VESUVIUS INDIA LIMITED,KOLKATA vs. DCIT, CIRCLE - 10, KOLKATA, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

(c) Without prejudice to the original claim of deduction u/s.80IB made in the return of income, the assessee further submitted that re-assessment proceedings is initiated to recompute the correct amount of deduction u/s.80-IB by excluding certain income, which according to the revenue is not derived from the business of industrial undertaking. Thus, it was submitted that if other incomes are excluded and deduction u/s.80IB is recomputed then the same should be done only by considering the income and expenses which have direct and immediate nexus with the industrial undertaking. In support of their contention reliance is placed on the decision of the Authority of Advance Ruling in the case of National Fertilizers Ltd. In re (2005) 142 Taxman 5 (AAR-New Delhi). Towards this the assessee has submitted modified accounts of the Taratolla Unit, duly certified by Chartered Accountant, considering the income and expenses which have direct and immediate nexus with the industrial undertaking. I have since examined the submission of the assessee and I do not find merit in the contentions raised by the assessee, in view of express provision of Sec.80-IB. The heads of income being commission, interest from Banks and other service charges, Misc. income have not been derived from the assessee's undertaking against which deduction u/s.80IB is available. In the said scenario, the said income cannot form part of the total income of the assessee subject to deduction U/s.80IB. Hence, the same are not accepted.”

“20. I have considered the submission of the appellant and perused the assessment order. During the year under consideration the appellant has earned commission income of Rs. 5,09,000/-, interest from banks amounting to Rs. 8,72,000/-, interest from others amounting to Rs. 46,73,000/- and misc. income of Rs. 6,34,000/-. The aforesaid income was included by the appellant in the profit and gains of business of eligible undertaking and considered the same for the purpose of deduction u/s. 80IB of the Act. On the other hand, the A.O, was of the opinion the aforesaid income has not been derived by the appellant from the eligible business and therefore, the deduction u/s 80IB is not allowable on them. During the course of appellate proceedings it was contended by the appellant that in the relevant previous year it has earned commission income to the tune of Rs. 5,09,000/- as the appellant had been appointed as the non-exclusive agent by some of its foreign principals and its associates in respect of sell of common intended to cover sources not beyond the first degree. In the case of CIT Vs. Menon lmpex Pvt. Ltd. reported in 259 ITR 403 (Mad), it was held by the Hon'ble Madras High Court that the interest received by the assessee was on deposits made by it in the banks. It is that deposit which is the source of income. The mere fact that the deposits made was for the purpose of obtaining letters of credit which in turn used for the purpose of business of the Industrial Undertaking does not establish a direct nexus between the interest and the Industrial Undertaking. The similar view was taken by the Hon'ble Madras High Court in the case of IndiaComnet International reported in 304 ITR 322. In this case, the assessee received the export proceeds and the same was deposited in the bank and the income was derived from the said deposit. It was held by the Hon'ble High Court that there was no direct nexus between interest and the industrial Undertaking. In the case of Shri Ram Honda Power Equipment reported in 289 ITR 475 it was held by the Hon’ble Delhi High Court that the interest earned on fixed deposits for the purpose of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore, has to necessarily be treated as income from other sources and not business income. Recently, the Hon’ble Apex Court in the case of Liberty India Vs. CIT, reported in 317 ITR 218 (SC) has observed and held as under :-

.. Duty drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of the deduction under section 80-I/80-IA/80-IB of the Income-tax Act, 1961.

The Income-tax Act. 1961, broadly provides for two types of tax incentives, viz. investment-linked incentives and profit- linked incentives. Chapter VIA of the Act which provides for incentives in the form of deductions essentially belongs to the category of "profit-linked incentives". Therefore, when section 80-I/80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives : what attracts the incentives under section 80-IA/80-IB is the generation of profits (operational profits). It is for this reason that Parliament has confined deduction of profits derived from eligible business mentioned in sub-sections (3) to (11A). Each of the businesses mentioned in sub-sections (3) to (11 A) constitutes a stand- alone item in the matter of computation of profits.

Sections 80-IB and 80-IA are a code by themselves as they contain both substantive as well as procedural provisions.

Section 80-IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words "derived from" is narrower as compared to that of the words "attributable to".

1. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified rather grossly erred in not allowing deduction claimed on account of toolings purchased and utilised for production during the year amounting to Rs.1,30,60,000/-. 2(a). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified rather grossly erred in excluding other income comprising of commission of Rs.5,09,000/- interest from bank of Rs.8,72,000/-, interest from others of Rs.46,73,000/- and miscellaneous income of Rs. 6,34,000/- in computing profits and gains of business of the undertaking eligible for deduction u/s.80IB. 2(b). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in facts and law in denying the claim of the appellant to exclude net of the aforesaid other income and not gross of the aforesaid income from the profits and gains of business of the eligible undertaking. 2(c). That on the facts and in the circumstances of the case and without prejudice to Ground No. 2(a) and 2(b) taken here-in above, the Ld. CIT(Appeals) erred in not re-computing profits and gains of business of the undertaking eligible for deduction u/ s 80lB by considering only the income and expenditure attributable to the said undertaking. 3. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified rather grossly erred in not deciding the ground against erroneous imposition of interest u/s 234C of Rs.19,78,434/- on merits and holding that the same is consequential in nature. 4. That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated here-in- above, either before or at the time of hearing of this appeal.

Although, in this appeal, the assessee has raised multiple grounds of appeal but at the time of hearing the main grievance of the assessee has been confined to ground No.2(a). Ground No.1, Ground No.3 and Ground No.4 were not pressed by the assessee.

6. The main grievance of the assessee in this appeal is that the AO as well as CIT(A) did not allow the commission income of purpose of computation of deduction u/s.80IB of the Act, in view of the principle laid down in the case of Liberty India Vs. CIT (2009) 317 ITR 218(SC). However, ld. AR submitted before us that interest from others Rs.46,73,000/-, which relates to interest on late payment received from trade debtors, should be included for the purpose of computation of deduction U/s 80IB. That is, the amount of Rs.46,76,000/- represents primarily interest on delayed payment received from trade debtors. The assessee has relied on the decision in the case of Vidyut Corporation (2010) 324 ITR 221 (Bom), wherein it has been held that interest towards delayed payment of the price of the goods sold, forms a component of sale price and is eligible for deduction under section 80IB of the Act.

For miscellaneous income of Rs.6,34,000/-, ld. AR has pointed out that it represents for sale of scrap which was generated in the course of manufacturing process and thus, it is very much a part of eligible profit of the industrial undertaking. Therefore, it should be allowed to compute the deduction u/s.80IB of the Act. The Ld. AR has relied on the judgment in the case of Sadhu Forgings Ltd. (2011) 336 ITR 444 (Del), wherein it has been held that receipts from sale of scrap being part and parcel of the manufacturing process and being proximate thereto will also be within the ambit of gains derived from industrial undertaking for the purpose of computing deduction u/s.80IB. The Ld. AR for the assessee has admitted that commission of Rs.5,09,000/- and interest from bank Rs.8,72,000/- may not be allowed for the purpose of computing deduction u/s.80IB in supported by the judgments of Hon’ble High Courts and Hon’ble Supreme Court (supra). As he has pointed out that scrap which is part of manufacturing process of the undertaking and interest received from sundry debtors which is part of the sale of the undertaking, should be allowed for the purpose of computing deduction u/s.80IB. However, ld. DR for the revenue has objected that in order to determine the true nature of interest received from debtors and scrap sales, the case should be remitted back to the AO for his verification. That is, ld. DR has pointed out that it is doubtful that interest from others Rs.46,73,000/-, is interest received by the assessee from trade debtors. It is also doubtful whether miscellaneous income of Rs.6,34,000/- represents scrap sale.Therefore, in order to determine the nature of these receipts, the case should be remitted back to the Assesing Officer for his necessary verification.

Considering the factual position, we are of the view that this issue (interest from others and miscellaneous income) requires examination from the end of the AO. Therefore, we are of the view to remit the case back to the file of AO with a direction to examine the interest from others and miscellaneous income. We also direct the AO that if the interest from others relate to sundry debtors, then the AO should give the relief to the assessee and also if the miscellaneous income relates to scrap sales generated in the course of manufacturing process, the AO should give the relief to the assessee in the light of the judgments cited by the assessee in the case of Vidyut Corporation and Sadhu Forgings (supra). Therefore,