TaxTMI 
TaxTMI 
2017 (12) TMI 129
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....ctric meters. It claimed the benefit of Section 80-IC of the Act. The Assessing Officer noted that the assessee had earned a net profit of Rs. 54,31,995/- and the entire amount was allowed as deduction under Section 80-IC of the Act. The Commissioner of Income Tax initiated proceedings under Section 263 of the Act. After show cause and opportunity to the appellant, the order came to be interfered with on the following reasoning: It was found that the assessee earned an amount of Rs. 22,29,129/- from bank interest apparently out of Rs. 54,31,995. Though claimed as the business income by appellant, the same was actually earned by the appellant by way of interest on fixed deposits, which the appellant had to maintain for the purposes of the Bank issuing a Bank Guarantee for carrying on the business, according to the appellant, to provide for the performance guarantee. The Commissioner took the view, after noting the judgments of the Hon'ble Apex Court in the cases of Cambay Electrical Supply Co. Ltd. vs. Commissioner of Income Tax, Gujarat II reported in 1978 (113) ITR 84 and Pandian Chemicals Ltd. vs. Commissioner of Income Tax reported in (2003) 262 ITR 278 (SC) that there is a d....
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....he appellant. Therefore, it entitled the appellant to deduct the entire amount of interest under Section 80-IC. He would submit that the decisions of the Hon'ble Apex Court in Cambay Electrical Supply Co. Ltd. vs. Commissioner of Income Tax, Gujarat II reported in 1978 (113) ITR 84 and Pandian Chemicals Ltd. vs. Commissioner of Income Tax reported in (2003) 262 ITR 278 (SC) will not apply. They were rendered under Section 80HH. There is a distinguishing feature in Section 80-IC of the Act, which would render the decisions inapplicable. In this regard, he would point out the difference in language of Section 80HH and Section 80-IC. We may only extract sub-sections (1) of Section 80HH and 80-IC. They read as follows: "80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.-- (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a dedu....
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....ITR 278 (SC). 11. Firstly, we would refer to the judgment relied on by the appellant in the case of Commissioner of Income Tax vs. Karnal Co-operative Sugar Mills Ltd. reported in (2000) 243 ITR 2 (SC). As it is a short judgment, we would think that it would be profitable to advert to the same as it is: "1. Leave granted. 2. In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT (1997) 227 ITR 172 (SC) will not be attracted. The more approp....
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....ssment was framed under Section 143(3) on 29th March, 2006 determining the total income at Rs. 16,38,039/-. The assessing officer treated the amount of interest income which had been set off against the project expenses as income from other sources and disallowed the same to be set off against the cost incurred on the project expenses. It is not in dispute that the assessee had furnished performance guarantee in favour of NHAI to get the contract awarded in its favour and to procure the said guarantee, it had kept the amount in a fixed deposit in the bank. The project was on BOT (Build-Operate-Transfer) basis where the promoters were required to bring in their own funds along with borrowed funds from bank/financial institutions for construction of the project. It is contended that the furnishing of bank guarantee had direct nexus with the carrying on of the project and, therefore, the said set off deserved to be allowed. 6. Being dissatisfied with the order passed by the first appellate authority, the assessee preferred an appeal before the tribunal and the tribunal took note of the rivalized submissions and came to opine that the assessee had received interest on the FDRs....
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....s kept in the bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. Therefore, we are disposed to think that the factual matrix is covered by the decisions rendered in Bokaro Steel Ltd. (supra), Karnal Co-operative Sugar Mills Ltd. (supra) and Koshika Telecom Ltd. (supra) and, accordingly, we hold that the view expressed by the tribunal cannot be found fault with." 15. No doubt, Mr. (Dr.). Kartikey Hari Gupta, learned counsel for the appellant would point out with reference to the contents of Paragraph No. 6 that as in the said case, in this case also, the fixed deposit had intrinsic and inseggregable nexus with the work undertaken. We notice that it was not a case of deduction of the income under Section 80-IC or even Section 80HH of the Act. On the other hand, the question was, whether the interest, which was earned, could be set off against the expenses, which were incurred. It is here that the Tribunal's findings came to be noted by the Hon'ble Apex Court, namely, that the interest was capital in nature and it would go against the project expenditure and the same could not be treated as income from other sources. We would, therefore....
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.... we find that that also deals with Section 80HH of the Act and does not lay down any principle different from Sterling Foods. In fact, in Pandian Chemicals reliance has been placed on Cambay Electric Supply Industrial Co. Ltd. and the decision seems to suggest, as we have held above, that the expression 'derived from an industrial undertaking' is a step removed from 'the business of the industrial undertaking'." 17. Therefore, in fact, the Bench distinguished the Hon'ble Apex Court's ruling in the case of Pandian Chemicals Ltd. vs. Commissioner of Income Tax reported in (2003) 262 ITR 278 (SC), which we will advert to, on the score that the language of Section 80HH differs from the language of Section 80-IB. In short, Section 80-IB permits deduction in respect of income from any business whereas under Section 80-IC, the income is to be derived from the business. 18. The next judgment is the judgment of the Bombay High Court in the case of Commissioner of Income Tax vs. Jagdish Prasad M. Joshi reported in (2009) 318 ITR 420 (Bom). There also, the Court was concerned about deduction under Section 80-IA. There, the Court also noted the distinction between the lan....
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....y Co. Ltd. vs. Commissioner of Income Tax, Gujarat II reported in 1978 (113) ITR 84 and ending with the case of Pandian Chemicals Ltd. vs. Commissioner of Income Tax reported in (2003) 262 ITR 278 (SC) for the purpose of our narrative can be relied on. In the case of Pandian Chemicals Ltd. vs. Commissioner of Income Tax reported in (2003) 262 ITR 278 (SC), we notice that the matter was under Section 80HH. Therein, the question arose in the following factual matrix: The assessee had earned interest on deposits, which it had made with the Tamil Nadu Electricity Board. We have already noticed the language of Section 80HH. The Court proceeded to hold as follows: "4. Section 80HH of the Income-tax Act grants deduction in respect of profits and gains "derived from" an industrial undertaking. The contention of the appellant before us is that interest earned on the deposit made with the Electricity Board for the supply of electricity to the appellant's industrial undertaking should be treated as income derived from the industrial undertaking within the meaning of Section 80HH. It is submitted that without the supply of electricity the industrial undertaking could not run an....
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....respect to those decisions to hold that they do not in any way allow the word "derived" in Section 80HH to be construed in the manner contended by the appellant. 8. The learned counsel for the appellant then contended that having regard to the object with which Section 80HH was introduced in the statute book, this court should give a liberal interpretation to the words in a manner so as to allow such object to be fulfilled. The rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing any rule of interpretation as submitted by the appellant. In the circumstances of the case, we affirm the decision of the High Court and dismiss the appeal without any order as to costs." 20. We would think that the decision, which would apply in the facts of this case, is the decision in the case of Pandian Chemicals Ltd. vs. Commissioner of Income Tax reported in (2003) 262 ITR 278 (SC), as the language, which is employed in Section 80HH is similar to the language used in Section 80-IC. Both in Sections 80HH and 80-IC, the Legislature has chosen to employ the word "der....
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.... structure;]" 22. An argument was raised by the learned counsel for the appellant that after the matter was remitted back, in the assessment order passed afresh by the Assessing officer, it is stated as follows: "6. In view of the above facts it is obvious that the interest income of Rs. 22,29,129/- is brought to tax under the head "Income from Business and profession" being incidental income attributable to business but cannot be said to have been derived from the business of the manufacturing activities of the assessee. Therefore, interest income of Rs. 22,29,129/- is taxed under the head "Income from business and profession" but deduction U/s 80IC is not allowed and the same is added to the total income of the assessee." 23. He would therefore submit that the Assessing Officer has found merit in the contentions of the appellant that the income earned by way of interest actually qualifies as business income and therefore, he relies on the said paragraph. 24. We are afraid that the said contention is misplaced. What the Officer has stated is only that it is treated as a business income, which means that it would be income under Section 28 of the Act, but he has b....