COMMISSIONER OF INCOME TAX vs. PARAS MOTORS MFG CO

TAXAP/1226/2010HC GujaratGJHC24027151201021 December 2013Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.D.KOTHARI6 pages
AI SummaryDismissed

What were the facts?

The assessee, Paras Motors Mfg Co, engaged in manufacturing Electric Motors, claimed deduction under Section 80IB for AY 2005-06 and 2006-07 on income from scrap sales. The Assessing Officer disallowed this, holding that only profits directly derived from the industrial undertaking and having a direct nexus with manufacturing activity were eligible. The CIT(A) allowed the assessee's appeal, deleting the disallowance. The revenue appealed to the ITAT, which dismissed the appeal, confirming the CIT(A)'s order. The revenue has now filed a Tax Appeal before the High Court challenging the ITAT's decision.

What did the High Court hold?

The High Court held that the Appellate Tribunal was right in allowing the deduction under Section 80IB for the income from sale of scrap. The Court applied the ratio laid down in its own decision in DCIT vs. Harjivandas Juthabhai Zaveri & Anr. (258 ITR 785 (Guj)) and the Delhi High Court's decision in CIT vs. Sadhu Forging Limited ((2011) 336 ITR 444 (Delhi)). The latter case held that the receipt of sale of scrap is a part and parcel of industrial activity and therefore, deduction under Section 80IB is allowable. The Court reasoned that manufacturing activity of the type undertaken by the assessee would naturally generate scrap in the process. Receipts from the sale of scrap, being part and parcel of the activity and proximate thereto, would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under Section 80IB. The substantial question of law was answered against the revenue. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and circumstances and in law, the Appellate Tribunal was right in holding that the income from scrap sales of Rs. 24,32,339/- (Unit I) and Rs. 90,07,489/- (Unit II) is eligible for deduction under Section 80IB, without considering that it has no direct or immediate nexus with the manufacturing activity of the assessee? (Question of law) Assessee's Contention: The ITAT correctly allowed the deduction, relying on the High Court's decision in DCIT vs. Harjivandas Juthabhai Zaveri & Anr. (258 ITR 785 (Guj)), which held that items like sale of empty soda ash bardana and sale of plastic waste are directly connected with manufacturing activities and eligible for deduction under Section 80I (now 80IB). The assessee argued that if the company was not engaged in industrial activities, there would be no scrap or empty barrels/bardans. The income from scrap is derived from the industrial undertaking. Revenue's Contention: The income from scrap sales does not have a direct or immediate nexus with the manufacturing activity of the assessee and therefore is not eligible for deduction under Section 80IB.

Which sections of the Income-tax Act were involved?

Section 80IB,Section 80I

AI-generated summary — verify with the full judgment below

O/TAXAP/1226/2010 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL  NO. 1226 of 2010 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH ­ ­ and HONOURABLE MR.JUSTICE R.D.KOTHARI ­ ­ =============================================

1.

Whether   Reporters   of   Local   Papers   may   be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ============================================= COMMISSIONER OF INCOME TAX....Appellant(s) Versus PARAS MOTORS MFG CO....Opponent(s) ============================================= Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.D.KOTHARI

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