NAHAR SPINNING MILLS LTD. vs. THE COMMISSIONER OF INCOME TAX

ITA/183/2002HC Punjab & HaryanaPHHC01042227200225 November 2011Author: MR. JUSTICE HEMANT GUPTA,MR. JUSTICE GURMEET SINGH SANDHAWALIA8 pages
AI SummaryDismissed

What were the facts?

The assessee, Nahar Spinning Mills Limited, is an industrial undertaking engaged in manufacturing and sale of cotton hosiery goods and export sales. The appeals before the High Court pertain to assessment years 1990-91 and 1991-92, arising from separate orders of the Income Tax Appellate Tribunal (ITAT) dated 31.5.2002 and 18.12.2003. The Assessing Officer had disallowed deductions under Section 80-I on various income heads including trading profits, property income, interest income, dry-cleaning receipts profits, and cash compensatory allowance (CCA) & income from sale of import licenses, totaling Rs. 5,55,27,229/-. The Commissioner of Income Tax (CIT) set aside part of the Assessing Officer's order, and the ITAT upheld the findings of the CIT. The assessee's primary contention was that income from dry cleaning charges should be eligible for deduction under Sections 80-I and 80-HHC.

What did the High Court hold?

The High Court held that the assessee was not entitled to deduction under Section 80-HCC. The court found no merit in the argument that dry cleaning income was eligible for deduction under Section 80-HCC, referencing a previous decision in CIT v. Hansa Agencies Pvt. Ltd. where interest income from surplus finance was held not to be part of business profits for Section 80-HCC. The court noted that the assessee had not claimed dry cleaning receipts as part of the total turnover for Section 80-HCC calculation. Regarding Section 80-I, the court acknowledged that income from job work or a process by an industrial undertaking could be eligible, depending on the nature of the process. However, the court found that the facts on record did not establish that the dry cleaning process undertaken by the assessee was a step in the manufacturing process. While acknowledging judgments that defined certain processes as manufacturing, the court emphasized the lack of specific details about what was being dry cleaned and whether it was integral to the manufacturing process. Consequently, the court concluded that the income of Rs. 36,074/- received from dry cleaning was not an income derived from the industrial undertaking from the manufacturing process. Therefore, the assessee was not entitled to deduction under Section 80-I. The substantial question of law was answered against the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee was not entitled to deduction under Section 80-HCC of the Income Tax Act, 1961, in respect of income from dry cleaning charges? 2. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee was not entitled to deduction under Section 80-I of the Income Tax Act, 1961, in respect of income from dry cleaning charges? Assessee's Contentions: For Issue 1 (Section 80-HCC): The assessee argued that with the introduction of clause (baa) to the explanation of Section 80-HCC, income from dry cleaning process should be considered part of the export business income and thus eligible for deduction. The assessee also asserted that the issue of dry cleaning charges as income derived from an industrial undertaking was not decided in previous ITAT orders concerning the assessee or other cited cases. For Issue 2 (Section 80-I): The assessee contended that the dry cleaning process is an integral part of the manufacturing activity, having a direct and proximate nexus with its industrial undertaking. Therefore, income derived from dry cleaning, even for third parties, should be eligible for deduction under Section 80-I. Reliance was placed on various High Court and Supreme Court judgments, including CIT v. Impel Forge and Allied Industries Ltd., NU-Look (P) Ltd. v. CIT, CIT v. Northern Aromatics Ltd., CIT v. Sovrin Knit Works, and Commissioner of Income Tax, Mumbai v. Emptee Poly-Yarn (P) Ltd. Revenue's Contentions: For Issue 2 (Section 80-I): The revenue relied on the Supreme Court judgment in Aspinwal & Co. Ltd. v. CIT, arguing that 'manufacturing' implies the production of new articles from raw materials, and dry cleaning does not create a new article or impart new qualities. The revenue also cited Liberty India v. CIT to argue that the words 'derived from' are narrower and cover only first-degree sources, implying dry cleaning is not a direct source of manufacturing income.

Which sections of the Income-tax Act were involved?

Section 80-I,Section 80-HHC,Section 80-HCC

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: November 25, 2011. 1. Nahar Spinning Mills Limited ... Appellant v. The Commissioner of Income Tax (Central), Ludhiana ... Respondent(s)

2.

ITA No.132 of 2004 Nahar Spinning Mills Limited ... Appellant v. The Commissioner of Income Tax (Central), Ludhiana ... Respondent(s) CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE G.S. SANDHAWALIA Present: Shri Sanjay Bansal, Senior Advocate with Shri Robin Jarial, Advocate for the appellant. Shri Rajesh Katoch, Advocate for the respondent. Hemant Gupta

, J. (Oral): This order shall dispose of ITA No.183 of 2002 and ITA No.132 of 2004 arising out of the assessment years 1990-91 and 1991-92 from the separate orders of the Income Tax Appellate Tribunal dated 31.5.2002 and 18.12.2003. Since the issue raised are common, the same are being taken up for hearing together. Learned counsel for the assessee fairly pointed out that most of the questions of law, such as in respect of cash compensatory allowance, trading profits, interest incomes, rental i

The order continues below.

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