$~29.
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 1279/2007
Date of decision: 4th October, 2013
KRISHAK BHARATI COOPERATIVE LTD.
..... Appellant
Through Mr. S. Ganesh, Sr. Advocate with
Ms. Surekha Raman, Advocate.
versus
JOINT COMMISSIONER OF INCOME TAX
..... Respondent
Through Mr. Rohit Madan, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
This appeal by the assessee, which relates to Assessment Year
1995-96, raises the following substantial questions of law, which were
admitted for hearing vide order dated 6th September, 2011:-
" (1) Whether in the facts and circumstances of
the case, the Tribunal was justified in holding
that service charges received from the Heavy
Water Board of Department of Atomic Energy
could not be considered as profit derived from
the industrial undertaking to qualify for
deduction under Section 80-I of the Act?
(2) Whether-
(i) interest income from employees on advances;
ITA No. 1279/2007 Page 1 of 8
(ii) service charges from Heavy Water Plan;
(iii) equipment hire charges;
(iv) crane hire charges;
(v) Ammonia Tanker hire charges; and
(vi) interest income from banks and financial
institutions are the items of income eligible for
deduction under section 80-I of the Income Tax
Act."
2. The said order dated 6th September, 2011 records that in an
earlier decision dated 15th November, 2006 in the case of the
appellant, reported as (2008) 300 ITR 92 (Delhi), service charges,
equipment hire charges and interest on loans to employees, it was held
would not be entitled to special deduction under Section 80-I of the
Income Tax Act, 1961 (Act, for short). On an appeal filed by the
appellant-assessee, the Supreme Court remanded the case to the
tribunal in respect of service charges. Insofar as equipment hire
charges and interest on loan to employees were concerned, the same
were not pressed having regard to the small amount involved. The
order dated 6th September, 2011 records; whether earlier decision
reported in (2008) 300 ITR 92 (Delhi) would be applicable or not, was
a question, which would be examined at the time of final arguments.
3. Having heard learned counsel for the appellant, we feel that the
aforesaid decision in the case of the assessee, which pertains to
Assessment Year 1994-95, squarely applies as far as equipment hire
charges and interest on loan to employees are concerned. It has been
ITA No. 1279/2007 Page 2 of 8
held in the said decision reported in (2008) 300 ITR 92 (Delhi) that
the two amounts do not constitute profits and gains "derived from"
industrial undertaking as mentioned in sub-section (1). Section 80-I
stipulates that the profit and gains derived by an assessee must directly
relate to gains/income of an industrial undertaking engaged in
manufacture or production of articles or things. The said decision of
the Division Bench is binding on us and the issue raised is squarely
covered. The same question/issue raised was considered and the
claim/contention of the appellant-assessee was rejected. We
accordingly following the said judgment reject the said claim. We
also record that crane hire charges would be also covered by the
aforesaid decision, which refers to equipment hire charges.
4. Ammonia tanker hire charges are also covered by decision of
this Court in the case of the appellant-assessee in ITA No. 955/2008
and other connected appeals, which were disposed of on 23 rd April,
2012. In the said decision, we have referred to the concept of
"derived from" and it was held that income earned from tanker hire
charges were not covered by the term "profits and gains derived from
an industrial undertaking". Learned counsel for the appellant has
submitted that a wrong factual statement was made by the appellant
that the carriage wagons were owned by the Railways. He submits
that carriage wagons were owned by the appellant and ammonia had
ITA No. 1279/2007 Page 3 of 8
to be transported to the consumer/customer in the specialised
container wagons. Ammonia had to be transported in highly
compressed and liquefied form.
5. Paragraph 14 of order dated 23rd April, 2012 in ITA No.
955/2008 reads as under:-
"14. Tank hire charges were received by the
appellant-assessee from the consumers to
whom Ammonia was supplied. It represents
payment for transportation. On query, it is
accepted/stated by the appellant that these tank
hire charges were separately billed and these
tanks were the carriage wagons owned by the
Railways. Transportation charges when
separately billed and charged cannot be
included in the profit and gain from
manufacturing activity undertaken by an
industrial unit. There is no evidence or material
that the transport charges paid and received
were intrinsically connected and linked with the
manufacturing activity and have to be treated as
sale proceeds for the goods sold. Normally,
transportation is after or post manufacture. The
onus was on the appellant assessee to show and
establish that in the present case, because of the
peculiarity of facts, transportation charges
should be treated as sales proceeds or part of
sale proceeds of the goods manufactured and
were intrinsically connected and had live link
with the manufacturing activity. In the absence
of aforesaid evidence and material placed by
the appellant assessee, the transportation
charges cannot be treated as profit and gain
derived from the manufacturing activity, which
qualifies for deduction under Section 80-I"
6. Even if we accept the contention of the appellant that the railway
wagons were owned by the appellant-assessee, we do not think the
ITA No. 1279/2007 Page 4 of 8
final outcome as held in ITA No. 955/2008 requires reconsideration.
The words "derived from" are much narrower and restrictive than the
words "attributable to". Income is said to be derived from an
industrial undertaking only if it is directly related to the running of the
industrial undertaking itself. It would not include income or gains
from any other commercial activity undertaken by the assessee.
Section 80-I specifically refers to and covers profit and gain derived
from an industrial undertaking. Sub-section (2) stipulates that the
industrial undertaking should manufacture or produce an article or
thing as specified. Thus, the emphasis is on the profits and gains of
the industrial undertaking, which manufactures or produces an article
or thing as specified. Transportation of ammonia, as in case of other
products, may require specialised container vessels or
wagons/transport vehicles, but the income derived would be earned
from transportation. Transport charges were specifically and
separately paid, would not be income or profits derived from an
industrial undertaking, which manufactured or produced articles or
things. Transportation even in specialised vehicles or wagons, was/is
a separate commercial activity. The said activity could be undertaken
by a third person, other than the appellant. The third party
transporters could/can have specialised vehicles or wagons for
transportation of ammonia. The aforesaid activity of transportation
ITA No. 1279/2007 Page 5 of 8
was post-manufacture and relates to activities outside the four walls of
the industrial complex or undertaking where manufacture or
production took/takes place. The Supreme Court in Liberty India
versus Commissioner of Income Tax, (2009) 9 SCC 328 had
examined the question whether duty drawbacks etc. payable could be
treated as profits and gains derived by an industrial undertaking under
Sections 80-I, 80(IA) and 80(IB). It has been held that the said
amounts received do not qualify and cannot be treated as profits and
gains derived from an industrial undertaking. Referring to sub-
Section (5) of Section 80(IA) it was observed that for computation of
profits of eligible undertaking, we have to only look at the source of
income of the assessee relating to the eligible undertaking and exclude
any other income arising from other commercial activities indulged in
by the said assessee. It was elucidated:-
"33. On perusal of sub-section (5) of Section
80-IA, it is noticed that it provides for the
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-section
(5) of Section 80-IA, which are also required to
be read into Section 80-IB. [See Section 80-
IB(13).] We may reiterate that Sections 80-I,
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
ITA No. 1279/2007 Page 6 of 8
are linked to profits and not to investment.
34. On an analysis of Sections 80-IA and 80-IB
it becomes clear that any industrial undertaking,
which becomes eligible on satisfying sub-
section (2), would be entitled to deduction
under sub-section (1) only to the extent of
profits derived from such industrial undertaking
after specified date(s). Hence, apart from
eligibility, sub-section (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".
(emphasis supplied)
7. To examine whether the income was derived from an industrial
undertaking, it is imperative to trace the source of profit or income to
manufacture/production. Transportation, as noted above, is post-
manufacture and takes place after the goods or articles have been
manufactured in the industrial undertaking. They relate to activity of
transportation of the said articles or goods from the factory to the
place of the consumer/customer. It is a service and does not partake
character and is not a part of manufacture. Question No. 2(ii) in
respect of ammonia tanker hire charges is, therefore, to be decided
against the appellant-assessee.
8. Question No. (1) and item No. (ii) of question No. (2) are inter-
connected. The said issue is covered in favour of the appellant-
assessee and against the revenue vide judgment dated 24th July, 2013
ITA No. 1279/2007 Page 7 of 8
in ITA No. 1248/2010 titled Krishak Bharti Cooperative Limited
versus Deputy Commissioner of Income Tax and Another. In the
said judgment after examining the nature and character of the service
charges, the agreement between the appellant and Heavy Water
Board, Department of Atomic Energy, Government of India, a
Division Bench has opined that the appellant-assessee would be
entitled to benefit under Section 80-I in respect of service charges
received and the same were profits and gains derived from an
industrial undertaking. Question Nos. (1) and (2)(ii) are accordingly
answered in favour of the appellant-assessee and against the Revenue.
The appeal is disposed of. No order as to costs.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
OCTOBER 04, 2013
VKR
ITA No. 1279/2007 Page 8 of 8
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