TaxTMI 
TaxTMI 
2001 (9) TMI 84
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....ion of Rs.1,64,307 under section 80-1 of the Act in respect of limestone raised by it from its own quarries, taking the plea that the limestone is an item included in the Sixth Schedule to the Act as a priority industry. The Assessing Officer rejected the claim on the ground that the assessee was not engaged in the business of manufacturing or production of any of the articles mentioned in the Sixth Schedule. It was noted that up to the assessment year 1971-72, the Sixth Schedule specified both limestone as well as cement as priority industries amongst others, and therefore, the benefit of section 80-1 of the Act was available both for limestone and cement. The article "cement" was, however, omitted from the said Schedule with effect from the assessment year 1972-73, but 'limestone" was retained. On appeal by the assessee, the Appellate Assistant Commissioner (in short, "the AAC") accepted the assessee's stand. It is to be noted that before the said authority, the assessee's stand was that it had maintained analytical accounts for limestone production, the language used in the relevant provisions speaks of business of production of limestone and not of business in or of limestone a....
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....with and subject to the provisions of this section, a deduction from such profits and gains of an amount equal to five per cent. thereof, in computing the total income of the company. (2) This section applies to a domestic company, save in a case where such company is a company which is referred to in section 108 and has a gross total income of fifty thousand rupees or less. (3) Where a company to which this section applies is entitled also to the deduction under section 80H, the deduction under sub-section (1) of this section shall be allowed with reference to the amount of the profits and gains attributable to the priority industry or industries as reduced by the deduction under section 80H in relation to such profits and gains." Since section 80B(7) of the Act, which reads as follows, also throws some light on the issue, same is quoted. "(7) 'priority industry' means the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule or the business of any hotel where such business is carried on by an Indian company a....
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....the income must be directly connected with manufacture or processing of goods. It is also necessary that a material part of the said income should have been earned by that activity." Though the decision was rendered in the background of section 104(4) of the Act, yet the principles are fully applicable and in fact there is no dispute on this score. In Vellore Electric Corporation's case [1997] 227 ITR 557, the view was reiterated by the apex court in the following words: "The position that emerges from these decisions is that profits and gains can be said to be attributable to the priority industry under section 80-1 if there is a direct and proximate connection between the profits and gains and the business of the priority industry. In this context, reference may be made to the recent decision in India Leather Corporation Pvt. Ltd. v. CIT [1997] 227 ITR 552 (C.A. No. 292 of 1982, decided on April 30, 1997), and this court, while construing the words 'income attributable to any of the aforesaid activities' in section 104(4) of the Act, has said: 'In order that income can be said to be attributable to manufacture or processing of goods for the purpose of Explanation to s....
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.... cement was lime and not limestone. But a thin distinction was sought to be made by submitting that lime is a derivative of limestone and merely because the assessee's activities were quarrying of limestone that does not take away the direct link necessary for bringing the relief within the umbrella of section 80-1 of the Act. Strong reliance is placed on a decision of the Calcutta High Court in CIT v. Sutna Stone and Lime Co. Ltd. [1982] 138 ITR 37. It is submitted that the said case related to lime and limestone, and therefore, is fully applicable to this case. Though on a surficial reading, the argument appears to be attractive, as the decision itself shows that the High Court took note of the factual conclusions recorded by the Tribunal and on the facts held that lime and limestone come out from the same process and if lime does come out of an integrated process or production or manufacture of limestone, then the profits derived from such production of lime could be said to be attributable to the production or manufacture of the things or articles mentioned in item 3 of the Sixth Schedule. Item 3 of the Sixth Schedule reads as follows : "THE SIXTH SCHEDULE 3. Coal, lignit....