TaxTMI 
TaxTMI 
2007 (6) TMI 303
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....es to the computation of deduction under section 33AC. For the sake of reference we take up the facts for the assessment year 1997-98 in ITA No. 8045 of 2003 in which the assessee, claimed deduction under section 33AC on interest income and miscella-neous income amounting to Rs. 1,22,630 besides other business income of operation of ships. The Assessing Officer disallowed the deduction under section 33AC on this interest income and miscellaneous income and reduced the claim of deduction from Rs. 82,40,660 to Rs. 81,79,345. While disallowing the claim of the assessee, the Assessing Officer observed that interest income and business income was not derived from the operation of ships. The assessee preferred an appeal before the CIT(A) but could not find favour with him. He has disallowed the claim of the assessee following the judgment of the Apex Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579^1. 5. Now the assessee is before us with the submissions that interest was generated on FDRs purchased for business purposes and likewise the miscellaneous income, i.e., insurance claim and sale of scrap was also generated during the course of business of operation of ships. He....
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....h regard to the interest earned on FDRs. If the FDRs are purchased to obtain the credit limit or on account of business exigencies the interest generated thereon certainly be business income and is eligible for deduction under section 33AC. In case surplus funds were put in FDRs and interest was generated thereon that interest income would not qualify to business income of the assessee and also would not be eligible for deduction under section 33AC of the Act. So far as sale of scrap is concerned it is certainly generated during the course of business of operation of ships. Sale proceeds of it will certainly be an income derived from the business of shipping operation and, as such, eligible for deduction under section 33AC of the Act. Since the relevant information with regard to insurance claim and interest earned on FDRs are not available on record we restore the matter to the file of the Assessing Officer to readjudicate the issue in terms indicated above. If he comes to the conclusion that the insurance claim and interest on FDRs were received during the course of business of shipping operation of the assessee, deduction be allowed otherwise it would be treated as income from o....
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.... [2001] 251 ITR 806 and Gujarat High Court in the case of CIT v. J.B. Kharwar & Sons [1987] 163 ITR 394 . Contentions of the assessee was thoroughly examined by the Assessing Officer and he finally concluded that the meaning of industrial undertaking imparted in Explanation 1 to section 10(15)(iv)( i) and section 80-IA bear different context and significance. He, accordingly disallowed the claim of the assessee. Relevant observations of the Assessing Officer are extracted here as under:- "Before going into merits and demerits of allowability of deductions, I feel it is necessary and expedient to go through the relevant statute. For the sake of conveyance and better understanding the relevant provisions of section 35D are reproduced below : 35D. Where an assessee being an Indian company by or person (other than a company) who is resident in India incurs, after 31st day of March, 1970 any expenditure specified in sub-section (2)- (i )before, the commencement of his business or (ii)after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting of a new industrial unit....... the assessee shall, in....
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....ut by the application of process takes the commodity to a point where, commercially speaking, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of processes. An industry can be engaged in processing of goods. The Supreme Court had held in the case of Delhi Cold Storage ( 199 ITR 660 ) that processing is understood as an action which bring forth some change or alteration of the goods or material which is subjected to the act or processing. Under the provisions of section 35D in case an Indian Company makes a public issue of debenture after commencement of its business, then in order to determine the previous year in which the deduction is to be first allowed, one has to ascertain the year in which the extension of industrial undertaking is completed or the new industrial unit commences production or operation. Whether it is undertaking or a unit it has to be "Industrial Undertaking" or "Industrial Unit" and it is the date of completion of extension of industrial unit which is relevant for the purpose of section 35D. When the Indian Company which is carrying on business of operation of s....
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....d 19-11-1998, Tolani Ltd. assessment year 1995-96 Appeal No. CIT(A)XIV/DCSR.31/IT 43/98-99 dated 18-1-1998 and Tolani Shipping Co. Ltd. assessment year 1995-96 appeal No. CIT(A)/DCSR/31/IT 156/97-98 dated 18-11-1998. The assessee's objection regarding reopening of the issue of disallowance under section 35D, which has already been decided by the Assessing Officer in the order passed under section 143(3) on the basis of changing of opinion is not acceptable on the basic premises that the purpose of section 147/148 are to protect the interest of revenue. Any escapement of income, be it on the part of the assessee or on omission on the part of the department, it noticed within the valid time limit, irrespective of the fact that whether order has been passed summarily under section 143(1) or in a scrutiny assessment under section 143(3) of the Income-tax Act can be brought to tax. As regards assessee's contention that disallowance under section 35D could not have been made as the shipping business is an industrial undertaking, the same is not tenable. The definition, which has been cited by the assessee, in Explanation 1 to section 19(15) of the Income-tax Act, is inclusive and has ....
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....e learned DR, on the other hand, submitted that definition of industrial undertaking given in Explanation 1 to section 10(15) of the Act has its restrictive meaning only for the purposes of the sub-clause (15). Explanation 1 starts with the words "for the purpose of this clause" meaning thereby Industrial undertaking is defined only for the purpose of section 10(15) and its meaning cannot be stretched or extended to define the words 'industrial undertaking' for the purpose of other sections of the statute. The learned DR has invited our attention to provisions of section 80-IA in which Legislature has allowed deduction not only to industrial undertakings but also to hotels, operation of ships or developing, maintain-ing and operations infrastructural facilities or scientific and industrial research and development or providing telecommunication services. Had the definition of industrial undertaking include the operation of ships, there would have been no need to include 'operation of ships' while allowing deduction under section 80-IA. Business of operation of ships was considered to be independent business excluding industrial undertaking. The learned DR further invited our attent....
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....of undertaking as operation of ships while allowing deduction of profit derived from that undertaking. If every time the meaning of industrial undertaking is the same, the Legis-lature could have defined industrial undertaking at one place in the Act and thereafter they simply used the words 'industrial undertaking' in any of the section where they want to give the benefit to industrial undertak-ing. But that is not the case. In the absence of specific definition of industrial undertaking we have to go with the plain definition of industrial undertaking. Under section 80-IA(12) industrial undertaking has not been specifically defined but it has adopted the meaning assigned to it in Explanation to section 33B of the Act. In Explanation to section 33B industrial undertaking is defined and it means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. This definition of industrial undertaking is adopted by other provisions of the Act where deductions are allowable to the assessee under sections 80-I, 80HH, 80-IA and 80-IB.....
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....h is mainly engaged in the business of generation of or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. We, therefore, do not find any merit in the arguments of the assessee. 16. We, however, carefully examined the order of the lower authorities in this regard and we find that they have given valid reasons for treating business of operation of ships not to be an industrial undertaking. We therefore find no infirmity in the order of the CIT(A) and we confirm the same. 17. Next issue relates to deduction under section 80-IA or 80-IB in the light of deduction claimed under section 33AC of the Act. The assessee has claimed deduction under section 80-IA or 80-IB in respect of those barges for which separate profitability statement was filed. Assessing Officer disallowed the claim of the assessee and according to him deduction under section 80-IB is governed by provisions of section 80AB and therefore while computing deduction under section 80-IB deductions falling under Chapter IV-D would be first deducted to arrive at the gross total income and thereafter deduction under section 80-I....
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....(VI-A) the amount of income should be first computed in accordance with the provisions of the Act before allowing the deduction under this chapter and balance income would only be entitled to be considered for allowing the deduction under this chapter. In view of overriding clause in terms of section 80AB, the deduction under section 80-IB income should be first computed as per the provisions of the Act and after computing the income as per the provisions of the Act (Before allowing deduction under Chapter VI-A) the deduction under Chapter VI-A should be computed. Thus considering this fact I am not inclined to accept the argument of the appellant. As regards the judgments relied upon they are not of any avail to the appellant. The judgment of Apex Court relied upon is distinguishable of facts whereas the judgments of Bombay and Kerala High Courts relied upon are in respect of section 80HHC where it has been held that the provisions of section 80HHC is a different code by itself and as such the provisions of section 80AB would not be applicable, more particularly because the language used in section 80HHC does not include deduction from gross total income. However the Bombay High C....
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....ome. If that be the case, deduction under section 33AC is to be allowed first and deduction under section 80-IB is to be computed on the reminder. The judgment of the jurisdictional High Court in the case of Shirke Construction Equipments Ltd. (supra) referred by the assessee has been overruled by the Apex Court in CIT v. Shirke Construction Equipments Ltd. [2007] 291 ITR 380 and also in the case of Ipca Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521 in which it has been held that the provision of section 80HH is also governed by other provisions of Chapter VI-A, i.e., sections 80A and 80AB. In the light of the judgment of the Apex Court deductions are to be computed as per Chapter VI-A of the Act. In the light of these judgments we do not find any infirmity in the mode of computation adopted by the lower authorities. We, however, of the view that loss suffered by any of the barge will not be adjusted/set off against the profit earned by other barges which is eligible for deduction under section 80-IB if the accounts are separately main-tained but total deduction under this chapter should not exceed the gross total income of the assessee as held in Synco Industries Ltd. v. Assessing....