercial connection was established between the profits earned and the industrial undertaking. The industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had the direct source of that profit and not a means to earn any other profit. Reference was also made to the meaning of the word "source", and it was held that the import entitlements that the assessee had earned were awarded by the Central Government under the scheme to encourage exports. The source referable to the profits and gains arising out of the sale proceeds of the import entitlement was, therefore, the scheme of the Central Government and not the industrial undertaking of the assessee.
We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking."
7.1. In the case of Hindustan Lever Ltd. v. CIT (supra), the assessee had exported groundnut oil at loss but was rewarded with import entitlement. It utilised the import entitlement in purchasing palm oil from foreign countries. The imported plam oil was consumed internally by the assessee for manufacturing other products. The contention of the assessee was that the oil which was purchased by the assessee from foreign countries on the strength of the import entitlement was at a rate much lower than the rate obtaining in the Indian market for similar product. Since the assessee paid a lower price for the imported palm oil, the assessee made a large profit than what it would have made had it purchased palm oil locally at a higher rate. It was, accordingly, contended that assessee was entitled to benefit of section 2(5)(i) of the Finance (No. 2) Act which was attracted when assessee's total income included profit or gain derived from export of any goods or merchandise out of India. Their Lordships held that there was an element of absurdity in the argument raised before them.
7.2. During the course of discussion their Lordships referred to the decision of Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh (1948) 16 ITR 325 (PC). The question that arose in that case was whether "interest" in respect of arrears of rent payable for land used for agricultural purposes would also be agricultural income. The contention raised on behalf of the assessee was that since the rent was payable for agricultural land, the interest on delayed payment of such rent was also of agricultural character and was not taxable. Their Lordships then took into account the observation of Privy Council noted below and held as under :
"Those who put it in this way say that such interest, when received, has its origin in the tenancy, because, if there had been no tenancy, there would have been no arrears of rent, and if there had been no arrears of rent, there would have been no statutory interest. Following this sequence of causes, they say that it is obvious that interest in circumstances such as these must be classified as 'revenue derived from land'.
The interest clearly is not rent. Rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use land. Interest payable by statute on rent in arrears is not such a payment. It is not part of the rent, nor is it an accretion to it though it is received in respect of it.
Equally clearly the interest on rent is revenue, but in their Lordships' opinion it is not revenue derived from land. It is no doubt true that without the obligation to pay rent and rent is obviously derived from land-there could be no arrears of rent and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards the interest, land rent and non-payment of rent stand together as causae sine quibus non. The source from which the interest is derived has not thereby been ascertained.
The word 'derived' is not a term of art. 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. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment."
In the instant case, the immediate source of the profit is sale of goods. The export of other goods is not even the second degree but it has to be traced to an even more remote degree. The import was of palm oil. The import was possible because of earlier export of goods at a loss. In the chain of sequence the earlier export would be four degrees away.
The decision of the Privy Council in the case of Kamakhaya Narayan Singh (1948) 16 ITR 325 (PC) was cited with approval in the case of Mrs. Bacha F. Guzdar v. CIT (1955) 27 ITR 1 (SC). It was held in that case by the court, after referring to Kamakhaya Narayan Singh's case. (supra) that where a company deriving income from agriculture declared dividend, the dividend did not arise from any agricultural source and could not be claimed to be income derived from agricultural activity. "
7.3. The learned counsel for the assessee, on the other hand, had drawn our attention to the following decisions :
(i) CIT v. Govinda Choudhury & Sons (supra).
In that case, the assessee, a contractor, declared gross receipts from contract at Rs. 22,72,997 for the assessment year 1972-73. A part of receipts arose to the assessee as a result of an arbitration award. The dispute that arose before the Hon'ble Supreme Court related to the interest awarded to the assessee by the arbitrator amounting to Rs. 2,77,692. The income of the assessee from contract was estimated by applying a flat rate. The assessee claimed that interest of Rs. 2,77,692 should be treated as part of trading receipt for application of flat rate whereas the revenue assessed the entire sum of Rs. 2,77,692 as "income from other sources".
The following two questions were referred to the High Court and then taken to the Hon'ble Supreme Court :
(1) "Whether, facts and in the circumstances of the case, the sum of Rs. 2,77,692 awarded to the assessee as interest was rightly held to be a revenue receipt ?"
(2) "If the answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the aforesaid sum of Rs. 2,77,692 was rightly separated from the other amounts under the awards and taxed in full ?"
The High Court answered the question No. 1 in favour of the assessee and in that view of the matter, did not go into the second question. Not much controversy was raised about question No. 1 and arguments were advanced on question No. 2. The Hon'ble Supreme Court treated the interest amount as part of contract receipts with the following observations :
"This brings us to a consideration of the second question. The sum of Rs. 2,77,692 was received by the assessee as interest on the amounts which were determined to be payable by the assessee in respect of certain contracts executed by the assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well-settled that interest can be assessed under the head 1ncome from other sources" only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as income from other sources. The second question is, therefore, answered in favour of the assessee and against the revenue . "
(emphasis, here italicised in print supplied) (2) United Construction Contractors v. CIT (supra).
In that case their Lordships of Hon'ble Kerala High Court made the following pertinent observations :
"..This court in Rockwell Engg. Co. Ltd. v. CIT (1989) 180 ITR 277 (Ker) took the view that the interest portion of the amount awarded on the basis of the decision rendered by the arbitrator is a revenue receipt. As per the award in the instant case, amounts were payable to the assessee. Since the amounts were not paid at the proper time, interest was awarded for such delay. The interest so paid is only an accretion to the amounts due to the assessee under the contract. It is therefore attributable and incidental to the business carried on by him, Under no circumstances can it be said that this interest is de hors the contract business carried on by the assessee. As observed by the Supreme Court in CIT v. Govinda Choudhury & Sons (1993)203 ITR 881 (SC), the interest paid to the assessee partook of the same characters the receipts for the payment of which he was otherwise entitled under the contract and which payment was delayed as a result of certain disputes. So, we have no hesitation in holding that the interest amounting to Rs. 36,066.70 is a revenue receipt, liable to be taxed for the assessment year 1979-80 .........."
(emphasis, here italicised in print supplied) (3) CIT v. Buckau Wolf New India Engineering Works Ltd. (supra).
In that case, the Hon'ble Bombay High Court in respect of section 80-I observed as under :
"The manufacture of machinery by the assessee is a priority industry. The carrying out of repairs to machinery manufactured and sold by the assessee is an activity which has a direct nexus to the priority industry. The income derived therefrom must, therefore, be held to be attributable to the priority industry. The income derived from the interest paid by buyers of machinery manufactured by the assessee on deferred payment also has direct nexus to the assessee's priority industry and is attributable to it. The facility of after-sales repairs and of deferred payment are inducements offered to intending purchasers and are intimately linked to the assessee's priority industry."
(4) CIT v. Buckau Wolf New India Engg. Works Ltd. (supra).
In that case, one of the questions referred to the Hon'ble Bombay High Court was as under :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income from interest received from customers of Rs. 37,106 and machining charges amounting to Rs. 9,345 is liable to be deducted for the purpose of giving relief under section 80E of the Income Tax Act, 1961 ?"
Their Lordships after following decision in the case of CIT v. Buckau Wolf New India Engg. Works Ltd. (supra) answered the question in favour of the assessee.
7.4. The assessee has further placed reliance on certain decisions of the Appellate Tribunal which lay down similar proposition. No useful purpose would be served in referring to all of them.
7.5. Sub-section (1) of section 80-I in the relevant period started as under :
"Where the gross total income of an assessee includes any profit and gains derived from any business of an industrial undertaking or a hotel."
The other portions of section are not relevant as there is no dispute that assessee in the relevant period fulfilled all the conditions specified in the section and was allowed deduction under the statutory provisions. There is further no dispute that assessee carried on manufacture of an article or a thing as specified and was a priority industry. The revenue authorities denied deduction to the assessee on the amounts referred to above as according to them interest received on delayed sale consideration was not "income derived" from the manufacturing activity carried on by the assessee. As per them, the manufacturing activity is "the purpose of raw material, consumption thereof, production of goods and the sale of it Once sale is effected, manufacturing activity is over. The charging of interest on delayed payment is after the process of sale and so it cannot be said as manufacturing activity.
7.6. In our considered opinion, the revenue authorities have adopted a narrow approach in considering the issue. As quoted earlier, the deduction is permissible to the assessee out of gross total income of "any profit and gain derived from any business of an industrial undertaking". The words "profits and gains of an industrial undertaking" are well known words and cannot be limited in their import to the activities taken into account by the revenue authorities and referred to above. There cannot be any "profit or gain of the business" unless sale proceed and its realisation is taken into account. Therefore, even for determining profits and gains "derived from" any business of an industrial undertaking manufacturing or producing any article or thing include sale proceeds of such article or thing. It is not possible to close your eyes to the event which amounts or reduces the sale consideration. After all what is to be determined is the profit and gain of the business of the undertaking and there is no warrant to stop for the above purpose at sale only. The controversy here is not when manufacturing activity of the assessee was over, but what was the profit and gain of the business of the undertaking and how was it to be determined. For determining above profit of business it is not possible to ignore sale and the terms and conditions on which it has been effected. The charging of interest on the delayed payment is a term of the agreement of sale of the article manufactured by the industrial undertaking.
7.7. We are fully conscious that Hon'ble Supreme Court since its decision in Cambay Electric Supply Industrial Co. v. CIT (supra) emphasised on the distinction between the words "derived from" and "attributable to" and held that latter to be words of much wider import. The words "derived from" were held to be used by the legislature where it wanted that income should have a direct nexus with the activities of the priority industry. In the present case we are dealing with words "derived from" and, therefore, to get relief under section 80-A, the claim of profits must have a direct nexus with the activity of the industrial undertaking. But as stated earlier sale is inseparable from the activity of the undertaking and, therefore, only question is whether interest received is part of the sale consideration.
7.8. The basis authority in which the words "derived from" were considered with reference to interest income is the decision of Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh (supra) noted above while referring to decision in the case of Hindustan Lever Ltd. (supra). There the interest paid on arrears of rent was held to be income not derived from land. It was held to have a different character from that of rent. The aforesaid decision, in our considered view, is distinguishable and not applicable to this case. The interest was payable on "arrears of rent" by virtue of a statutory provision. The rent derived from land used for agricultural purposes was admittedly agricultural income but interest was not accepted to have the same character. In other words, it was not derived from land. The Privy Council had observed :
"Interest payable by statute on rent in arrears is not such a payment. It is not part of the rent, nor is it an accretion to it though it is received in respect of it."
7.9. It is clear from above that interest was a statutory levy and could not be treated as rent derived from agricultural land.
7.10. The rent under an agreement or otherwise is a fixed amount payable on expiry of a fixed period. Such period may be a month, six months or a year. On the expiry of above period, the liability to pay a pre-determined fixed amount as rent would arise. The two terms "rent" and "interest" are conceptionally different from each other and the latter can never become part of the former and acquire the same character. Even when in arrears or in default. The tenant's liability to pay rent remains unaltered. It is not enhanced or decreased as far as rent is concerned. On account of above peculiarity in character, the interest cannot be mixed up with rent and treated as accretion thereto. But the above relationship of interest with rent would not apply to all kinds of situations. When the payee who has the option to pay a higher amount than the amount originally fixed because of delay in the payment, the extra amount paid though called "interest" partakes the same character of the original amount and acquires the same colour. We have referred to in earlier part of this decision to a catena of authorities taking the above view including the decision of Hon'ble Supreme Court in the case of CIT v. Govinda Choudhary & Sons (supra).
7.11. In the present case, there is no dispute that interest is paid on delayed payment of sale consideration as per agreement between the parties. It is a term and condition of the sale that a higher amount would be paid in case there is delay in the payment of sale consideration. The fact that this extra amount of sale consideration is described as "interest" and is calculated at a fixed rate with regard to the period does not make any difference to its character as sale consideration.
7.12. The assessee could have entered into contract of sale of goods with Bajaj Electricals Ltd. in the following two manners :
(a) By providing that interest at the rate of 1 per cent per month would be charged on the unpaid sale price and added to same for realisation. In that case, on sale of goods worth Rs. 100 the assessment would realise Rs. 102, Rs. 104, Rs. 106, after delay of 1,2 and 3 months.
(b) Alternatively, the contract could provide that in case of delay of one, two or three months in the payment of sale of goods worth Rs. 100, the payee would have to pay Rs. 102, Rs. 104, Rs. 106 respectively as sale price.
7.13. The revenue can have no objection in granting relief to the assessee and taking Rs. 102, Rs. 104 or Rs. 106 as sale consideration and as "income derived" from the industrial undertaking as per the illustration (b) above. However, they are giving different treatment to the realisations mentioned in illustration (a). In commercial parlance, the two illustrations are only two ways of realising sale consideration having same object of realisation of payment fast and without delay. In both the illustrations, what is ultimately paid by the customer is price of the goods. The total amount paid is the cost of goods in the hands of the customer. The interest in both the cases is really augmentation of the sale consideration. It bears the same character as sale price and cannot be separated from the sale price. The decision in the case of Govinda Choudhary & Sons (supra) and CIT v. United Construction Contractors (supra) are fully applicable to the facts of the case. The assessee, therefore, was entitled to deduction under section 80-IA on the whole amount as interest received on delayed payment was "income derived" from the industrial undertaking.
7.14. The assessee, in the alternative, has contended that from the interest received from delayed payment, the interest paid to the bank should be deducted and only the balance amount should be taken into consideration. We find that regarding the interest paid by the assessee, the assessing officer has himself observed, "payment of interest is on borrowed fund which is used for running of its manufacturing activities" (extract reproduced at p. 3 of this order). About the receipt of interest, the learned Commissioner (Appeals) has observed that "such amount may be assessed as business income is not sufficient to hold that interest income was derived from actual conduct of business undertaking" (see p 3 of this order where relevant portion is extracted). In our considered opinion, interest received is closely connected with the interest paid and, therefore, net amount of interest should be taken in the profit & loss account. This claim has not been considered by the revenue authorities and, therefore, we are not in a position to determine exactly what is the net amount of interest paid in the two years under consideration. The assessee would be at liberty to raise this ground before the assessing officer in case he loses on the main ground which has been held in favour of the assessee.
7.15. In the light of above discussion, we delete the additions of Rs. 9,81,474 and Rs. 18,44, 111 made in assessment years 1995-96 and 1997-98 respectively.
8. No other ground was urged before us.
9. In the result, assessee's appeals are allowed in terms stated above. The stay applications are treated as infructuous and are rejected.