- (1.) THIS appeal has been preferred by the assessee proposing following substantial questions of law arising out of order of the Tribunal, Delhi Bench 'E', New Delhi, in ITA No. 2809/Del/2001, for the asst. yr. 1996 -97: "(i) Whether, on the facts and circumstances of this case, the Tribunal was right in law to hold that appellant was not entitled to deduction under s. 80 -IA in respect of profits and gains from the business of sale of PVC, Liberty Shoes got manufactured according to its own specifications, design, etc. ? (ii) Whether, on the facts and circumstances of this case, the interpretation on s. 80 -IA placed by the Tribunal is legally correct when it has not focused its attention on the word 'any' business used in the said section -
(2.) THE assessee computed its income after deducting income of Rs. 37,95,908 under s. 80 -IA of the IT Act, 1961 (in short, 'the Act'). Claim of the assessee was that finished goods were purchased and exported and the said goods were not attributable to manufacturing activities of the assessee. Accordingly, the AO disallowed the claim, which was affirmed by the CIT(A) as well as by the Tribunal. However, claim to the extent the goods were manufactured by the assessee was allowed.
(3.) WE have heard learned counsel for the parties and have perused the relevant finding of the Tribunal on the said questions, which is to the following effect : "21. The issue before us revolves around as to whether the profit derived by the assessee from export of finished goods purchased by it can be considered to be the profits derived from the industrial undertaking of the assessee which is inter alia, engaged in the manufacture of footwear. We find the legal position in this regard is now well settled by various judgments of the apex Court. The decision of the apex Court in the case of Cambay Electrical Supply Co. Ltd. 1978 CTR (SC) 50 : (1970) 113 ITR 84 (SC) makes a distinction between the expression namely 'attributable to' and 'derived from'. According to the Hon'ble apex Court the expression 'attributable to' has a much wider import than the expression 'derived from' thereby intending to cover receipts from sources other than the actual conduct of the business of the industrial undertaking. In other words, it can be understood to mean that there can be receipts which are incidental to the actual conduct of the business of industrial undertaking yet the same may not fall within the expression of 'derived from' so as to be eligible for the benefits envisaged under s. 80 -IA of the Act. Another notable judgment on the issue is in the case of Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). Herein also, the apex Court opined that where the nexus between the income and the industrial undertaking was not direct but was only incidental, it would not fall within the expression 'profits derived from industrial undertaking'. Similar is the decision of the Hon'ble apex Court in the case of Pandian Chemicals Ltd. (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC). Their Lordships, in the aforesaid case, were dealing with the question as to whether the interest derived from the deposit made with the Electricity Board could be construed as a profit derived from the industrial undertaking of the assessee for the purposes of deduction under s. 80HH. According to the Hon'ble apex Court, the said income was not eligible for the purposes of the claim under s. 80HH. In the instant case before us, we do not find ample ground to hold that the income derived by the assessee from the export of traded goods could be said to have been derived from the industrial undertaking of the assessee and, therefore, the AO was correct in excluding the same for the purposes of computing deduction under s. 80 - IA of the Act. The reason being that the impugned business of the eligible undertaking of the assessee is the manufacture and sale of PVC and footwear, i.e., the goods so manufactured by the industrial undertaking per se. Although the profits from such exports, on parameters of being incidental to business, can fall within the scope of the business of the assessee, yet it cannot be said to have been derived from the eligible industrial undertaking of the assessee, so as to be eligible for deduction under s. 80 -IA of the Act. Therefore, on this count, we do not sustain the stand of the assessee. The Revenue has to succeed on this issue. 22. Insofar as the stand of the assessee regarding reliance on the decision of the apex Court in the case of Ashok Leyland Ltd. (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC) is concerned, the same is misplaced. The assessee contended that the purchase of finished goods by it according to his requirement and of specific design, etc. would constitute the business of the assessee's industrial undertaking on account of the decision of Ashok Leyland (supra). The Hon'ble apex Court was dealing with the provisions of s. 80 -I as they stood for the asst. yrs. 1966 -67 and 1967 -68. Sec. 80 -I, at that time, was couched with the words 'attributable to', whereas during the year under consideration, the provisions of s. 80 -I are couched with the words 'derived form'. The distinction between the two expressions has already been discussed by us in the earlier part of our order and is thus, in our view, reliance placed by the CIT(A) and by the respondent -assessee on the decision of the apex Court in the case of Ashok Leyland (supra) is not relevant." Learned counsel for the appellant submitted that once the assessee qualified for exemption under s. 80 -IA of the Act by being covered by the description of industrial undertaking, any profit earned by the business of the assessee was eligible for deduction. It was not necessary that the business (sic income) must be from activity of industrial undertaking as such.;