Interest on Fixed Deposit Receipts not considered industrial profit under section 80-IA. Ruling favors Revenue.

Assistant Commissioner of Income-tax Versus Sutlej Motors Ltd.

Assistant Commissioner of Income-tax Versus Sutlej Motors Ltd. - [2009] 29 SOT 50 (ASR.) (URO) Issues Involved:
1. Whether interest on Fixed Deposit Receipts (FDRs) qualifies as profit derived from an industrial undertaking for the purpose of deduction under section 80-IA of the Income-tax Act.

Detailed Analysis:

Common Effective Issue:
The primary issue across all appeals was whether the interest on FDRs could be considered as profit derived from an industrial undertaking under section 80-IA of the Income-tax Act.

Assessing Officer's View:
The Assessing Officer (AO) denied the deduction under section 80-IA for interest on FDRs, arguing that such interest does not constitute profit derived from an industrial undertaking. The AO relied on the Supreme Court's judgment in *Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278*, which held that interest earned on deposits with the electricity board was not directly derived from the industrial undertaking and thus not eligible for special deductions under section 80HH, which has similar wording to section 80-IA.

CIT(A)'s Decision:
The Commissioner of Income-tax (Appeals) [CIT(A)] allowed the deduction under section 80-IA, supporting the assessee's claim that similar deductions had been allowed in previous assessment years (1991-92 to 1994-95). The CIT(A) relied on the broader interpretation of 'profits' in the case of *Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273* and the jurisdictional High Court's decision in *CIT v. Isher Dass Mahajan & Sons*, which supported the assessee's position.

Revenue's Argument:
The Revenue contested the CIT(A)'s decision, arguing that the interest on FDRs does not have a direct nexus to the industrial undertaking's activities. They cited the Tribunal's decision in *Chaman Lal Setia Exports Ltd. v. Addl. CIT* and the Supreme Court's decisions in *Sterling Foods [1999] 237 ITR 579* and *Pandian Chemicals Ltd. [2003] 262 ITR 278*, which emphasize the need for a direct nexus between the income and the industrial undertaking.

Assessee's Argument:
The assessee argued for consistency, noting that the CIT(A) had previously allowed such deductions and that no appeal was filed by the Revenue against those decisions. They also relied on the decision in *CIT v. Vikas Chemi Gum India [2005] 276 ITR 32* and *CIT v. Dalmia Promoters Developers (P.) Ltd. [2006] 281 ITR 346*, asserting that the principle of consistency should be followed.

Tribunal's Analysis:
The Tribunal examined the facts and legal precedents, noting that section 80-IA requires a direct nexus between the profit and the industrial undertaking. The Tribunal referred to the Supreme Court's judgment in *Sterling Foods* and *Pandian Chemicals Ltd.*, which necessitate a direct connection between the income and the industrial undertaking. The Tribunal distinguished the facts of the present case from *Apollo Tyres Ltd.*, noting that the latter involved interconnected business activities, unlike the current case where FDRs were not part of the regular business activities.

The Tribunal also considered the Special Bench decision in *Nirma Industries Ltd. v. Asstt. CIT [2005] 146 Taxman 90*, which held that interest on FDRs does not qualify for deduction under section 80-IA. They further noted that the judgments of the jurisdictional High Court in *Liberty India v. CIT [2007] 293 ITR 520* and *Liberty Shoes Ltd. v. CIT [2007] 293 ITR 478* emphasized the need for a direct nexus for deductions under section 80-IA.

Conclusion:
The Tribunal concluded that interest on FDRs, whether kept as margin money or invested from surplus funds, does not constitute profit derived from an industrial undertaking. Therefore, it does not qualify for deduction under section 80-IA. The orders of the CIT(A) were set aside, and the AO's decision was restored, denying the deduction for interest on FDRs.

Final Judgment:
All the appeals of the Revenue were allowed, and the assessee was not entitled to the deduction under section 80-IA for interest on FDRs.