C I T JAIPUR vs. M/S OM METAL and MINEARLS

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 246 / 2011 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus M/s OM Metals & Minerals Ltd. (Now Om Metals Infraprojects Ltd.), Om Tower, Church Road, M.I. Road, Jaipur ----Respondent

_____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana, Mr. Mahendra Gargeiya _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 22/08/2017

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case, the Tribunal was right and justified in deleting the addition of Rs. 1,86,957/- which was made by the assessing officer as admittedly the assessee failed to deposit the employee’s contribution to Providdent Fund on or before the due date as prescribed under the Provident Fund Rules, which is a mandatory requirement for claiming deduction under Section 36 (1)(va) read with 2(24)(x) of the Act?” 3. The issue No.1 regarding 80IA deduction is squarely covered by the decision of Bombay High Court Commissioner of Income Tax, Central II vs. ABG Heavy Industries Ltd. reported in (2010) 322 ITR 323 (Bombay) against which the SLP came to be dismissed on 6th December, 2010 and also decision of this Court in Tax Appeal No. 631/2008 (CIT, Ajmer vs. M/s Shiva Construction Pvt. Ltd.) decided on 25th May, 2017. 4. The issue No. 2, the same is now covered by the decision of this Court in CIT vs. State Bank of Bikaner & Jaipur (2014) 363 ITR 70 against which SLP is preferred therefore, in view of the earlier decision taken by this Court, the issue is answered in favour of the assessee subject to SLP pending before the Supreme Court. 5. Counsel for the appellant has taken us to the order of Supreme Court in case of Liberty India and contended that the income is not derived out of the business activity. 6. However, counsel for the respondent Mr. Jhanwar has relied upon the judgment of Supreme Court in case of Commissioner of Income Tax vs. Meghalaya Steels Ltd. [2016] 67 taxmann.com 158 (SC) wherein it has been held as under:-

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“18. The judgment in Sterling Foods lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export promotion scheme, an Assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post manufacture namely, export. On an application of the aforesaid test to the facts of the present case, it can be said that as all the four subsidies in the present case are revenue receipts which are reimbursed to the Assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the Assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the Assessee in the manufacturing and selling of its products. The "profits and gains" spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the Assessee,

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namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the Assessee by the Government concerned.” 6.1. He has also relied upon the decision in case of CIT vs. Sandhu Forgings Ltd. reported in 336 ITR 444 (Del) wherein it has been held as under:- “13. Keeping in view the activities of the Assessee in giving heat treatment for which it had earned labour charges and job-work charges, it can thus be said that the Appellant had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts cannot be said to be independent income of the manufacturing activities of the undertakings of the Assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under Section 80IB. These were gains derived from industrial undertakings and so entitled for the purpose of computing deduction under Section 80IB. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the Assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deducting under Section 80IB.” 6.2. He has also relied upon the decision in case of Commissioner of Income Tax vs. Arvind Co. Ltd. (2008) 215 CTR Del 363 wherein it has been held as under:- “7. We are unable to agree with the submissions advanced/made by learned Counsel for the Revenue. We find that as regards the interest on the RBI bonds, this was part of the total settlement package by which the assessed was to receive Rs. 54.93 crores for the works

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undertaken in Iraq as a sub-contractor of the IRCON. In the facts and circumstances of the case, it is not possible to view the interest received on the RBI bonds as payment de hors the activity of the assessed pursuant to the execution of the contract. We do not find any error in the orders of the CIT(A) as well as the Tribunal warranting any interference. No substantial question of law arises on this issue. As regards the payment received on account of transportation charges, the Tribunal has, in our view, rightly observed that the assessed is transporting sleepers only to the railways at different sites and to no other entity. We agree with the view expressed by the CIT(A), concurred with by the Tribunal, that business of the assessed included not only manufacturing but all incidental activities undertaken till the delivery of the manufactured goods was effected. The benefit of the deduction to the assessed in terms of Section 80-IA of the Act cannot be denied since the receipts on account of transportation are a part of its business receipts. No substantial question of law arises in this regard either.” 6.3. He has also relied upon the decision of Madras High Court in case of The Commissioner of Income Tax Tamil Nadu I, Madras vs. M/s T.T.G. Industries Limited in TC(A) No. 677 of 2005 wherein it has been held as under:- “As the Apex Court pointed out in [2009] 317 ITR 218 Liberty India v. CIT, the deduction provided under Section 80IA being ‘profit linked incentive’, we have no hesitation in confirming the order of the Tribunal. Thus on the facts found that the service

charges,

labour

charges

and transportation charges incurred were for erection testing and commissioning of the units sold and were part of the receipts of the industrial undertaking, they come within the meaning of the profits and gains derived by the undertaking or an enterprise from any business referred to in sub section (4). Extending the same, scrap sales also qualify for consideration under Section 80IA of the Act.”

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