TaxTMI 
TaxTMI 
2008 (3) TMI 365
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....rned Departmental Representative again placed his reliance on the decision of the Delhi Bench of this Tribunal in the case of Asstt. CIT vs. K.S. International (2007) 293 ITR 39 (Del)(AT) and submitted that the Delhi Bench held that profit from Duty Entitlement Passbook Scheme is not derived from industrial undertaking. The learned Departmental Representative also placed reliance on the judgment of the Punjab & Haryana High Court in the case of Liberty Shoes Ltd. vs. CIT (2007) 207 CTR (P&H) 181 : (2007) 293 ITR 478 (P&H). and submitted that profit derived from the business of trading of products of other concerns could not be held to be profits and gains derived from the industrial undertaking. 3. On the contrary, Shri C.N. Prasad, learned counsel for the assessee, submitted that the assessee, in the course of its manufacturing activity, undertakes contract manufacturing by using its own machinery and other facilities with the raw material supplied by third parties. Therefore, according to the learned counsel, the assessee undertook manufacturing activity by utilising the material supplied by third parties and derived income in the process of manufacturing activity. Therefore, ac....
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..... Admittedly, the assessee received conversion charges and other income and claimed deduction under s. 80-IB. The AO found that the receipts are only incidental or ancillary to the business of the assessee and they are not directly derived from the business of the assessee and, therefore, they are not eligible for deduction under s. 80-IB. The AO referred to the judgment of the apex Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). On appeal by the assessee, the CIT(A) found that the assessee manufactured pharmaceutical formulations and also undertook contract manufacture by using its own machinery and other facilities. The CIT(A), after referring to the judgment of the Madras High Court in the case of Rane (Madras) Ltd., the Bombay High Court in the case of CIT vs. Bangalore Clothing Co. (2003) 180 CTR (Bom) 127 : (2003) 260 ITR 371 (Bom), and the Gujarat High Court in the case of Harjivandas Juthabhai Zaveri & Anr., found that the conversion charges received by the assessee were derived from the industrial undertaking and, therefore, eligible for deduction under s. 80-IB. 5. The question that requires to be considered is whether the a....
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....nder s. 80HHC(3) of the IT Act. The apex Court, after examining the provisions of s. 80HHC(3), found that the processing charges, which were part of the gross total income, were an independent income like rent, commission, brokerage, etc. Therefore, 90 per cent of the same has to be reduced from the gross total income to arrive at the business profit. The apex Court further found that the receipts constituting independent income and having no nexus with export income were required to be reduced from the business profit under Expln. (baa). In view of the above judgment of the apex Court, the receipts which do not have any nexus with the exports have to be considered as miscellaneous income and 90 per cent of the same has to be reduced from the business profit in view of Expln. (baa) to s. 80HHC. Sec. 80HHC provides for deduction in respect of income derived from export of goods or merchandise. Since the processing charges do not have any nexus with export activity, the apex Court held that it constitutes an independent source of income. From the above judgment of the apex Court in the case of K. Ravindranathan Nair, it is obvious that the income shall be derived from export of goods....
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....ee manufactured and processed raw material supplied by third parties in its own undertaking by utilising the same machinery and labour. Therefore, there was direct nexus. 9. In view of the above discussion, we do not find any infirmity in the order of the lower authority. Accordingly, we confirm the same. 10. The next issue that arises for consideration is profit on sale of scrap for the purpose of deduction under s. 80-IB. We have heard the learned Departmental Representative and the learned counsel for the assessee. The learned Departmental Representative placed his reliance mainly on the judgment of the Madras High Court in the case of Shiva Distilleries Ltd. We have carefully gone through the judgment of the Madras High Court in the case of Shiva Distilleries Ltd. The issue that arose for consideration before the Madras High Court is regarding deduction under s. 80HHC. The Madras High Court found that scrap and waste material generated during the course of manufacturing activity cannot form part of the total turnover for the purpose of computing deduction under s. 80HHC. The Madras High Court placed reliance on the earlier judgment in the case of CIT vs. Madras Motors Ltd. (2....