TaxTMI 
TaxTMI 
2003 (3) TMI 318
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....es incurred on employees accompanying guests also as coming within purview of the disallowance under section 37(2A)." After hearing both the sides and going through the record, we direct the Assessing Officer to consider the disallowance under section 37(2A) after allowing 2096 on account of employees participation as being done in similar type of other cases and allow necessary relief to the assessee. 4. Ground Nos. 3 and 4 read as under: "3. The learned CIT(A) erred in not allowing 80-I relief in respect of income earned from erection, installation and after sales service activity of the company, which activity is very much part and parcel of industrial undertaking. This activity is inseparable from industrial undertaking. He ought to have followed the ratio of following court cases: (a) Cambay Electric Supply Co. v. CIT (113 ITR 84) (b) Buckau Wolf v. CIT (l50 ITR 180 (Bom.)); 4. The learned CIT(A) also erred in not allowing 80-I relief in respect of interest earned, which is part of business income. In fact the CIT(A) erred in treating the interest income as income earned from investments. However, the interest earned is mostly for the interest charged to the ....
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....arned from erection, installation and after sales service activities of the assessee-company, which is the activity stated to be very much part and parcel of industrial undertaking, is inseparable and assessee is entitled to relief. Similarly, interest earned which is mostly for the interest charged to customers for late payment of bills is a part of business income, for the purpose of section 80-I which has not been allowed by the Assessing Officer. Therefore, while following decision of the Calcutta High Court in CIT v. Flender Macheill Gears Ltd. [1984] 150 ITR 83 it was pleaded for allowing the relief. Similarly, it was pleaded that the interest is also derived from industrial undertaking and hence eligible for deduction under section 80-I. 7. The learned D.R. while relying on the basis and reasoning as given by the authorities below pleaded for confirmation of the impugned order. It was also submitted that the assessee is manufacturing and selling generating sets and at the option of purchaser, the assessee also provides erection, installation and after sales service to such customers who intend to get such services. Since assessee's counsel has himself admitted that even s....
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....p; ----------------- Rs. 60,01,904 ----------------- The Assessing Officer called for further details in respect of these incomes. Dividend income has been derived on investment in shares. Other income is received from sale of scrap, discount is received on purchases, interest has been earned on bank deposits and deposits with IDBI, income f....
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....earned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression 'attributable to' and not the expression 'derived from'. Had the expression 'derived from' been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity, in this connection, it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression 'derived from', as for instance, in section 80J. In our view, since the expression of wider import, namely, 'attributable to' has been used, the Legislature intended to cover receipt from sources other than the actual conduct of the business of generation and distribution of electricity." 11. Similarly, Karanataka High Court in the case of Sterling Foods v. CIT [1984] 150 ITR 292 has discussed the expression 'derived from' and observed that expression 'derived from' has a definite but narrow meaning and it cannot receive a f....
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.... controversy in respect of claim of the assessee under section 80HH on the profit earned from sale of import entitlements against the assessee. 15. Now adverting to the issue in hand, we find that the claim of the assessee under section 80-I included charges for errection, installation, commissioning and after sales services and income from interest from bank and IDBI deposits and the Assessing Officer disallowed deduction under section 80-I on net profit as arrived at by the assessee on receipts from errection, commissioning, installation and after sales service charges besides interest income on bank and IDBI deposits as the assessee has failed to establish the alleged interest on delayed receipts of sale proceeds. In view of the ratio of the decisions as noted above and particularly of the Madras High Court decision in the case of Pandian Chemicals Ltd. in SLP has also been rejected as noted in the earlier part of order) this item of income could not be held to be derived from industrial undertaking as there is no direct nexus between the income earned and industrial undertaking and moreover, it is found that industrial undertaking is not immediate and effective source of the....
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....cide the same in the light of the Supreme Court decision on the point. Needless to mention that the Assessing Officer will afford necessary opportunity of being heard to the assessee while readjudicating the matter. We hold and direct accordingly. 18. Ground No. 6 has not been pressed and hence the same is dismissed. 19. As a result, the appeal of the assessee gets partly accepted. Shri B.L. Chhibber, Accountant Member.--I have perused the above draft order. While deciding the issue, the J.M. has followed the decision of this Bench in the case of Vardhini Udyog in preference to the decision of this bench in the case of Jagdish Electronics P. Ltd. and Finolex Pipes Ltd. In this connection, I have to state that this very issue came up for consideration in the case of Kripa Chemicals P. Ltd. Pune in IT Appeal No. 531 (Pune) of 1995 and the following question has been referred to the President under section 255(4) of the Income-tax Act, 1961: "Whether, action in holding that interest income on FDRs is not eligible for deduction under section 80-IA and for that purpose, gross interest is excludible, is justified Or action in setting aside the issue and restoring it bac....
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.... And under the circumstances, I had to write dissenting order in this case and matter was referred to Third Member. 3. It is pertinent to state that you are party to the decision in the case of Vardhini Udyog and you yourself has also followed the said decision in subsequent case of the same assessee in ITA No. 908/PN/95 vide order dated 30-8-2001 (authored by you) in preference to earlier decisions of Jagdish Electronics P. Ltd. and Finolex Pipes P. Ltd. for the reasons given in those orders and it was held as under: "3. We have heard the learned D.R. We find that the issue stands covered against the assessee and in favour of the Revenue by our decision in assessee's own case for the assessment year 1991-92 in ITA No. 411/PN/95. For the detailed reasons given therein, we confirm the findings of the learned CIT(A) and decline to interfere. This ground accordingly fails. 4. In the result, the appeal is dismissed. Sd. &....
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....ated and carried on by two different persons. A statement to this effect was made by the learned counsel Shri S.N. Inamdar in the open Court. Further this is simply because manufacturer's warranty is involved. 3. It was never disputed before the Bench that the expression 'derived from' is narrower than the expression 'attributable to' But that did not mean that when ten activities are so inter-linked with an immediate, close and necessary nexus, that the entire activity of the undertaking which produces the profits and gains has to be regarded as one composite activity. 4. During the course of hearing before this Bench, Shri S.N. Inamdar, the learned counsel for the assessee, stressed by inviting attention to various purchase orders and invoices that the purchase orders themselves included the job of installation and commissioning for which billing was made along with the price of the equipment. 5. In response to a query from the Bench, it was also pointed out by the learned counsel that for the same capacity of gen-sets, erection charges were similar. This conclusively proved that erection activity was not undertaken as an independent and separate activity, but part of th....
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....n payment. According to him, it is very much part and parcel of the sale activity howsoever narrowly construed. 9. As regards interest on fixed deposits, Shri Inamdar submitted, firstly that the deposits only represent profits from the undertaking kept in normal banking channel and, secondly, such fixed deposits had to be kept with the bank as margin money to avail of credit facilities. They are inseparable part of the undertaking. In support of this contention, he relied upon the following decisions: (i) Flender Maneil Gears' case (ii) Pondincherry Distilleries Ltd. v. ITO [1984] 8 ITD 39 (Mad.) (iii) Jagdish Electronics (P.) Ltd. (iv) Finolex Pipes (P.) Ltd. (v) CIT v. Rane (Madras) Ltd. [1998] 148 CTR (Mad.) 404. 10. Shri Rajkumar, the ld. D.R. relied upon the order of the ld. CIT(A) and maintained that the interest income is not derived from industrial undertaking and hence not eligible for deduction under section 80-I. 11. I have considered the rival submissions and have perused the facts on record. I have gone through the details of interest. As regards the interest charged to customers for late payment of sale price, I agree with the learned counsel t....
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....d 4 in the absence of specific agreement of other Member can be taken as decision of the Bench or not? ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 U.B.S. Bedi, J.M.--As there is difference of opinion between the Judicial Member and the Accountant Member, the matter is being referred to the President of the Income Tax Appellate Tribunal with a request that the following questions may be referred to a Third Member or to pass such orders as the President may desire: (i) Whether on the facts and circumstances of the case the assessee is entitled to relief under section 80-I of the Act in respect of the income earned from erection, installation and after sales activities of the Company? (ii) Whether on the facts and circumstances of the case the interest charged to customers for late payment of sale price, is business income and hence the assessee is entitled to relief under section 80-I of the Income-tax Act in respect of such interest? (iii) Whether on the facts and circumstances of the case the Accountant Member is right in remanding the issue to the file of the Assessing Officer in respect of interest on fixed deposits with the direction that the Assessing ....
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....express my opinion on the following question:-- "Whether in view of the facts and circumstances of the case, the order of the CIT(A) with respect to non-allowability of deduction under section 80-I with respect to items indicated by him can be confirmed as held by the JM or the issue is liable to be set aside to be decided afresh by the Assessing Officer as per directions issued by the AM?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. The assessee is manufacturer of machinery. It was stated by Shri Inamdar that the assessee undertakes to install and commission the machinery as part of purchase order. The price is indicated separately for machinery and installation. The sale price is shown as sales and charges for installation & commissioning is shown as income from services rendered. During the relevant assessment year the Assessing Officer denied the deduction under section 80-I of the Income-tax Act, 1961 (hereinafter called the Act) in respect of the following:-- (i) Service charges for erection and commissioning of machinery. (ii) Interest received from customers for delayed payment. (iii) Interest re....
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....ey which brought the property. You would not say, if you were talking of a horse. You had bought, that you derive your interest in that horse from the horse dealer. You would say you bought it with your money. 8. It is therefore evident that the term "derive" connotes to draw or receive, or obtain as from a source or origin. The deduction under section 80-I of the Act is to be allowed with reference to the profits and gains derived from an eligible industrial undertaking. The expression "derived from" has a definite, but narrow meaning and it cannot receive a flexible or wider concept. If a word or expression has received judicial interpretation by the highest Court and thereafter it is found to have been used in the legislative enactment, it must be presumed that the Legislature must have used that word a expression with the same meaning as judiciously determined unless the context apparently requires any other meaning. 9. The next word, which is important to understand the implication of the section, is "manufacture". The word "manufacture" is a compound word of Latin on in derived from the words "manu", by hand and "facere", to do, to make, to form. But the meaning is not ....
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.... "any income derived therefrom", meaning thereby obviously for marketing of commodities by letting out of godowns or warehouses for storage, processing or facilitating the same. If the letting out of god owns or warehouses is for any other purpose, the question of exemption would not arise. Section 10(29) of the Act is categorical in its language and this exemption is applicable only in the circumstances as envisaged under the section. The word "any income" as appearing in the body of the statute is restrictive in its application by reason of the user of the expression "derived from': If the Legislature wanted an un-restrictive exemption the same has used "any income" without any restriction so as to make it explicit that the entire income of the assessee would be exempt. Having due regard to the language used, the question of exemption would arise pertaining to that part of the income only which arises or is derived from the letting of god owns or the warehouses and for the purposes specified in the section. The Hon'ble Supreme Court has further held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words o....
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....de at a loss, the assessee was rewarded with import entitlements. It utilised the import entitlements in purchasing palm oil from foreign countries. The imported palm oil was consumed internally by the assessee for manufacturing other products. The contention of the assessee was that the oil, which was purchased by the assessee from foreign countries on the strength of the import entitlement, was at a rate much lower than the rate obtaining in the Indian market for similar products. Since the assessee paid a lower price for the imported palm oil, the assessee made a larger profit than it would have made had it purchased palm oil locally at a higher rate. The assessee, therefore, claimed that it would be entitled to the benefit of section 2(5)(i) of Finance (No.2) Act, 1962, in respect of the amount of profit it made in excess of what it would have otherwise made, if it had to buy palm oil locally. Under the provisions of section 2(5)(i), an assessee whose "total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction from the amount of income-tax and super tax with which he is chargeable at the specifi....
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.... the Hon'ble High Court has held that profits from matching charges for repairs to machinery and interest on unpaid sale proceeds of machinery are attributable to priority industry. These were held eligible for deduction under section 80-I of the Act. The Court held that carrying out of repairs to machinery manufactured and sold by the assessee was an activity, which had a direct nexus to the priority industry. This decision was rendered when the word used in the statute was "attributable to" and not "derived from". Direct nexus is necessary only when the requirement of the section is that income must be attributable to Integrated and connected activities find no place where the term used is "derived from". As such, this decision is of no relevance to decide the present issue. 20. Next reliance was placed on the decision of the Apex Court rendered in the case of Cambay Electric Supply Industrial Co. Ltd. In this case it is clearly laid down that the legislature has deliberately used the expression "attributable to", having a wider import than the expression "derived from", thereby intending to cover receipts from sources other than the actual conduct of the business of the speci....