Partly allowed

Commissioner of Income Tax Patiala v. M/S H.M. Steels Ltd. Sangrur Road Dirba Sangrur

Punjab & Haryana HC4 Aug 2015ITA/352/2013

Case brief

AI extract

What is this about?

The High Court held that a sales tax deferment rebate is an incentive flowing from the Government scheme and not a profit derived from the industrial undertaking. Thus, it is not eligible for deduction under Section 80-IC. Previous Delhi High Court decisions were overruled.

What did the court decide?

Held that sales tax rebate is not a profit derived from the industrial undertaking and is not eligible for deduction under Section 80-IC.

Commissioner of Income Tax Patiala Vs M/S H.M. Steels… — Income Tax | Punjab & Haryana HC (2015)

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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Income Tax Appeal No.352 of 2013 (O&M)
 RESERVED ON: 29.07.2015
 DATE OF DECISION: 04.08.2015

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The Commissioner of Income-tax, Patiala

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…..Appellant

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versus

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M/s H.M. Steels Ltd.

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 .....Respondents

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CORAM:- HON'BLE MR.JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE
 HON’BLE MR. JUSTICE G.S. SANDHAWALIA

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Present: Ms. Savita Saxena, Advocate for the appellant

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Mr. Pankaj Jain, Senior Advocate with

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Mr. Divya Suri, Mr. Deepanshu Jain and

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Mr. Madhur Sharma, Advocates for the respondents

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S.J. VAZIFDAR, ACTING CHIEF JUSTICE :

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This is an appeal against the order of the Income Tax
Appellate Tribunal dated 17.06.2013 partly allowing the respondents’
appeal against the order of the Commissioner of Income Tax (Appeals).
The matter pertains to the Assessment Year 2007-08.

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2. The appellant contends that the following substantial
questions of law arise in this appeal:-

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“(i) Whether in the facts and circumstances of

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the case, the ITAT was right in law in
holding that the freight subsidy received
from the Himachal Govt. by the assessee is
allowed to be included as profit derived
from Industrial Undertaking and eligible as
deduction u/s 80IC of the Income Tax Act,

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1961, when it has been clearly laid down by
Supreme Court in its decision in the cases
of Cambay Electric Supply Industrial Co.
Ltd. Vs. CIT 1978 (TR/SC) 50:/1978) 1/3 ITR
84/SC) that the words derived from referred
to in the section 80IC has narrower meaning
than attributable to and the freight subsidy
cannot be treated as profit derived from
Industrial Undertaking though it may be
attributable to Industrial Undertaking?

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(ii) Whether in the facts and circumstances of
the case, the ITAT was right in law in
holding that the freight subsidy was rightly
taken into consideration by the assessee in
working out the profits and gains of the
business undertaking relying on the decision
of Calcutta High Court in the case of Merino
Ply and Chemicals Ltd. Vs. CIT (1004) 122
CTR (Cal) 262 : (1994) 209 ITR 508 (Cal.)
where the point in issue was whether a
receipt on account of transport/ freight
subsidy was of a revenue nature and was
inseparably connected with the business and
not whether it was income derived from the
business of the industrial undertaking and
eligible for deduction u/s 80HH/80IA/80IB of
the Income Tax Act, 1961?

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(iii) Whether in the facts and circumstances of

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the case, the ITAT was right in law in not
appreciating the judgment of Hon’ble
Himachal Pradesh High Court in its decision
in the case of CIT vs. Kiran Enterprises
reported in 327 ITR 520 and M/s Mehar
Packaging Pvt. Ltd. Vs. CIT reported in 24
Taxman 204 which are applicable in this case
wherein it has already been held that the
amount of transport/freight subsidy received
from the Govt. by the assessee is not a
profit derived from business since it is not
an operational profit. The source of subsidy
is not the business of assessee but scheme
of Central Govt. and cannot be included in
the profits eligible for deduction u/s 80IC.
That ITAT was also not right in law in not
appreciating the ratio of Hon’ble Supreme
Court in the cases of M/s Liberty India vs.
CIT 225 CTR 233 (SC), CIT vs. Sterling Foods
153 CTR 439, 237 ITR 589, Vellore Electric
Corporation Ltd. vs. CIT 227 ITR 557 (SC).

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(iv) Whether in the facts and circumstances of
the case, the ITAT was right in law in
holding that the income from Sales Tax
Deferment Rebate received by the assessee is
allowed to be included as profits derived
from industrial undertaking and eligible for
deduction u/s 80IC of the Income Tax Act,

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1961, when the assessee received it from the
Himachal Govt. for the benefit of any
incentive of Sales Tax leviable on the sale
of manufactured goods under Himachal Pradesh
General Sales Tax Act, 1968 and the income
derived from such rebate is not an income
derived from industrial undertaking.

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However, the immediate source of this rebate
was the scheme of Govt. to give such rebate
and not the conduct of the business of the
industrial undertaking.

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(v) Whether in the facts and circumstances of
the case, the ITAT was right in law in
directing the AO to pass a fresh order, on
the issue of bank interest, in terms of the
judgment of jurisdictional High Court in the
case of Vishal Industries as well as in the
light of the Apex Court decision in the case
of ACG associates Capsules Pvt. Ltd.,
ignoring the fact that decision of netting
was held to be correct for computing
deduction u/s 80HHC in view of the
definition of ‘profits of business’ in
Explanation (baa) to Section 80HHC of the
Act and not for section 80IC of the Act
which deals with profits derived from the
eligible business, and is different from the
computation of section 80HHC.”

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3. The first three questions do not even arise. Mr. Jain, the
learned senior counsel appearing on behalf of the respondents stated
that the respondents/assessee do not even contend to the contrary.
They have not claimed that the freight subsidy received from the
Himachal Pradesh Government by the assessee is allowed to be included
as profit derived from an industrial undertaking and, therefore,
eligible as a deduction under Section 80-IC of the Income Tax Act,
1961. The assessee had claimed a set off against the expenses which
was granted. The questions have probably been raised due to a passing
observation in a part of a sentence in the order of the Tribunal. The
sentence in the Tribunal’s order reads as under:-

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“However, transport subsidy is to be adjusted against
those expenses for which it is given while working out the
profit of the industrial undertaking to be eligible for
deduction u/s 80IC of the Act.”

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The concluding words “to be eligible for deduction u/s 80IC of the
Act” probably led to the appellant raising the first three questions.
Transport subsidy is not admissible under Section 80IC of the Act.
There is no grievance in respect of the first part of the sentence.

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In view of Mr. Jain’s submission, it is not necessary to
take the matter any further. Questions No.(i), (ii) and (iii) are
accordingly disposed of.

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4. Question No.(iv) must be answered in favour of the
appellant/revenue.

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5. Mr. Jain submitted that the sales tax deferment rebate is
included as profit derived from the industrial undertaking and is,
therefore, eligible for deduction under section 80-IC. Under a
scheme/policy formulated by the Himachal Pradesh State Government,
the industrial undertakings fulfilling certain conditions and

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situated in the notified areas were entitled for the Sales Tax/VAT
Deferment Scheme. The eligible units were given an option either to
avail deferment of payment of tax or to opt, by making an application
in the prescribed form, to pay 65% of the tax liability for any tax
period of the financial year and upon making such payment the unit
would be deemed to have paid the full tax due from it accordingly.
The assessee opted to pay 65% of the VAT liability and the remaining
35% i.e. a sum of Rs.24,98,964/- had been credited in the profit and
loss account derived by the industrial undertaking. The assessee
contended that the retention of 35% VAT has a direct nexus with the
sales and is an integral part of the industrial unit and is,
therefore, eligible to be deducted under section 80-IC. The
submission is not well founded. Sub-section (2) of Section 80-IC
specifies the undertakings and enterprises to which the section is
applicable. It is applicable to the assessee/respondents.

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6. Section 80-IC (1) and (3) to (7) reads as under:-

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80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category

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States.—(1) Where the gross total income of an assessee
includes any profits and gains derived by an undertaking
or an enterprise from any business referred to in sub-
section (2), there shall, in accordance with and subject
to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction
from such profits and gains, as specified in sub-section
(3).

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(3) The deduction referred to in sub-section (1) shall
be,—

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(i) in the case of any undertaking or enterprise
referred to in sub-clauses (i) and (iii) of
clause (a) or sub-clauses (i) and (iii) of
clause (b), of sub-section (2), one hundred
per cent of such profits and gains for ten
assessment years commencing with the initial
assessment year;

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(ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-

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section (2), one hundred per cent of such
profits and gains for five assessment years
commencing 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.

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(4) This section applies to any undertaking or enterprise
which fulfils all the following conditions, namely:—

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(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

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Provided that this condition shall not apply in
respect of an undertaking which is formed as a
result of the re-establishment, reconstruction or
revival by the assessee of the business of any such
undertaking as is referred to in Section 33-B, in
the circumstances and within the period specified in
that section;

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(ii) it is not formed by the transfer to a new
business of machinery or plant previously
used for any purpose.

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Explanation.—The provisions of Explanations 1 and 2 to
sub-section (3) of Section 80-IA shall apply for the
purposes of clause (ii) of this sub-section as they apply
for the purposes of clause (ii) of that sub-section.

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(5) Notwithstanding anything contained in any other
provision of this Act, in computing the total income of
the assessee, no deduction shall be allowed under any
other section contained in Chapter VI-A or in Section 10-A
or Section 10-B, in relation to the profits and gains of
the undertaking or enterprise.

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(6) Notwithstanding anything contained in this Act, no
deduction shall be allowed to any undertaking or
enterprise under this section, where the total period of
deduction inclusive of the period of deduction under this
section, or under the second proviso to sub-section (4) of
Section 80-IB or under Section 10-C, as the case may be,
exceeds ten assessment years.

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(7) The provisions contained in sub-section (5) and sub-
sections (7) to (12) of Section 80-IA shall, so far as may
be, apply to the eligible undertaking or enterprise under
this section.”

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7. The operative words are “profits and gains derived by an
undertaking or an enterprise from any business referred to in sub-
section (2).” The profits and gains must, therefore, be derived
“from” the business. The word “from” means, inter alia, a starting

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point, a point of attachment or a source or origin. A sales tax
rebate cannot be said to be derived from any business. A sales tax
rebate can be said to be in respect of a business or in favour of a
business or in relation to a business, a facility to a business and
incentive to a business. The rebate does not originate from the
business. The source or origin of the rebate is from the policy or
notification granting the same. The source or origin is not the
business. If the legislature intended including the sales tax rebate
within the ambit of section 80-IC, the section it would have included
any profits and gains derived not from but in respect of a business.

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8. If there was no sales tax liability in respect of any
business, there would have been no question of the sales tax being
from the business. If sales tax is made applicable to the business,
it would not be from the business but in respect of the business. It
would follow then that when the sales tax is revoked, the benefit
cannot be from the business either but in respect of the business.
Let us put it differently. If sales tax is abolished, it cannot be
said that the last rate of sales tax would be the profit or gain from
the business. It follows therefore, that the sales tax is in respect
of the business but not from the business.

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9. Mrs. Savita Saxena’s reliance upon a judgment of the
Supreme Court in Liberty India vs. Commissioner of Income Tax,
(2009) 317 ITR 218 is well founded. In that case, the Supreme Court
considered whether profit from the Duty Entitlement Pass Book Scheme
can be said to be the profit from the business of the industrial
undertaking eligible for deduction under Section 80-IB of the Act.
Section 80-IB is similar to Section 80IC. Section 80IB(1) reads as
under:-

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“80-IB. Deduction in respect of profits and gains
from certain industrial undertakings other than

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infrastructure development undertakings.—(1) Where
the gross total income of an assessee includes any
profits and gains derived from any businessreferred
to in sub-sections (3) to (11), (11-A) and (11-B)
(such business) being hereinafter referred to as the
eligible business), there shall, in accordance with
and subject to the provisions of this section, be
allowed, in computing the total income of the
assessee, a deduction from such profits and gains of
an amount equal to such percentage and for such
number of assessment years as specified in this
section.” (emphasis supplied)

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The relevant words are the same, namely, “includes any profits or
gains derived from any business”. Paragraphs 13 to 16 of the judgment
read as follows:-

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“13. Before analyzing s.80-IB, as a prefatory note, it
needs to be mentioned that the 1961 Act broadly provides
for two types of tax incentives, namely, investment
linked incentives and profit linked incentives. Chapter
VI-A which provides for incentives in the form of tax
deductions essentially belong to the category of "profit
linked incentives". Therefore, when s. 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 s. 80-IA/80-IB is the
generation of profits (operational profits). For example,
an assessee company located in Mumbai may have a business
of building housing projects or a ship in Nava Sheva.
Ownership of a ship per se will not attract s. 80-IB(6).
It is the profits arising from the business of a ship
which attracts sub-s. (6). In other words, deduction
under sub-s. (6) at the specified rate has linkage to the
profits derived from the shipping operations. This is
what we mean in drawing the distinction between profit
linked tax incentives and investment linked tax
incentives. It is for this reason that Parliament has
confined deduction to profits derived from eligible
businesses mentioned in sub-ss. (3) to (11A) (as they
stood at the relevant time). One more aspect needs to be
highlighted. Each of the eligible business in sub-ss. (3)
to (11A) constitutes a stand-alone item in the matter of
computation of profits. That is the reason why the
concept of "Segment Reporting" stands introduced in the
Indian Accounting Standards (IAS) by the Institute of
Chartered Accountants of India (ICAI).

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14. Analysing Chapter VI-A, we find that s. 80-IB/80-IA
are the Code by themselves as they contain both
substantive as well as procedural provisions. Therefore,
we need to examine what these provisions prescribe for
"computation of profits of the eligible business". It is
evident that s. 80-IB provides for allowing of deduction

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in respect of profits and gains derived from the eligible
business. The words "derived from" is narrower in
connotation as compared to the words "attributable to".
In other words, by using the expression "derived from",
Parliament intended to cover sources not beyond the first
degree. In the present batch of cases, the controversy
which arises for determination is: whether the DEPB
credit/Duty drawback receipt comes within the first
degree sources? According to the assessee(s), DEPB
credit/duty drawback receipt reduces the value of
purchases (cost neutralization), hence, it comes within
first degree source as it increases the net profit
proportionately. On the other hand, according to the
Department, DEPB credit/duty drawback receipt do not come
within first degree source as the said incentives flow
from Incentive Schemes enacted by the Government of India
or from s. 75 of the Customs Act, 1962. Hence, according
to the Department, in the present cases, the first degree
source is the incentive scheme/provisions of the Customs
Act. In this connection, Department places heavy reliance
on the judgment of this Court in Sterling Food (supra).
Therefore, in the present cases, in which we are required
to examine the eligible business of an industrial
undertaking, we need to trace the source of the profits
to manufacture. [see CIT v. Kirloskar Oil Engines Ltd.
(1985) 44 CTR (Bom) 98 : (1986) 157 ITR 762 (Bom)]

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15. Continuing our analysis of s. 80-IA/80-IB it may be
mentioned that sub-s. (13) of s. 80-IB provides for
applicability of the provisions of sub-s. (5) and sub-ss.
(7) to (12) of s. 80-IA, so far as may be, applicable to
the eligible business under s. 80-IB. Therefore, at the
outset, we stated that one needs to read ss. 80-I, 80-IA
and 80-IB as having a common Scheme. On perusal of sub-s.
(5) of s. 80-IA, it is noticed that it provides for
manner of computation of profits of an eligible business.
Accordingly, such profits are to be computed as if such
eligible business is the only source of income of the
assessee. Therefore, the devices adopted to reduce or
inflate the profits of eligible business has got to be
rejected in view of the overriding provisions of sub-s.
(5) of s. 80-IA, which are also required to be read into
s. 80-IB. [see s. 80-IB(13)]. We may reiterate that ss.
80I, 80-IA and 80-IB have a common scheme and if so read
it is clear that the said sections provide for incentives
in the form of deduction(s) which are linked to profits
and not to investment. On analysis of ss. 80-IA and 80-IB
it becomes clear that any industrial undertaking, which
becomes eligible on satisfying sub-s.(2), would be
entitled to deduction under sub-s. (1) only to the extent
of profits derived from such industrial undertaking after
specified date(s). Hence, apart from eligibility, sub-
s.(1) purports to restrict the quantum of deduction to a
specified percentage of profits. This is the importance
of the words "derived from industrial undertaking" as
against "profits attributable to industrial undertaking".

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16. DEPB is an incentive. It is given under Duty
Exemption Remission Scheme. Essentially, it is an export
incentive. No doubt, the object behind DEPB is to
neutralize the incidence of customs duty payment on the
import content of export product. This neutralization is
provided for by credit to customs duty against export
product. Under DEPB, an exporter may apply for credit as
percentage of FOB value of exports made in freely
convertible currency. Credit is available only against
the export product and at rates specified by DGFT for
import of raw materials, components etc.. DEPB credit
under the Scheme has to be calculated by taking into
account the deemed import content of the export product
as per basic customs duty and special additional duty
payable on such deemed imports. Therefore, in our view,
DEPB/Duty Drawback are incentives which flow from the
Schemes framed by Central Government or from s. 75 of the
Customs Act, 1962, hence, incentives profits are not
profits derived from the eligible business under s. 80-
IB. They belong to the category of ancillary profits of
such Undertakings.” (emphasis supplied)

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10. On a parity of reasoning and on an analysis of section 80-
IC, it must be held that any industrial undertaking or enterprise
would be entitled to deduction under sub-section (1) only to the
extent of profits derived from such an industrial undertaking and not
on account of any rebate or incentive made available to it by the
Government. The ratio in the last sentence in paragraph-15 is that
the words “derived from industrial undertaking” are distinct from the
words “profits attributable to industrial undertaking”. The sales tax
rebate falls within the ambit of the latter expression and not the
former. What has been held by the Supreme Court in respect of the
DEPB incentive applies equally to sales tax rebate in respect of
section 80-IC. The sales tax rebate is an incentive which flows from
the scheme framed by the Himachal Pradesh Government and is,
therefore, not a profit derived from the business but is an ancillary
profit of the business.

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11. Liberty India vs. Commissioner of Income Tax (supra)
followed the judgment of the Supreme Court in Commissioner of Income

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Tax vs. Sterling Food (1999) 237 ITR 579 (SC). The question before
the Supreme Court was whether the income derived by the assessee by
the sale of import entitlement was profit and gain derived from its
industrial undertaking of processing seafood and can be included in
the income of the assessee for the purpose of computing the relief
under Section 80-HH of the Act. Section 80-HH(1) reads as under:-

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“80-HH. Deduction in respect of profits and gains
from newly established industrial undertakings or
hotel business in backward areas.—(1) Where the
gross total income of an assessee includes any
profits and gains derived from an industrial
undertaking, or the businessof a hotel, to which
this section applies, there shall, in accordance
with and subject to the provisions of this section,
be allowed, in computing the total income of the
assessee, a deduction from such profits and gains of
an amount equal to twenty per cent thereof.”

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(emphasis supplied)

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The material words in section 80-HH and in section 80-IC are the
same, namely, “where the gross total income of an assessee includes
any profits and gains derived from an industrial undertaking, or the
business of a hotel …. ….”. The Supreme Court held:-

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“9. On behalf of the appellant(s) it was submitted that
s. 80-IB was different from s. 80-I in the sense that
under s. 80-IB, income derived from business of an
industrial undertaking was admissible for deduction
whereas under s. 80-I deduction was allowable to income
derived from industrial undertaking. Hence, according to
the appellant(s) provision of s. 80-IB was much wider in
scope than s. 80-I. According to the appellant(s) s. 80-
IB was wider than s. 80-I as the Legislature intended to
give benefit of deduction not only to profits derived
from the undertaking but also to give benefit of
deduction in respect of incomes having direct nexus with
the profits of the undertaking, hence, all incomes that
arose during the course of running of the eligible
business would be eligible for deduction under s. 80-IB,
which would include income arising on sale of DEPB at
premium.”

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The reasoning though in respect of section 80-HH applies
squarely to the provisions of section 80-IC. The sales tax rebate

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cannot be held to constitute a profit and gain derived from the
assessee’s business.

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12. Ms. Saxena’s reliance upon the judgment of the Himachal
Pradesh High Court in Commissioner of Income Tax vs. Kiran
Enterprises, (2010) 327 ITR 520 is also well founded. The question in
that case was whether the freight subsidy received from the
Government is allowed to be included as profit derived from the
industrial undertaking and eligible for deduction under section 80-
IA. Section 80-IA(1) reads as under:-

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“80-IA. Deductions in respect of profits and gains from
industrial undertakings or enterprises engaged in
infrastructure development, etc.—(1) Where the gross
total income of an assessee includes any profits and
gains derived by an undertaking or an enterprise from
any business referred to in sub-section (4) (such
business being hereinafter referred to as the eligible
business), there shall, in accordance with and subject
to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction
of an amount equal to hundred per cent of profits and
gains derived from such business for ten consecutive
assessment years.”

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In paragraph-3, the Division Bench noted that the

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provisions of section 80-IB are pari materia with section 80-IA as

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they previously existed. The Central Government framed a scheme
whereby freight/transport subsidy was provided to the industries set
up in remote areas where rail facilities were not available and some

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percentage of the transport expenses was subsidized by the Central
Government. The question was whether the freight subsidy is income

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derived from the business of the industrial undertaking and can be
included in the profit eligible for deduction under section 80-IA.
The Division Bench held that the source of transport subsidy is not
the business of the assessee but the scheme framed by the Central
Government. Applying the test laid down by the Supreme Court in the

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aforesaid judgment, the Division Bench held that the subsidy received
by the assessee was not a profit derived from the business since it
was not an operational profit and that the source of the subsidy is
not the business of the assessee but the scheme of the Government. We
are in respectful agreement with these observations of the Himachal
Pradesh High Court.

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13. The two decisions of the Delhi High Court in (2009) 317 ITR
353 and (2010) 324 ITR 283 were delivered before the judgment of the
Supreme Court in Liberty India vs. Commissioner of Income Tax
(supra). They did not take the judgment into consideration. They must
be deemed to have been impliedly overruled. In Commissioner of Income
Tax vs. Dharam Pal Prem Chand Ltd., [2009] 317 ITR 353 (Delhi), the
revenue contended that the deduction under section 80-IB in respect
of the amount received by the assessee towards the refund of excise
duty cannot form a part of the profits and gains derived from the
undertaking. The Division Bench held:

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“28. Having considered the decisions cited by the
learned counsel for the Revenue as well as by the
counsel for the assessee, we are of the view that, in
the instant case, as noted above, the factual aspects
are required to be kept in mind. The finding of the
authorities below is that the refund of excise duty is
pivoted on the manufacturing activity carried on by the
assessee. Once such a finding of fact has been returned
we need not go further and examine the immediate and
proximate source of refund of excise duty. In other
words, as to whether there was direct nexus between the
refund of excise duty and industrial activity. As a
matter of fact, in the questions proposed by the
Revenue, there is no specific question, that this
finding of the authorities below is perverse. There is
of course a very broad based and general question that
the order passed by the Income-tax Appellate Tribunal is
perverse in law and on facts. According to us, such a
question is vague. A perusal of the grounds of appeal
would substantiate this aspect of the matter. There is
no ground taken by the Revenue whereby the substantial
findings of fact have been challenged by the Revenue as
being perverse.

¶118

PARKASH CHAND 2015.08.06 16:58 I attest to the accuracy and authenticity of this document

¶119

ITA-352-2013

¶120

- 15 -

¶121

29. An important aspect of the matter which clearly
distinguishes the instant case from the facts of the
other cases cited before us is, that the net effect of
the accounting methodology employed by the assessee was
that it did not, in sum and substance, impact the
derivation of profits and gains ascertainable for the
purposes of deduction under section 80-IB of the Act.

¶122

30. As noted by the Division Bench of this court in
Eltek SGS P. Ltd., [2008] 300 ITR 6, the language of
section 80-IB is materially different from those
obtaining in the cases cited by the counsel for the
Revenue in Sterling Foods, [1999] 237 ITR 579 (SC),
Cambay Electric Supply, [1978] 113 ITR 84 (SC),/. B.
Exports, [2006] 286 ITR 603 (Delhi), Viswanatkan and
Co., [2003] 261 ITR 737 (Mad) as well as Ritesh
Industries, [2005] 274 ITR 324 (Delhi). The language
with respect to the provisions referred to in such cases
except Cambay Electric Supply, [1978] 113 ITR 84 (SC),
read as “profits and gains derived from an industrial
undertaking” as against the language appearing in
section 80-IB of the Act which is “profit and gains
derived from any business”. We respectfully agree with
the view of the Division Bench in Eltek SGS, [2008] 300
ITR 6 (Delhi) which has held that the test of proximity,
i.e., direct nexus with the industrial activity is not
necessary while claiming deduction under section 80-IB
of the Act.”

¶123

The judgment was followed by a Division Bench of the Delhi High Court
in Commissioner of Income-Tax vs. Sportking India Ltd., [2010] 324
ITR 283 (Delhi).

¶124

14. For the reasons we have already stated, we are, with
respect, unable to agree with the decisions of the Delhi High Court.
In our view, they are also contrary to the judgment of the Supreme
Court referred to above and, therefore, must be deemed to have been
impliedly overruled. In Commissioner of Income Tax vs. Dharam Pal
Prem Chand Ltd. (supra), the Division Bench agreed with the findings
of the authorities that the refund of excise duty is “pivoted” on the
manufacturing activity carried on by the assessee. The question, with
respect, is not whether the refund is “pivoted” on the manufacturing
activity carried on by the assessee but whether it is a profit or

¶125

PARKASH CHAND 2015.08.06 16:58 I attest to the accuracy and authenticity of this document

¶126

ITA-352-2013

¶127

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¶128

gain derived from the business. That the incentive may have some
connection with or is pivoted on the business is not relevant.

¶129

15. Question No.(iv) is, therefore, answered in favour of the
Revenue. The assessee is not entitled to the benefit of section 80-
IC in respect of the sales tax rebate obtained by it.

¶130

Now re: Question No.(v) :

¶131

16. It was noticed by the Assessing Officer that the assessee
had received interest on FDRs kept with the bank as margin money. He
treated the same as income from other sources and not profit derived
from industrial undertaking. Accordingly, he disallowed the
deduction. The Tribunal remanded the issue to the Assessing Officer
for fresh adjudication in accordance with law and by keeping in view
a decision of this Court referred to therein. As the matter has been
kept open, no question of law arises. No interference is called for.

¶132

(S.J. VAZIFDAR) ACTING CHIEF JUSTICE

¶133

04.08.2015 parkash*

¶134

 (G.S. SANDHAWALIA)
 JUDGE
Note: Whether reportable: YES

¶135

PARKASH CHAND 2015.08.06 16:58 I attest to the accuracy and authenticity of this document

Commissioner of Income Tax Patiala v. M/S H.M. Steels Ltd. Sangrur Road Dirba Sangrur

Case brief

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Commissioner of Income Tax Patiala v. M/S H.M. Steels Ltd. Sangrur Road Dirba Sangrur

Case brief

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What did the court decide?

What the court decided

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