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KRISHAK BHARATI COOPERATIVE LTD. Vs. JOINT COMMISSIONER OF INCOME TAX
October, 11th 2013
$~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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