1983 (8) TMI 22 - HC - Income Tax

High Court: Deductions Allowed for Machining Charges & Interest on Sale Proceeds

The High Court of BOMBAY ruled in favor of the assessee in a case concerning the interpretation of deduction u/s 80-I of the Income-tax Act, 1961 for ... Priority Industry Issues involved: Interpretation of deduction u/s 80-I of the Income-tax Act, 1961 for profits from machining charges and interest on outstanding sale proceeds of machines.Summary:The High Court of BOMBAY delivered a judgment in a reference u/s 256(1) of the I.T. Act, 1961, regarding the entitlement of the assessee to deduction u/s 80-I for profits from machining charges and interest on outstanding sale proceeds of machines. The assessee, engaged in the manufacture and sale of machinery for the sugar industry, claimed deductions under s. 80-I, which allows deductions for profits from priority industries. The Tribunal allowed the deductions, emphasizing the wide import of the term 'attributable to' in s. 80-I. Previous court decisions were cited to support the interpretation that income with a direct nexus to the priority industry should be considered attributable to it.For the assessment year 1968-69, the Tribunal accepted a certificate provided by the assessee regarding machining charges, considering the entire amount as profit eligible for relief u/s 80-I. However, for 1969-70, the Tribunal divided profits from machining charges between repairs to machinery manufactured by the assessee and repairs to machinery of other manufacturers. The Court held that the manufacture of machinery and the related repair activities had a direct nexus to the priority industry, making the income attributable to it.The judgment highlighted that the income from machining charges and interest on deferred payments had a clear connection to the priority industry, as they were integral to the after-sales services and sales inducements offered by the assessee. Consequently, the Court ruled in favor of the assessee, affirming their entitlement to deductions u/s 80-I. The Revenue was directed to bear the costs of the reference.