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Federation of Safety Glass, S-2, 2nd Floor, D2, Abhishek Tower, Alalknanda Commercial Complex, Kalkaji, New Delhi 110 019 Vs. Director of Income Tax(E), F-2, 26th floor, Civic Centre, New Delhi
March, 04th 2015


                   ITA Nos.3956 &6457/Del/2012
                Assessment Years : 2008-09 & 2009-10

ACIT,                             Vs. THDC India Ltd.,
Circle Haridwar,                      Bhagirathi Bhawan,
D-29 & 30, Industrial Area,           Pragatipuram,
Haridwar.                             Bye Pass Road,

                                       PAN: AAACT7905Q

                      CO Nos.91 & 92/Del2014
                  (ITA Nos.3956 &6457/Del/2012)
                Assessment Years : 2008-09 & 2009-10

THDC India Ltd.,                  Vs. ACIT,
Bhagirathi Bhawan,                    Circle Haridwar,
Pragatipuram,                         D-29 & 30, Industrial Area,
Bye Pass Road,                        Haridwar.


  (Appellant)                             (Respondent)

            Assessee By       :    None
            Department By     :    Shri J.P. Chandrakar, Sr. DR
                                                     ITA No.3956 & 6457/Del/2012
                                                         CO Nos.91 & 92/Del/2014

         Date of Hearing                :   02.03.2015
         Date of Pronouncement          :   03.03.2015

     These two appeals by the Revenue and equal number of cross

objections by the assessee relate to the AYs 2008-09 and 2009-10.

2.   Since common issues are involved in these appeals, we are

proceeding to dispose them off by this consolidated order for the sake of


Assessment Year 2008-09

3.   The Revenue is aggrieved against the allowing of deduction u/s

80IA on the amount of `Excess provision written back' and `Late

payment charges'.

4.   Briefly stated, the facts of the case are that the assessee is a joint

venture company of the Government of India and the Government of

                                                    ITA No.3956 & 6457/Del/2012
                                                        CO Nos.91 & 92/Del/2014

Uttar Pradesh. It is engaged in the business of generation of hydro-

electricity. Apart from the income from the direct generation of power,

the assessee also earned income classified as `Other incomes' detailed as

under :-

     Income from bank deposit            Rs. 14465893.10

     Interest from employees             Rs. 23555964.00

     From others                         Rs.      2824.17

     Machine hire charges                Rs.   1298369.00

     Rent receipts                       Rs.   2626552.96

     Sundry receipts                     Rs.   6418412.34

     Excess provision written back       Rs. 11611006.22

     Profit on sale of assets            Rs.   1191502.46

     Late payment surcharge              Rs.   4451755.00

           Total                         Rs.6,56,22,279.25

5.   The AO observed that the assessee claimed deduction u/s 80IA on

all the above items of income except `Interest from bank' to the tune of

Rs.1,01,12,153/- and `Profit from sale of assets'. It was opined that the

                                                      ITA No.3956 & 6457/Del/2012
                                                          CO Nos.91 & 92/Del/2014

other items of income as listed in the above table were derived from

independent source of income and did not have any first degree nexus

with the generation of power. Relying on the judgment of the Hon'ble

Supreme Court in the case of Liberty India vs. CIT (2009) 317 ITR 218

(SC), he denied deduction u/s 80IA on the remaining items. The ld.

CIT(A) got convinced with the assessee's contention in respect of

`Excess provision written back' and `Late payment charges' for which

he ordered for the grant of deduction u/s 80IA.            The Revenue is

aggrieved against such direction of the ld. CIT(A).

6.   We have heard the ld. DR and perused the relevant material. There

is no appearance from the side of the assessee. Here, it is relevant to

mention that the appeal was preponed for today at the written request of

the assessee's counsel. Despite that, a request for adjournment has been

filed, which has been rejected by us. We are, therefore, going ahead with

the disposal of these appeals ex parte qua the assessee, on merits.

7.   It is seen that the entire controversy lies in a narrow compass, as to

whether the above items of income qualify for deduction u/s 80-IA. At

                                                      ITA No.3956 & 6457/Del/2012
                                                          CO Nos.91 & 92/Del/2014

this juncture, it is relevant to set out sub-section (1) of section 80IA

which provides that : `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 the profits and gains derived from such

business for ten consecutive assessment years'.          A perusal of the

mandate of sub-section (1) manifestly divulges that the deduction is

available at the rate of 100% of the profits and gains `derived from' the

eligible business.    The expression `derived from' has received the

attention of the Hon'ble Apex Court in several cases. In Liberty India

(supra), the question was as to whether DEPB/duty drawback is eligible

for deduction u/s 80-IB. Repelling such contention raised on behalf of

the assessee, the Hon'ble Apex Court held that DEPB/duty drawback are

incentives which are not profits derived from the eligible business and

                                                      ITA No.3956 & 6457/Del/2012
                                                          CO Nos.91 & 92/Del/2014

therefore, fail to form part of net profits of the industrial undertaking for

the purposes of s. 80-IA or 80-IB. It was specifically held that : `It is

evident that s. 80-IB provides for allowing of deduction in respect of

profits and gains derived from the eligible business. The words "derived

from" are 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.

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'. In the case of Pandian Chemicals vs.

CIT (2003) 262 ITR 278 (SC), the issue was whether the Interest earned

by industrial undertaking on deposits with Electricity Board qualifies for

relief under s. 80HH. In this section also, the expression used is `derived

from'. Answering the question in favour of the Revenue, the Hon'ble

Summit Court held that : `The words 'derived from' in s. 80HH must be

understood as something which has direct or immediate nexus with the

                                                      ITA No.3956 & 6457/Del/2012
                                                          CO Nos.91 & 92/Del/2014

appellant's industrial undertaking. Although electricity may be required

for the purposes of the industrial undertaking, the deposit required for its

supply is a step removed from the business of the industrial undertaking.

The derivation of profits on the deposit made with Electricity Board

cannot be said to flow directly from the industrial undertaking itself.

Where the words are unequivocal, there is no scope for importing any

rule of interpretation as submitted by the appellant'.      It is discernible

from a survey of the above and several other decisions on the point that

the expression `derived from' is narrower in scope vis-à-vis the

expression `attributable to it.'    An income to be `derived from' a

particular source, must have a direct and immediate nexus with such

source. In other words, such income must directly emanate from the

eligible undertaking and should not have an indirect nexus alone. If an

income is indirectly connected with the eligible undertaking, then that

income loses the direct nexus and hence cannot be considered as

`derived from' the eligible undertaking. With the above understanding

of the ambit of the expression `derived from,' we now move forward to

                                                      ITA No.3956 & 6457/Del/2012
                                                          CO Nos.91 & 92/Del/2014

determine as to whether the two items on which the ld. CIT(A) directed

to allow deduction can be construed as `derived from' the industrial


I. Excess provision written back:

8.   This amount represented reversal of excess provision of salary made

in the past in respect of pay revision which was implemented during the

previous year under consideration. The claim of the assessee before the

ld. CIT(A) was that since the provision was found to be in excess, it was

written back in the accounts as `Income' during the previous year.

There is hardly any need to emphasize that salary paid by an undertaking

is part of expenditure otherwise deductible in computing the income

derived from the eligible undertaking. If in the preceding year, the

deduction was claimed for a higher sum, which reduced the eligible

profit with such higher amount of deduction and the actual expenditure

turned out to be less with the result that the excess provision gets written

back in the instant year, it cannot be characterized as anything other than

part and parcel of profit derived from eligible enterprise. In reality, the

                                                   ITA No.3956 & 6457/Del/2012
                                                       CO Nos.91 & 92/Del/2014

excess provision written back is not an income in itself, but, a reduced

amount of eligible deduction in the computation of profits derived from

eligible enterprise. We, therefore, approve the view taken by the ld.

CIT(A) on this issue.

II. Late payment charges:

9.    The ld. CIT(A) has recorded that this receipt represented extra

payment received by the assessee from its customers on account of late

payment of their dues.      The character of this receipt has not been

disputed by the ld. DR.      In essence, the late payment charges are

nothing, but, part of sale consideration which cannot be viewed

differently. Once deduction is available on sale consideration, there can

be no reason to deny deduction on such late payment charges, which

are part and parcel of such sale consideration. We, therefore, uphold the

impugned order allowing deduction u/s 80IA on this amount.

10.   In the Cross Objections, the assessee is aggrieved against not

allowing of deduction u/s 80IA on the remaining amounts.

                                                    ITA No.3956 & 6457/Del/2012
                                                        CO Nos.91 & 92/Del/2014

I. Interest on employees:

11.    The first item is interest which was received against advances to

its employees for various purposes, such as, house building, purchase of

computer, etc. Even though the employees were engaged in power

generation, the fact remains that the interest received by the assessee on

loans advanced by the assessee to its employees cannot be characterized

as income `derived from' eligible undertaking. There is no direct nexus

of such interest income with the eligible undertaking inasmuch as the

immediate source of such income is not the eligible undertaking. Such

income may be attributable to the business of the eligible undertaking,

but, cannot be held as derived from the eligible undertaking. The view

taken by the ld. CIT(A) on this issue is upheld.

II. Machines hire charges:

12.   The assessee received hire charges in respect of certain machines

which were given on hire to its contractors who were engaged in the

erection and construction of the power generation facility. We fail to

appreciate as to how such machine hire charges can be considered as
                                                   ITA No.3956 & 6457/Del/2012
                                                       CO Nos.91 & 92/Del/2014

derived from eligible undertaking. These do not have any direct nexus

with the eligible undertaking. The source of such income is hiring of

machines, which is step away from the eligible undertaking. The view

taken by the ld. CIT(A) on this score is upheld.

III. Rent Receipt:

13.   The assessee received rent from its employees' quarters as well as

temporary sheds given to contractors at project sites. Even though such

income may be considered as attributable to the eligible undertaking,

but, it can by no stretch of imagination, be described as `derived from'

the eligible undertaking. We, therefore, approve the view taken by the

ld. CIT(A) on this issue.

IV. Sundry Receipts :

14.   These amounts are in the nature of electricity charges, guest house

receipts, subsidized transport and miscellaneous receipts from the

employees and contractors. The reasons given by us hereinabove for not

allowing deduction in respect of the items mentioned above apply with

                                                       ITA No.3956 & 6457/Del/2012
                                                           CO Nos.91 & 92/Del/2014

full force in respect of such sundry receipts as well. These receipts

cannot be considered as `derived from' the eligible undertaking. We,

therefore, approve the view taken by the ld. CIT(A) on this score.

15.   In the result, both the appeals are dismissed.

Assessment Year 2009-10

16.   The ld. DR fairly submitted that the facts and circumstances of

both the appeals for this year are, mutatis mutandis, similar to those for

the AY 2008-09.

17.   It can be seen from the Revenue's appeal that the dispute is against

the allowing of deduction by the ld. CIT(A) u/s 80IA on income from

`Excess provision written back' and `Late payment of surcharge.' Both

these items are similar to those which we discussed while disposing of

the appeal for the AY 2008-09.            Following the decision taken

hereinabove, we uphold the impugned order on this issue.

18.   In the Cross Objections filed by the assessee, the dispute is only

against not allowing deduction u/s 80IA in respect of the same items

                                                           ITA No.3956 & 6457/Del/2012
                                                               CO Nos.91 & 92/Del/2014

which were subject matter of the assessee's cross objections for the AY

2008-09.        Following the view taken hereinabove, we uphold the

impugned order on this issue as well.

19.       In the result, both the appeals are dismissed.

          The order pronounced in the open court on 03.03.2015.

               Sd/-                                             Sd/-
    [I.C. SUDHIR]                                    [R.S. SYAL]
 JUDICIAL MEMBER                                 ACCOUNTANT MEMBER

Dated, 03rd March, 2015.
Copy forwarded to:
     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                                                     AR, ITAT, NEW DELHI.

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