TaxTMI 
TaxTMI 
2009 (10) TMI 577
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....ndertaking ? 2. Whether the Income-tax Appellate Tribunal was right in following its own decision in an earlier case, ignoring the principles laid down by the hon'ble Supreme Court in the above mentioned judgments, and the decision of different High Courts relating to various incentive incomes rendered on the basis of these principles, by merely observing that the issue has not been decided by the jurisdictional High Court of Himachal Pradesh or by the apex court ?" 2. The admitted facts are that in terms of incentives policy issued by the State of Himachal Pradesh to encourage the setting up of industries in remote areas has framed a scheme for grant of subsidy on the interest paid by the industrial undertaking. The question which arises is whether this interest subsidy is income derived from the business of industrial under-taking and can be included in the profits eligible for deduction under section 80-IB of the Income-tax Act, 1961. 3. Learned counsel for the parties has cited a number of authorities before the court. The basic authority on the point is CIT v. Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84 (SC). In that case, the ape....
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....ributable" has a wide meaning and concluded that the profits from sale of imported spare parts were attributable to the priority industries. 6. In CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 (Mad), a Division Bench of the Madras High Court dealt with the question as to the gains eligible for deduction under section 80HH of the Income-tax Act. In that case, the assessee was required to make a deposit before the Electricity Board before power supply was given to it. The assessee earned interest on this deposit. The question was whether this deposit is an income derived from an industrial undertaking to be eligible for relief under section 80HH. After analyzing the entire case law, the Madras High Court held as follows (page 506) : "A study of various case law clearly indicates that a restricted meaning is given when the Legislature uses the expression, `derived from'. Though the assessee has necessarily to make the deposit with the Electricity Board for running the industry and the power supply will not be made without the deposit in favour of the Electricity Board, the income derived from the deposit with the Electricity Board cannot be said to have been derived fr....
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.... subsidy is the scheme framed by the Government and not the business of the industry and therefore the same cannot be said to be derived from the business of the assessee. 9. In CIT v. Andaman Timber Industries Ltd. [2000] 242 ITR 204 (Cal), the assessee had claimed the benefit of section 80HH on profits and gains derived from the industrial undertaking and had included the amount paid to it under the transport subsidy scheme. The Calcutta High Court referred to the judgment of the apex court cited hereinabove and held that the transport subsidy is not derived from the activity of the industrial under-taking though it may be attributable to it and therefore cannot be said to be treated as parts of the profits and gains derived from the industrial undertaking. 10. The relevant portion of the judgment reads as follows (page 207) :"The limited question for our consideration is whether the amount of transport subsidy is a profit for the purpose of deduction under section 80HH of the Income-tax Act. As referred to above, their Lordships in their latest decision in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC), had made a distinction between the words `der....
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.... It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-sections (3) to (11A) [as they stood at the relevant time]. One more aspect needs to be highlighted. Each of the eligible business in sub-sections (3) to (11A) constitutes a standalone item in the matter of computation of profits. That is the reason why the concept of `Segment Reporting' stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). 14. Analysing Chapter VI-A, we find that sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for `computation of profits of the eligible business'. It is evident that section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words `derived from' is narrower in connotation as compared to the words `attributable to'. In other words, by using the expression `derived from', Parliament intended to cover sources not beyond the first degree. In the present batch of cases, th....