1978 (8) TMI 26 - HC - Income Tax

Allahabad High Court allows deduction for 'Priority Industry' profits. Machinery sales income deemed part of business.

The High Court of Allahabad ruled in favor of M/S. Farrukhabad Electric Supply Company, allowing a deduction of 8% of profits attributable to its ... Profits and gains attributable to the assessee's business as a priority industry - balancing charge arising from sale of machinery - distinction between 'attributable to' and 'derived from' - deduction available to a priority industryProfits and gains attributable to the assessee's business as a priority industry - balancing charge arising from sale of machinery - distinction between 'attributable to' and 'derived from' - Whether the income computed under s. 41(2) on sale of machinery (balancing charge) is to be treated as profits and gains attributable to the assessee's business as a priority industry for the purpose of claiming the deduction - HELD THAT: - The Court applied the interpretation of the phrase 'profits and gains attributable to the assessee's business as specified industry' as laid down in Cambay Electric Supply Industrial Co. Ltd. v. CIT . That decision of the Supreme Court establishes that the expression 'attributable to' is wider than 'derived from' and encompasses a balancing charge arising from the sale of old machinery which formed part of the plant and machinery used in the business. Applying that principle, the assets sold formed part of the assessee's plant and machinery used in electricity generation; therefore the balancing charge computed under s. 41(2) must be regarded, at least in part, as profits and gains attributable to the priority industry business. The Tribunal's conclusion to that effect was held to be correct in law.Tribunal's view upheld; the income under s. 41(2) on sale of machinery is attributable to the profits and gains of the priority industry and hence falls within the scope of the deduction.Final Conclusion: Question answered in the affirmative in favour of the assessee; the balancing charge on sale of plant and machinery used in the priority industry is attributable to the business and the Tribunal's view is upheld. The High Court of Allahabad ruled in favor of M/S. Farrukhabad Electric Supply Company, a 'Priority Industry,' allowing a deduction of 8% of profits attributable to its activities. The Tribunal's decision was upheld, stating that the income from the sale of machinery is part of the assessee's business as a priority industry. The court referred to a previous case to support its interpretation of 'attributable to.' The question posed by the CIT was answered in favor of the assessee. No costs were awarded as the assessee did not appear in court.