TaxTMI 
TaxTMI 
2004 (10) TMI 286
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.... preferred by the Revenue which is aggrieved by the action of the CIT(A) in scaling down the addition of Rs. 2,00,000 made by the AO to a sum of Rs. 50,000. Both these grounds of appeal arise on the same set of facts. The facts giving rise to the aforesaid grounds of appeal are as follows. The assessee is a company which is engaged in the business of purchase of ships and dismantling them. The assessee purchases old ships, dismantles them or breaks them and sells the scrap generated out of dismantling. During the previous year, the assessee had purchased three ships. At the time of purchase of these old ships there would be fuel and lubricant oil left over in the ship. The customs authorities inspect the quantity of fuel so present apart from taking inventory of the various goods attached to the ship, before the ship enters the customs frontier. On such inspection the following was the quantity of fuel that was present: ----------------------------------------------------------------- I ship II ship III ship Total ----....
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.... the remaining quantity of oil was utilised. The assessee's reply in this regard was general. In the circumstances, some addition was called for. In our view, the CIT(A) has taken a very practical view of the issue and has sustained addition to the extent of Rs. 50,000. In our view, the order of CIT(A) is just and proper. The appeal of the assessee is therefore dismissed. The third ground of appeal in ITA No 3118/Del/1998 is also dismissed. 7. The first ground of appeal in all the three appeals by the Revenue is against the action of the CIT(A) in holding that the activity of ship breaking is an industrial undertaking and such activity amounted to manufacture or production of an article and hence deduction under ss. 80HH and 80-I of the Act was to be allowed to the assessee on the profits derived from such activity. There are two decisions of the Hon'ble High Courts taking contrary views on this issue. The first decision is that of the Hon'ble Bombay High Court in the case of Ship Scrap Traders & Ors. vs. CIT & Ors. (2001) 168 CTR (Bom) 489, wherein it has been held as follows: "The ship-breakers take delivery of the ships at high seas against payment and subsequently ships are b....
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....oduce some change in a substance', however, minor in consequence the change may be. When the word manufacture is appearing in the company of word 'production' which has a wider connotation than the word 'manufacture', the word 'production' or 'produce' when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. The associated words are indicative of the mind of legislature. Where a word is doubtful or ambiguous in nature the meaning has to be ascertained by considering the company in which it is found and the meaning of the word associated with it. The words manufacture and production have received extensive judicial attention both under the Act as well as the Central Excise Act and the various sales-tax laws. The word 'production' has a wider connotation than the word 'manufacture'. In Webster's New International Dictionary, the word 'produce' is defined as 'something which is brought forth or yielded either naturally or as a result of effort and work'. In Shorter Oxford English Dictionary, the following meaning is given 'to bring forward, bring forth or out to bring into being or existenc....
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....o doubt, the construction beneficial or favourable to the assessee should be adopted. In the circumstances, we are inclined to follow the decision of the Hon'ble Bombay High Court in the case of Ship Scrap Traders. Consequently, the order of the CIT(A) is upheld and the 1st ground of appeal in all the three appeals by the Revenue are dismissed. 10. We shall now consider the remaining grounds of appeal in the respective appeals of the Revenue. ITA No. 3118/Del/1998; asst yr. 1994-95 : The only surviving ground of appeal in this appeal is ground No. 2 which reads as follows: "Ground No. 2(i)-The learned CIT(A) has erred on facts and in law in deleting the disallowance of interest of Rs. 23,02,796 without adequately appreciating the facts of the case, inter alia that (i) the impugned amount was interest payable by the assessee-company within 180 days @ 6 per cent over and above the purchase price. Hence the nature of impugned amount is that of the interest. The interest was payable outsideIndiaon which tax had not been paid or deducted under Chapter XVII-B of the Act. So the amount was not deductible in computing the income chargeable under the head 'Profits and gains of business' u....
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....nder s. 10(15)(iv)(c) interest paid by an industrial undertaking in India on any moneys borrowed or debt incurred by it in a foreign country in respect of purchase outside India of raw material or capital plant and machinery to the extent to which such interest calculated at the rate approved by the Central Government in this behalf having regard to the terms of the loan or debt and its repayment, is not chargeable to tax. Since the interest income is not chargeable to tax the provisions of s. 40(a)(i) are not attracted. The AO however rejected this argument also holding that in the first place the assessee was not an industrial undertaking and secondly, the AO held that the assessee has not taken any such approval as is required under s. 10(15)(iv)(c) of the Act. There were some other plea taken by the assessee which were rejected by the AO and they are not necessary for adjudication of the present issue in this appeal. 13. Aggrieved by the order of the AO, the assessee preferred appeal before CIT(A) who deleted the addition made by the AO by concluding that the payment in question was not interest but part of the purchase price. The reasons in this regard are found in paras 3.3 ....
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....l equipment. Such interest payment to the extent it is approved by the Central Government is not chargeable to tax. The only aspect to be now seen is as to whether the payment of interest can now be considered as approved by the Central Government in the present case. The finding of the AO on this aspect is that there was no approval from Central Government obtained by the assessee and therefore the provisions of s. 10(15)(iv)(c) are not applicable at all. The CIT(A) decided this issue on a totally different angle altogether and did not consider this aspect. Before us at p. 12 of the assessee's paper book a letter of approval dt.3rd Nov., 2003is placed. This approval appears to be in relation to the payment of interest to the three foreign sellers of the three ships purchased by the assessee during the previous year. If the payment of interest by the assessee is within this limit then such interest is not chargeable income in the hands of the foreign seller and therefore provisions of s. 40(a)(i) of the Act will not apply. In the certification of the paper book it has been certified that the documents filed in the paper book were filed before the lower authorities. This is obviousl....