1993 (8) TMI 46 - HC - Income Tax

Interest income from Electricity Board deposits not deductible for relief under section 80-I.

The court held that the interest income on deposits with the Electricity Board should not be deducted from the gross total income for computing relief ... Deduction For Priority Industry U/S 80I, Income Attributable To Priority Industry, Interest On Deposits In A Priority Industry Issues Involved:1. Whether the interest received on deposits kept with the Electricity Board should be deducted from the gross total income while computing the relief under section 80-I of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Deductibility of Interest on Deposits under Section 80-IFacts:The assessee, a limited company engaged in manufacturing and selling paper products, received interest on deposits made with the Electricity Board. The Income-tax Officer excluded this interest from the gross total income while computing the relief under section 80-I of the Income-tax Act, 1961. The Appellate Assistant Commissioner upheld this computation. However, the Income-tax Appellate Tribunal held that the interest received should not be deducted from the gross total income for the purpose of section 80-I relief.Contentions:- Revenue's Argument: Section 80-I does not cover income derived from sources other than those directly attributable to the priority industry. Therefore, the interest on deposits made with the Electricity Board, even if necessary for the supply of electrical energy to run the industry, should not be included in the gross total income for section 80-I relief.- Assessee's Argument: The deposit with the Electricity Board, and the interest accrued on it, are directly connected with the running of the industry. Therefore, the interest income is attributable to the industry and should be included in the gross total income for section 80-I relief.Relevant Case Law:- Revenue's Reliance: Addl. CIT v. Vellore Electric Corporation Ltd. [1979] 119 ITR 523 (Mad); CIT v. Universal Radiators P. Ltd. [1981] 128 ITR 531 (Mad); CIT v. Cochin Refineries Ltd. [1985] 154 ITR 345 (Ker).- Assessee's Reliance: Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC); English Electric Co. of India Ltd. v. CIT [1987] 168 ITR 513 (Mad).Court's Analysis:The court examined section 80-I(1) of the Income-tax Act, which allows a deduction from profits and gains attributable to any priority industry. The term 'attributable to' is broader than 'derived from,' as established in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). The Supreme Court in Cambay Electric held that the expression 'attributable to' includes receipts from sources other than the actual conduct of the business of the specified industry.The court noted that the deposit with the Electricity Board was necessary for the uninterrupted supply of electricity, which is essential for running the priority industry. Therefore, the interest income on such deposits is connected with the business of the priority industry and should be included in the gross total income for section 80-I relief.Contrary Decisions:- Universal Radiators P. Ltd. [1981] 128 ITR 531 (Mad): The court in this case acknowledged that 'attributable to' is broader than 'derived from' and that the income must have a nexus with the priority industry.- Cochin Refineries Ltd. [1985] 154 ITR 345 (Ker): The interest income in this case was from bank deposits unrelated to the priority industry. The court distinguished this from the present case where the deposits were necessary for running the industry.Conclusion:The court concluded that the interest income on deposits with the Electricity Board is connected with the business of the priority industry. Therefore, it should not be deducted from the gross total income while computing the relief under section 80-I. The Tribunal's decision was upheld, and the question was answered in the affirmative and against the Revenue.Final Judgment:The interest received on the deposits kept with the Electricity Board should not be deducted from the gross total income while computing the relief admissible under section 80-I of the Income-tax Act, 1961. The question was answered in the affirmative and against the Revenue. There was no order as to costs.