2008 (3) TMI 365 - AT - Income Tax

Tribunal Confirms Section 80-IB Deductions for Conversion Charges, Scrap Sale Profit, and Interest on Delayed Payments.

Assistant Commissioner Of Income-Tax. Versus Biotech Medicals (P) Limited.

Assistant Commissioner Of Income-Tax. Versus Biotech Medicals (P) Limited. - [2009] 310 ITR 47, ITD 119, 143, TTJ 121, 858, Issues Involved:1. Inclusion of conversion charges for the purpose of deduction under Section 80-IB of the IT Act, 1961.2. Profit on sale of scrap for the purpose of deduction under Section 80-IB.3. Interest on delayed payments for the purpose of deduction under Section 80-IB.Detailed Analysis:1. Inclusion of Conversion Charges for Deduction under Section 80-IB:The primary issue in this appeal is whether conversion charges received by the assessee qualify for deduction under Section 80-IB of the IT Act, 1961. The Revenue argued that these receipts are not derived from an industrial undertaking and thus are ineligible for deduction under Section 80-IB. The Departmental Representative cited several judgments, including CIT vs. Shiva Distilleries Ltd., Asstt. CIT vs. K.S. International, and Liberty Shoes Ltd. vs. CIT, to support the contention that the receipts are not related to manufacturing activities or industrial undertakings.Conversely, the assessee's counsel argued that the conversion charges were part of the manufacturing activity, as the assessee used its machinery and facilities to process raw materials supplied by third parties. The counsel relied on the judgment of CIT vs. K. Ravindranathan Nair, clarifying that this case pertains to Section 80HHC and not Section 80-IB. Additionally, the counsel cited CIT vs. Rane (Madras) Ltd. and Dy. CIT vs. Harjivandas Juthabhai Zaveri & Anr., which supported the view that job work charges are derived from the industrial undertaking.The Tribunal, after considering the rival submissions and relevant judgments, concluded that the conversion charges have a direct nexus with the manufacturing activity. The Tribunal held that the income derived from job work by utilizing the same machinery and labor is eligible for deduction under Section 80-IB. The Tribunal found no infirmity in the CIT(A)'s order, which allowed the deduction.2. Profit on Sale of Scrap for Deduction under Section 80-IB:The next issue was whether the profit on the sale of scrap generated during manufacturing is eligible for deduction under Section 80-IB. The Revenue relied on the judgment of Shiva Distilleries Ltd., which dealt with Section 80HHC and held that scrap sales should not form part of the total turnover for computing deductions.The Tribunal noted that the judgment in Shiva Distilleries Ltd. was specific to Section 80HHC and not applicable to Section 80-IB. It was undisputed that the scrap was generated during the manufacturing process. The Tribunal held that the profit from the sale of scrap has a direct nexus with the industrial undertaking and is thus eligible for deduction under Section 80-IB.3. Interest on Delayed Payments for Deduction under Section 80-IB:The final issue was whether interest on delayed payments qualifies for deduction under Section 80-IB. The Tribunal referred to the judgments in Madras Motors Ltd., Rane (Madras) Ltd., and Nirma Industries Ltd. vs. Dy. CIT, which held that such interest is directly related to the industrial undertaking and eligible for deduction.The Tribunal found no infirmity in the CIT(A)'s order, which allowed the deduction for interest on delayed payments under Section 80-IB.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order on all issues. The conversion charges, profit on the sale of scrap, and interest on delayed payments were all deemed eligible for deduction under Section 80-IB of the IT Act, 1961.