Madras High Court
M/S.Indian Additives Ltd vs The Deputy Commissioner Of Income-Tax on 10 November, 2011
Author: Elipe Dharma Rao
Bench: Elipe Dharma Rao, D.Hariparanthaman
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.11.2011 CORAM: THE HONOURABLE MR.JUSTICE ELIPE DHARMA RAO AND THE HONOURABLE MR.JUSTICE D.HARIPARANTHAMAN Tax Case (Appeal) No.1 of 2008 M/s.Indian Additives Ltd., Express Highway, Manali, Chennai-600068. ... Appellant Vs. The Deputy Commissioner of Income-tax, Company Circle-II (3), 121, Nungambakkam High Road, Chennai-600034. ... Respondent * * * Tax Case Appeal preferred under Section 260A of the Income-tax Act, as against the order dated 31.10.2006 passed by the Income-tax Appellate Tribunal, Bench 'A', Chennai in ITA.No.193/Mds/2005. * * * For appellant : Dr.Anitha Sumanth For respondent : Mr.K.Subramanian * * * JUDGMENT
ELIPE DHARMA RAO, J.
The scope of application of Section 80IB of the Income-tax Act, 1961 (hereinafter referred to as the Act) is the subject matter in this appeal.
2. The appellant/assessee is a joint venture company of Chevron Multinational Corporation and Chennai Petroleum Products and they are involved in manufacture of additives and selling of additives on commission basis. The assessee company has filed its return of income on 29.11.2000, declaring a total income of Rs.6,10,33,466/=. During the course of scrutiny, it was found that the assessee claimed Rs.2,61,57,200/= towards deduction under Section 80-IB of the Act under the head 'deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings'.
3. The assessee has claimed the benefit of Section 80IB under the following heads:
1. Service Income : Rs.10,79,000-00
2. Interest on Deposits with Banks and Finance Institutions : Rs.14,19,000-00
3.Interest received from loans given to employees : Rs.25,51,000-00
4.Cash discount arising from prepayment of dues : Rs.19,84,000-00
5.Commission received : Rs. 3,02,000-00
6.Compensation received from sundry debtors for delayed payments : Rs.15,35,000-00
7.Imported materials : Rs.59,50,000-00
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Rs.97,71,000-00
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4. The Assessing Officer did not agree with the contentions of the assessee that these incomes are directly derived from the activity of industrial undertaking. With regard to the claim of the assessee under heads (1) to (6) above, the Assessing Officer, on verification of the records and the receipts produced by the assessee, has observed that the 'receives have not been derived from the direct activity of the Industrial Undertaking and there is no direct nexus between the Industrial Undertaking and the service income received. It is clear that training activities are carried out by the assessee at its Headquarters and has no direct nexus with the industrial undertaking as such'.
5. With regard to the claim of the assessee under head No.(7) above, viz. imported materials, the Assessing Officer has observed that 'the income derived is not directly from Industrial Undertaking. There is no nexus between the income earned from selling of imported materials and industrial undertaking. It is only a trading activity. Testing and labelling alone cannot constitute manufacturing or producing of any article or thing. Nor there is any value addition to the item through processing. Hence profit earned on trading of import materials are totally outside the scope of income derived from industrial undertaking.' On such grounds, the Assessing Officer has disallowed the claim of the assessee on these counts.
6. Aggrieved, the assessee has preferred an appeal before the Commissioner of Income-tax (Appeals) (CIT(A) in short), who, by his order dated 23.11.2004, has concurred with the findings of the Assessing Officer, and has held that 'the appellant (assessee) is not eligible for benefit under Section 80IB on the surplus money kept in fixed deposits for the purpose of bank guarantee or letters of credit, on service income received for training, on interest received on loans given to the employees, on commission receipts, and on interest collected from sundry debtors for delay in payments and other receipts.'
7. But, however, the CIT(A) has observed that 'only with regard to cash discounts that are received on purchases, the plea of the appellant that it goes to reduce the purchases is to be considered. These are directly relatable to the purchases and hence, they go to reduce the purchases. Due to the accounting procedure it is disclosed as a separate receipt. However, it is to be noticed since value of purchases is reduced, the quantum of profit from the industrial undertaking increases. The A.O. is to verify and confirm that such cash discount is received only with respect to its purchases relating to manufacturing activity and not on purchases towards trading goods. After verifying the same the AO is directed to allow 80IB benefit even on Rs.19,84,000/= which represents cash discount on purchases relating to manufacturing activity. In case the cash discount relates to trading goods the assessee would not be eligible for any benefit.'
8. With regard to the claim of the assessee under head No.(7), 'imported materials', of Rs.59,50,00,000/=, the CIT(A) has allowed the claim of the assessee in part, to the extent of Rs.27,01,00,000/=, directing the Assessing Officer to adopt Rs.27.01 lakhs (instead of Rs.59.50 lakhs) as the profit relating to sale of imported materials.
9. Aggrieved over the decision of the CIT(A) - in partly allowing the claim of the assessee - while the Revenue has preferred ITA.No.208/Mds/2005 before the Income-tax Appellate Tribunal, Bench 'A', Chennai (hereinafter referred to as the ITAT), the assessee company has preferred ITA.No.193/Mds/2005.
10. The ITAT, dismissed both the appeals of assessee and Revenue, by its common order dated 31.10.2006. Aggrieved, while the assessee has come forward to file this appeal, no appeal has been preferred on the part of the Revenue.
11. Though the assessee has preferred this appeal, questioning dis-allowance of his claim under six heads viz. (i) service income; (ii) interest on deposits with banks and financial institutions; (iii) interest received from loans given to employees; (iv) commission received; (v) compensation received from sundry debtors for delayed payments and (vi) imported materials, this Court admitted this appeal on 7.1.2008 for determination of the following substantial question of law, only with regard to two heads, as extracted hereunder:
"Whether on facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in excluding the following from income eligible for deduction under Section 80-IB of the Income-tax Act, 1961:
(i) Service income
(ii) Commission received."
12. During the course of arguments, the learned counsel appearing for the assessee would argue that the appellant is a long standing company and has developed considerable expertise in training of personnel, particularly in areas of process plant operations and maintenance and manufacture of additives. The learned counsel further argued that in view of the considerable expertise of the assessee, the joint venture partner (Chevron) of the assessee had assigned a team of employees to work in the manufacturing plant of the assessee at Chennai for training prior to their placement in the Singapore manufacturing plant and the technical operations in both plants are identical and the products manufactured are the same and thus the appellant had received consideration from Chevron for the training of the employees and hence this income is directly derived from the operations of the industrial undertaking and thus eligible for the grant of deduction under Section 80IB. The learned counsel would further argue that the term 'business' has been defined under Section 2(13) of the Act as 'includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture and taking into consideration the wide definition given to the term 'business' in the Act, the deductions claimed by the assessee should have been allowed in favour of the assessee by the authorities below.
13. The learned counsel for the assessee, would further argue that when interest is paid on delayed payment, it can be treated as higher sale price which is converse situation to offering of cash discount because the transaction remains the same and there is no distinction as to the source and looking from this angle, the interest becomes part of the higher sale price and is clearly derived from the sales made and is not divorced therefrom and it is, thus, the direct result of the sale of goods and the income is derived from the business of industrial undertaking and hence, the authorities below have committed a legal error in not allowing the claims made by the assessee. In support of such arguments, the learned counsel for the assessee would rely on a judgment of a Division Bench of this Court in CIT vs. INDO MATSUSHITA CARBON CO.LTD. [(2006) 286 ITR 201 (Mad)].
14. On the other hand, the learned standing counsel appearing for the Revenue would take strong exception to the arguments advanced on the part of the learned counsel for the assessee, even with regard to the aspects, which are not part and parcel of the substantial question of law framed. The learned standing counsel would argue that when the Court has framed substantial question of law only with regard to 'service income' and 'commission received', it is not open for the assessee to rake up such other pleas, which are not covered under the substantial question of law. He would argue that the power of this Court under Section 260A of the Act is to be exercised only within the bounds of law and not otherwise.
15. For this, the learned counsel appearing for the assessee would argue that the powers of this Court under Section 260A of the Act are not that much narrow, as is being dubbed on the part of the learned standing counsel for the Revenue. In support of such arguments, the learned counsel for the assessee would rely on an unreported judgment of a Division Bench of this Court in T.C.(A)No.1530 of 2008, dated 6.12.2010 [M/s.HELIOS & METHESON INFORMATION TECHNOLOGY LIMITED vs. THE ASST.COMMISSIONER OF INCOME-TAX]. The learned counsel would also rely on a judgment of the Calcutta High Court in EVEREADY INDUSTRIES INDIA LTD. vs. COMMISSIONER OF INCOME TAX & ANOTHER [(2010) 323 ITR 312].
16. For better appreciation of this point, as to whether this Court, while sitting on appeal under Section 260A of the Act can hear any other question, other than the substantial question of law framed, we extract hereunder Section 260A of the Act, which reads as follows:
"260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal], if the High Court is satisfied that the case involves a substantial question of law.
(2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be
(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner;
(b) *** (Omitted by the Finance Act, 1999, w.e.f. 1-6-1999)
(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.
(2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question :
Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.
(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
(6) The High Court may determine any issue which
(a) has not been determined by the Appellate Tribunal; or
(b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1).
(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.
17. Though under sub-section (4) of this Section 260A, it has been mandated that the appeal shall be heard only on the question formulated, the proviso to this sub-section makes it clear that 'nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.' Therefore, if the Court satisfies that the case involves not only the substantial question of law formulated, but also other substantial question of law not formulated by it, it can hear such questions on reasons to be recorded.
18. In the case on hand, as has already been indicated supra, though the assessee has filed this appeal questioning dis-allowance of benefit under various heads by the Assessing Officer, CIT(A) and ITAT, this Court has admitted this appeal for determination of the substantial question of law regarding only 'service income' and 'commission received'. However, in order to give a quietus to the entire issue and further since non-formulation of the substantial question of law with regard to other disputed heads would automatically amount to dismissal of the appeal of the assessee regarding those heads, without any opportunity for him to be heard, that too without offering any reasons for such denial, we take up other aspects urged by the assessee also, in due compliance of the avowed principles of natural justice and by exercising the power under proviso to sub-section (4) of Section 260A of the Act.
19. By answering this preliminary question accordingly, now we shall proceed to deal with the other aspects of the case.
20. Since the subject relates to Section 80IB of the Act, the same is extracted hereunder for better understanding and ready reference:
"Section 80-IB- DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKING. -
(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub- sections (3) to (11) (such business being hereinafter referred to as the eligible business), 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 such percentage and for such number of assessment years as specified in this section.
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :-
(i) It is not formed by splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose;
(iii) It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India :
Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted.
Explanation 1 : For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :-
(a) Such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;
(b) Such machinery or plant is imported into India from any country outside India; and
(c) No deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.
Explanation 2: Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with;
(iv) In a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power.
(3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent. where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co- operative society) beginning with the initial assessment year subject to the fulfilment of the following conditions, namely :-
(i) It begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular undertaking;
(ii) Where it is an industrial undertaking being a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant not specified in sub- section (4) or sub-section (5) at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2000.
(4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking :
Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2000 :
Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years.
(5) The amount of deduction in the case of an industrial undertaking located in such industrially backward districts as the Central Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf as industrially backward district of category 'A' or an industrially backward district of category 'B' shall be, -
(i) Hundred per cent of the profits and gains derived from an industrial undertaking located in a backward district of category 'A' for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent. where the assessee is a company) of the profits and gains of an industrial undertaking :
Provided that the total period of deduction shall not exceed ten consecutive assessment years or where the assessee is a co-operative society, twelve consecutive assessment years :
Provided further that the industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during the period beginning on the 1st day of October, 1994 and ending on the 31st day of March, 2000;
(ii) Hundred per cent of the profits and gains derived from an industrial undertaking located in a backward district of category 'B' for three assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent. where the assessee is a company) of the profits and gains of an industrial undertaking :
Provided that the total period of deduction does not exceed eight consecutive assessment years (or where the assessee is a co-operative society, twelve consecutive assessment years):
Provided further that the industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during the period beginning on the 1st day of October, 1994 and ending on the 31st day of March, 2000.
(6) The amount of deduction in the case of the business of a ship shall be thirty per cent of the profits and gains derived from such ship for a period of ten consecutive assessment years including the initial assessment year provided that the ship-
(i) Is owned by an Indian company and is wholly used for the purposes of the business carried on by it;
(ii) Was not, previous to the date of its acquisition by the Indian company, owned or used in Indian territorial waters by a person resident in India; and
(iii) Is brought into use by the Indian company at any time during the period beginning on the 1st day of April, 1991 and ending on the 31st day of March, 1995.
(7) The amount of deduction in the case of any hotel shall be-
(a) Fifty per cent of the profits and gains derived from the business of such hotel for a period of ten consecutive years beginning from the initial assessment year as is located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations, specify by notification in the Official Gazette and such hotel starts functioning at any time during the period beginning on the 1st day of April, 1990 and ending on the 31st day of March, 1994 or beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2001 :
Provided that nothing contained in this clause shall apply to a hotel located at a place within the municipal jurisdiction (whether known as a municipality, municipal corporation, notified area committee or a cantonment board or by any other name) of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after the 1st day of April, 1997 and before the 31st day of March, 2001 :
Provided further that the said hotel is approved by the prescribed authority for the purpose of this clause in accordance with the rules made under this Act and where the said hotel is approved by the prescribed authority before the 31st day of March, 1992, shall be deemed to have been approved by the prescribed authority for the purpose of this section in relation to the assessment year commencing on the 1st day of April, 1991;
(b) Thirty per cent of the profits and gains derived from the business of such hotel as is located in any place other than those mentioned in sub-clause (a) for a period of ten consecutive years beginning from the initial assessment year if such hotel has started or starts functioning at any time during the period beginning on the 1st day of April, 1991 and ending on the 31st day of March, 1995 or beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2001 :
Provided that nothing contained in this clause shall apply to a hotel located at a place within the municipal jurisdiction (whether known as a municipality, municipal corporation, notified area committee, town area committee or a cantonment board or by any other name) of Calcutta, Chennai, Delhi or Mumbai, which has started or starts functioning on or after the 1st day of April, 1997 and before the 31st day of March, 2001;
(c) The deduction under clause (a) or clause (b) shall be available only if-
(i) The business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose;
(ii) The business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees;
(iii) The hotel is for the time being approved by the prescribed authority :
Provided that any hotel approved by the prescribed authority before the 1st day of April, 1999 shall be deemed to have been approved under this sub-section.
(8) The amount of deduction in the case of any company carrying on scientific research and development shall be hundred per cent of the profits and gains of such business for a period of five assessment years beginning from the initial assessment year if such company -
(a) Is registered in India;
(b) Has the main object of scientific and industrial research and development;
(c) Is for the time being approved by the prescribed authority at any time before the 1st day of April, 1999.
(9) The amount of deduction to an undertaking which begins commercial production or refining of mineral oil shall be hundred per cent of the profits for a period of seven consecutive assessment years including the initial assessment year :
Provided that where the undertaking is located in North-Eastern Region, it has begun or begins commercial production of mineral oil before the 1st day of April, 1997 and where it is located in any part of India, it begins commercial production of mineral oil on or after the 1st day of April, 1997 :
Provided further that where the undertaking is engaged in refining of mineral oil, it begins refining on or after the 1st day of October, 1998.
(10) The amount of profits in case of an undertaking developing and building housing projects approved by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if, -
(a) Such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes the same before the 31st day of March, 2001;
(b) The project is on the size of a plot of land which has a minimum area of one acre; and
(c) The residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place.
(11) Notwithstanding anything contained in clause (iii) of sub-section (2) and sub-sections (3), (4) and (5), the amount of deduction in a case of industrial undertaking deriving profit from the business of setting up and operating a cold chain facility for agricultural produce, shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such facility in a manner that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) and subject to fulfilment of the condition that it begins to operate such facility on or after the 1st day of April, 1999 but before the 31st day of March, 2003.
(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger -
(a) No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and
(b) The provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.
(13) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section.
(14) For the purposes of this section, -
(a) "Cold chain facility" means a chain of facilities for storage or transportation of agricultural produce under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce;
(b) "Hilly area" means any area located at a height of one thousand metres or more above the sea level;
(c) "Initial assessment year" -
(i) In the case of an industrial undertaking or cold storage plant or ship or hotel, means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the cold chain facility or the ship is first brought into use or the business of the hotel starts functioning;
(ii) In the case of a company carrying on scientific and industrial research and development, means the assessment year relevant to the previous year in which the company is approved by the prescribed authority for the purposes of sub-section (8);
(iii) In the case of an undertaking engaged in the business of commercial production or refining of mineral oil referred to in sub- section (9), means the assessment year relevant to the previous year in which the undertaking commences the commercial production or refining of mineral oil;
(d) "North-Eastern Region" means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura;
(e) "Place of pilgrimage" means a place where any temple, mosque, gurdwara, church or other place of public worship of renown throughout any State or States is situated;
(f) "Rural area" means any area other than -
(i) An area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the preceding census of which relevant figures have been published before the first day of the previous year; or
(ii) An area within such distance not being more than fifteen kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area including the extent of, and scope for, urbanisation of such area and other relevant considerations specify in this behalf by notification in the Official Gazette;
(g) "Small-scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951)"
21. A reading of Chapter VI-A of the Act makes it clear that it deals with 'Deductions to be made in computing total income', which contains Sections 80 to 80U with omission of certain Sections in between. On analysing this Chapter VI-A, as has been observed by the Honourable Apex Court in LIBERTY INDIA vs. COMMISSIONER OF INCOME TAX [(2009) 9 SCC 328], it is clear that 'Sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions.'
22. While examining the question, as to what Sections 80-IA and 80-IB prescribe for 'computation of profits of the eligible business', it has also been held in this judgment by the Honourable Apex Court that "It is evident that Section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words derived from are narrower in connotation as compared to the words attributable to. In other words, by using the expression derived from, Parliament intended to cover sources not beyond the first degree."
23. Therefore, to substantiate their claim, the assessee is required to satisfy the condition that the deductions, claimed by them, are entitled to be allowed, since 'derived from' their business.
24. In CIT vs. STERLING FOODS [237 ITR 579], the Honourable Apex Court has held that 'the assessee has to establish that the profits and gains were derived from industrial undertaking and it was just not sufficient that commercial connection was established between the profits and industrial undertaking. The industrial undertaking has to be the source of the profit. The business of the industrial undertaking has directly to yield the profit. The industrial undertaking should be the direct source of that profit and not a means to earn the profit.'
25. In this legal background, we have gone through the entire materials placed on record. The fact finding authority (Assessing Officer), on a thorough analysis of the entire materials placed on record and discussing the same, threadbare, has arrived at an irresistible conclusion that the training activities carried out by the assessee at its headquarters have no direct nexus with the industrial undertaking as such. While such being the factual finding arrived at by the fact finding authority and confirmed by the CIT(A) and also the ITAT, no material has been placed before us by the assessee to take a contra view.
26. The CIT(A) himself, on re-analysis of the entire materials placed on record, has allowed deductions, to some extent, regarding cash discount on purchases relating to manufacturing activity and also with regard to imported material, which on further scrutiny, has been upheld by the ITAT.
27. An argument has been advanced on the part of the assessee, during the course of hearing of this appeal, that the matter needs re-hearing by the fact finding authorities, since they have not considered the issues involved in the matter in their proper perspective. In support of such arguments, the learned counsel for the assessee has placed reliance on another unreported judgment of a Division Bench of this Court in Tax Case (Appeal) No.524 of 2010, dated 16.8.2010 [M/s.COTTON BASE vs. THE INCOME TAX OFFICER], wherein considering the fact that the authorities below have not properly assessed the matter with regard to the claim of the assessee therein that the interest income attributable to the deposits comprising export realisation is eligible for deduction under Section 80-HHC of the Act, a Division Bench of this Court has remitted the matter back to the Tribunal for consideration.
28. But, the same is not the situation in the case on hand. In the case on hand, as has already been stated supra, the assessee's claim has been tested on touchstone not only by the fact finding authority (the Assessing Officer), but also by the CIT(A) and ITAT, being the last fact finding authority and have filtered the claim of the assessee, making him eligible to the extent the law permits. In the whole process of orders passed by the CIT(A) and the ITAT, no perversity of approach has been found by us. Therefore, re-iterating the well established principle of law that while sitting on appeal under Section 260A of the Act, this Court cannot set aside the factual findings recorded by the fact finding authorities, particularly in the absence of any adverse approach by them, vide M.JANARDHANA RAO vs. JOINT CIT [(2005) 2 SCC 324], we answer the substantial question of law framed, with its extended purview by us (considering all the claims made by the assessee, as has been discussed supra), against the assessee and in favour of the Revenue.
In the result, this Appeal filed by the assessee is dismissed. No costs.
Index: Yes/No Internet: Yes/No (E.D.R., J.) (D.H.P.,J.) Rao 10.11.2011 ELIPE DHARMA RAO, J. AND D.HARIPARANTHAMAN, J. (Rao) judgment in T.C.(A) No.1/2008 10.11.2011