TaxTMI 
TaxTMI 
2019 (4) TMI 1676
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.... industrial undertaking engaged in the manufacture and sale of Pig Iron ? 3. Some of the relevant facts, for the purpose of deciding this Tax Appeal. are as under : (A) The Assessee had filed its original return of income for the assessment year under appeal on 30 October 2004, declaring a total income of 20,79,53,900/- based on the profit Rs. as per its accounts for the year ended 31st March, 2004. (B) On 6 January 2006, the Assessee filed revised return under Section 139(5) of the Act to claim deduction under Section 80-IB for one of its industrial undertakings of Rs. 5,74,90,089/- which industrial undertaking was engaged in manufacture of Pig Iron. The Assessee placed reliance on an audit report from a Chartered Accountant in this connection and furnished a copy thereof, along with revised return, as required under Section 80-IB (13), read with Section 80-IA(7) of the Act. (C) On 29 December 2006, the Assessing Officer completed the assessment under Section 143(3), read with Section 147 of the Act and in determining the total income in the said assessment, computed the deduction under Section 80-IB of the Act only on the profits arising from sale of....
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....or deduction with reference to "profits and gains derived from the business". The Tribunal also held that the meaning of the words "derived from" is much narrow, compared to the meaning of the words "attributable to". The learned counsel submitted that the Tribunal did not go into the question as to whether the profit from the sale of by-product of an industrial undertaking could be considered as "profit derived from the business" of the industrial undertaking. 5. It is submitted by the learned counsel that the Tribunal could not have rejected the submission that the by-product and primary product are integral part of one productive activity of an industrial undertaking and, thus, the profit from sale of by-product ought to have been considered as part of the profit derived from the business of an industrial undertaking. He submits that the manufacture of Pig Iron and generation of slag is the process, which is integrated and composite part of one productive activity of the undertaking manufacturing pig iron. The Tribunal thus ought to have held that the profit from sale of slag was a part of the profit derived from the business of the industrial undertaking manufacturing pig ir....
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....tions 80-IB and 80-IA it becomes clear that any industrial undertaking which becomes eligible on satisfying sub-Section (2), would be entitled to deduction under sub-Section (1) only to the extent of profits derived from such industrial undertaking after specified date. 9. It is submitted that the Tribunal could not have distinguished the Judgment of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra). It is submitted that that the Pig Iron itself is generated by process of manufacturing. Slag is a by-product and is also generated while manufacturing Pig Iron. Slag goes with Pig Iron. Since the slag itself is generated from the first degree source, the Assessee was eligible for deduction under Section 80-IB in respect of the profit earned from sale of such slag generated from the first degree source. 10. The learned counsel for the Assessee placed reliance on the Judgment in the case of CIT vs. Vidyut Corporation, 324 ITR 221 (Bom). He would submit that the Judgment of the Supreme Court in the case of Liberty India and ors vs. CIT (supra) has been followed by this Court in the said Judgment. This Court has considered the issue, "....
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....e Ltd. (supra), are correct and does not warrant any interference. 13. The learned counsel placed reliance on the following Judgments in support of contention that the slag generated out of the manufacturing activity, if any, was not eligible for deduction under Section 80-IB of the Act : (I) Judgment of the Madras High Court in the case of M/s. Computer Graphics Limited vs. The Assistant Commissioner of Income Tax Company Circle IV(2), (2006) 285 ITR 84 ; (II) Judgment of the Himachal Pradesh High Court in the case of Mrs. Poonam Arora vs. Income Tax Officer and others, 2009 Supreme (HP) 852 ; and (III) Judgment of the Madras High Court in the case of M/s. India Cine Agencies vs. The Commissioner of Income Tax, 2002 Supreme (Mad) 1105. 14. Mr. Ramani, learned counsel for the Assessee distinguished the Judgment cited by the learned counsel for the Revenue on the ground that none of those Judgments applies to the facts of this case. In none of those Judgments, the issue was as to whether the slag generated out of manufacture of Pig Iron would be eligible for deduction under Section 80IB of the Act or not ? 15. The learned counsel for the As....
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....ions, namely :- (i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular undertaking; (ii) where it is an industrial undertaking being a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant [not specified in subsection (4) or sub-section (5)] at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, [2002]. (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking ....
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....ent Passbook Scheme and Duty Drawback Scheme could be said to be profit derived from the business of the Industrial Undertaking eligible for deduction under Section 80-IB of the Income-tax Act,1961". The Supreme Court considered the provisions of Section 80-AB, 80-I, 80-IA and 80-IB in the said Judgment. After analysing Chapter VI-A, it is held by the Supreme Court that Sections 80-IB and 80-IA are the Code by themselves as they contain both substantive, as well as procedural provisions. It is held that one needs to read Section 80-I, 80-IA and 80-IB as having a common scheme and if so read, it is clear that the said sections provide for incentives in the form of deductions which are linked to profits and not to investment. 21. It is further held by the Supreme Court that on analysis of Sections 80-IA and 80-IB, it becomes clear that any Industrial Undertaking which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-Section (1) only to the extent of profits derived from such Industrial Undertaking after specified dates. It is held that this is the importance of the words "derived from industrial undertaking" as against "profits attributable ....
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....ch it was held that the inquiry should stop as soon as the effective source is discovered. In our view, the slag generated during the process of manufacturing activity of pig iron, was part of the manufacturing process and was a by-product of pig iron and integrated part of the manufacturing activity conducted by the Assessee and thus the profits earned from the sale of such by-product would have to be considered as part of the profits derived from the business of the Industrial Undertaking. The slag generated during the manufacturing activity satisfies the test of first degree source and, thus, the Assessee was eligible to seek deduction under Section 80- IB of the Act for the profits earned out of the sale of pig iron, in addition to the deduction already availed of by the Assessee on the profits earned on sale of pig iron. 26. The Supreme Court in the case of CIT vs. Sterling Foods (supra), considered the question i.e. "whether the income derived by the Assessee by sale of the import entitlements was profit and gain derived from its Industrial Undertaking of processing sea food.". The Supreme Court construed the word "derived" and held that there must be, for the application ....
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....t "first degree source", the assessee was entitled to seek deduction on the profits generated out of the sale of such slag under Section 80-IB of the Act. The slag generated has a direct nexus with the manufacturing process of pig iron. 29. In so far as the Judgment of the Division Bench of this Court in the case of Commissioner of Income Tax vs. Mansinghka Oil Mills Private Ltd. (supra) which is distinguished by the Tribunal is concerned, the Division Bench of this Court had considered the question "whether, on the facts and in the circumstances of the case, and in law, the relief under Section 80-I of the Income-tax Act, 1961, is to be granted with reference to the composite profits or with reference to the proportionate profits on the cotton seed oil alone, being item No.25 of Schedule VI to the said Act ?" The Division Bench in the said Judgment held that the cotton seed oil-cake, lint, husk, etc., are the by-products in the business of manufacture and sale of cotton seed oil and accordingly, the business of the Assessee of manufacture and sale of cotton seed oil was a priority industry and that all profits and gains attributable to such a priority industry qualify for deduc....
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.... benefit of Section 80-I. In our view, the reliance placed by the learned counsel for the Revenue on the said Judgment is totally misplaced and would not even remotely apply to the facts of this case. 33. In so far as the Judgment of the Himachal Pradesh High Court in the case of Mrs. Poonam Arora vs. Income Tax Officer and others (supra) relied upon by the learned counsel for the Revenue is concerned, the substantial question of law under consideration of the Himachal Pradesh High Court was, "whether in the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the manufacturing of "roasted groundnut" from "groundnut seed" was not by a manufacturing process, but was the same salable commodity with variation in demand." The Himachal Pradesh High Court in the said Judgment held that the process of roasting raw groundnut seed into roasted groundnut does not bring into a new and distinct product and, therefore, does not amount to manufacture and, thus, the Assessee is not entitled to the benefit of Section 80-IA or 80-IB of the Act. The facts before the Himachal Pradesh High Court were totally different. In this case, there is a find....