Winsome Yarns Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 67/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90253 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Keywords: Business income
• Section: 80HHC; 80IB; 10B; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO.67/CHD/2014 ASSESSMENT YEAR: 2008-09 WINSOME YARNS LTD. VS. THE ADDL. CIT SCO 191-192 RANGE IV SECTOR 34 A CHANDIGARH CHANDIGARH PAN NO. AAACW1911H (APPELLANT) (RESPONDENT) APPELLANT BY : SH. TEJ MOHAN SINGH RESPONDENT BY : SH. AMAR VEER SINGH DATE OF HEARING : 01/07/2015 DATE OF PRONOUNCEMENT : 09/07/2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14.11.2013 PASSED BY THE CIT(A), CHANDIGARH. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUND: 1 . THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAS THEREBY ERRED IN DENYING DEDUCTION U/S 10B OF THE INCOME TAX ACT 1961 ON INTEREST INCOME OF RS . 20,19,743/- AND MISC. INCOME OF RS. 44,000/- . INTEREST AND OTHER INCOME IS PART OF BUS INESS PROFITS ELIGIBLE FOR DEDUCTION U/S 10B. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE WAS HAVING THREE UNITS, UNIT-I & UNIT-II WERE LOCATED AT DERABASSI AND UNIT-III(KNITWEAR) WA S LOCATED AT MOHALI. IT WAS FURTHER NOTICED THAT UNIT-II WAS A CERTIFIED 100% E .O.U. AND THEREFORE DEDUCTION UNDER SECTION 10B WAS CLAIMED. ASSESSEE WAS ASKED T O FILE PROFIT & LOSS ACCOUNT SEPARATELY FOR ALL THE THREE UNITS. FROM THE DETAIL S IT WAS NOTICED THAT INTEREST AMOUNTING TO RS. 20,19,743/- WAS CREDITED TO THE TR ADING ACCOUNT OF E.O.U. 2 FURTHER THE SUM OF RS. 44,000/- WAS CREDITED ON ACC OUNT OF MISC. INCOME. ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF DEDUCTIO N IN RESPECT OF THESE TWO ITEMS BUT NO REPLY WAS GIVEN. THE AO FURTHER HELD T HAT DEDUCTION UNDER SECTION 10B WAS NOT ALLOWABLE ON INTEREST AND MISC. INCOME, IN THIS REGARD HE DISCUSSED THE ISSUE IN DETAIL AND RELIED ON THE FOLLOWING DEC ISIONS : 1. M/S LIBERTY INDIA VS. CIT 317 ITR 218 2. M/S STERLING FOODS VS. CIT 237 ITR 579 3. CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. C IT 113 ITR 84 4. M/S PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 4. ON APPEAL IT WAS MAINLY SUBMITTED THAT MANNER OF DETERMINING ELIGIBLE PROFITS U/S 10B HAS BEEN GIVEN IN SUB-SECTION(4) OF SECTION 10B AND ONCE AN INCOME FORMS THE PART OF BUSINESS OF ELIGIBLE UNDER TAKING, THERE WAS NO FURTHER MANDATE TO EXCLUDE THE SAME FROM THE ELIGIBLE PROFI TS. IT WAS FURTHER SUBMITTED THAT DECISION OF M/S LIBERTY INDIA VS. CIT (SUPRA) RELIED ON BY THE AO AND OTHER DECISIONS WERE RENDERED UNDER SECTION 80IA OF THE A CT AND THEREFORE NOT APPLICABLE. THE LD. CIT(A) EXAMINED THESE SUBMISSIO NS IN DETAIL AND HELD THAT ASSESSEE WAS NOT ENTITLED TO DEDUCTION ON THESE ITE MS I.E; INTEREST AND MISC. INCOME FOR DEDUCTION UNDER SECTION 10B. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT INCOME FROM INTEREST AND MISC. INCOME HAS BEEN ULTIMATELY ASSESSED AS BU SINESS INCOME. ONCE THIS INCOME ASSESSED AS BUSINESS INCOME THEN CORRESPONDI NG DEDUCTION HAS TO BE ALLOWED. HE ALSO REITERATED THE SUBMISSION MADE BE FORE THE LD. CIT(A). 6. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF LD. CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE FIND THAT LD. CIT(A) HAS DECIDED THIS ISSUE VIDE PARA 5 WHICH IS AS UNDER: 5. I HAVE CONSIDERED THE SUBMISSION OF THE LD. COU NSEL. FOR THE SAKE OF READY REFERENCE, PROVISIONS OF SUB-SECTION (1) AND SUB-SE CTION (4) ARE REPRODUCED BELOW: 10B. SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTAB LISHED HUNDRED PER CENT. EXPORT-ORIENTED UNDERTAKINGS. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DE DUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT. EXPORT-ORIENT ED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER, SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS 3 YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER, SOFTWARE, AS THE CASE MAY BE, S HALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE: (4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFIT S DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEA RS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. 5.1 THUS, DEDUCTION U/S 10 B IS ALLOWABLE ONLY OF S UCH PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU FROM THE EXPORT OF ARTICLES O R THINGS OR COMPUTER SOFTWARE. THE CONTENTION OF THE LD. COUNSEL THAT SUB-SECTION (4) OF SECTION 10B DOES NOT REQUIRE AN ASSESSEE TO ESTABLISH DIRECT NEXUS WITH THE BUSINESS OF 100% EOU IS NOT CORRECT, SINCE SUB-SECTION (4) ONLY DEALS WITH THE COMPUTATION PART AND THE CONDITIONS FOR ALLOWABILITY OF DEDUCTION U/S 10B H AVE BEEN ENUMERATED IN SUB- SECTION (1). THE LD. LD. COUNSEL FOR THE ASSESSEE H AS ALSO ARGUED THAT THERE IS NO MANDATE IN SECTION 10B TO EXCLUDE ANY INCOME FROM E LIGIBLE PROFITS IF THAT INCOME FORMS PART OF BUSINESS OF ELIGIBLE UNDERTAKING, BUT HE HAS NOT EXPLAINED AS TO HOW THE IMPUGNED INTEREST AND MISCELLANEOUS INCOMES ARE PROFITS AND GAINS FROM THE EXPORT. ACCORDING TO THE LD. LD. COUNSEL FOR THE AS SESSEE, THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF M/S LIBERTY IN DIA (P) LTD. IS NOT APPLICABLE TO THE APPELLANTS CASE, SINCE THAT JUDGEMENT RELAT ES TO SECTION 80IA, BUT THIS ARGUMENT OF THE APPELLANT IS WITHOUT ANY BASIS. IN FACT, BY APPLYING THE RATIO OF THIS JUDGEMENT, HONBLE ITAT, MUMBAI HAS HELD IN TH E CASE OF L&T INFOTECH LTD. [19 ITR (TRIB)361] AS UNDER: AS REGARDS THE CLAIM OF DEDUCTION U/S. 10A IN REL ATION TO OTHER INCOME, WE FIND THAT SECTION 10A(1) ALLOWS DEDUCTION ONLY I N RESPECT OF PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE. THE PROFIT DERIVED FROM THE EXPORT OF ART ICLES OR THINGS OR COMPUTER SOFTWARE HAS BEEN DEFIED U/S10A(4) TO MEAN THE PROF ITS OF BUSINESS OF UNDERTAKING IN THE PROPORTION OF EXPORT TURNOVER OF SUCH ARTICL ES OR THINGS TO THE TOTAL TURNOVER OF THE BUSINESS OF UNDERTAKING. THE PHRASE PROFIT O F THE BUSINESS OF THE UNDERTAKING HAS NOT BEEN DEFINED U/S 10A UNLIKE U/S 80HHC IN WH ICH PROFIT OF BUSINESS HAS BEEN DEFINED AS PROFIT OR LOSS COMPUTED UNDER THE H EAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. WHILE COMPRISING THE PROFI T UNDER THE HEAD PROFIT AND LOSS FROM BUSINESS OR PROFESSION, ANY ITEM OF INCOME WH ICH IS OF THE NATURE OF THE BUSINESS INCOME SUCH AS ANY INCIDENTAL BUSINESS INC OME OR PROFIT ATTRIBUTABLE TO THE BUSINESS HAS TO BE CONSIDERED AS PART OF PROFIT OF BUSINESS, BUT SUCH IS NOT THE CASE U/S. 10A WHERE PROFIT OF THE BUSINESS HAS NOT BEEN DEFINED. IN OUR VIEW, THE PHRASE PROFIT OF BUSINESS IN THE CONTEXT OF PROFI T DERIVED FROM THE BUSINESS OF UNDERTAKING IN RESPECT OF WHICH DEDUCTION IS ALLOWA BLE U/S. 10A, HAS TO BE CONSIDERED AS PROFIT OF THE ELIGIBLE BUSINESS OF TH E UNDERTAKING WHICH IS EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THIS VIEW GETS SUPPORT FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY IND IA PVT. LTD. (317 ITR 218). IN THAT CASE, THE HONBLE SUPREME COURT WAS CONCERNED WITH THE DEDUCTION U/S. 80IB IN WHICH CASE ALSO THE DEDUCTION WAS ALLOWABLE IN RESP ECT OF PROFIT DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT WAS HELD THAT T HE PROFIT DERIVED DID NOT COVER THE PROFIT FROM ANY SOURCES BEYOND THE FIRST DEGREE AND THAT ONLY PROFIT DERIVED FROM THE ELIGIBLE BUSINESS HAS TO BE CONSIDERED AND NOT ANY INCIDENTAL PROFIT OR PROFIT ATTRIBUTABLE TO THE BUSINESS. IT WAS ACCORDI NGLY HELD THAT THE DUTY DRAWBACK OR DEPB WOULD NOT FORM THE PART OF THE PROFIT OF TH E ELIGIBLE BUSINESS OF THE UNDERTAKING. THEREFORE, IN OUR VIEW, THE PROFIT DIRECTLY ARISING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE WILL HAVE TO BE CONSIDERED AS PROFIT OF BUSINESS AND NOT ANY OTHER INCOME WHICH IS INCIDENTAL OR ATTRIBUTABLE TO SUCH INCOME WHILE COMPUTING THE PROFIT DERIVED U/S 10A(4). IN THE PRESENT CASE, THE DEDUCTION HAS BEEN CLAIMED IN RESPECT OF OTHER INCOME WHICH INCLUDES D IVIDEND INCOME, INCOME FROM INVESTMENT, PROFIT FROM SALE OF ASSETS, INTERE ST FROM ICD, BANK DEPOSITS, INTEREST ON ADVANCE FOR BUSINESS OR TO EMPLOYEES AN D OTHER RECEIPTS. THE DIVIDEND INCOME, INCOME FROM INVESTMENTS AND PROFIT ON SALE OF ASSETS IS OBVIOUSLY OUT OF PURVIEW OF THE INCOME DERIVED FROM EXPORT OF ARTICLES OR THINGS OR 4 COMPUTER SOFTWARE. SIMILARLY, THE SOURCE OF INTERES T INCOME FROM THE ICDS BANK DEPOSITS, ADVANCE TO EMPLOYEE ETC. IS NOT THE EXPOR T OF ARTICLE OR THINGS. SUCH RECEIPT ARE FROM SOURCE BEYOND THE DEGREE. THE IMME DIATE SOURCE IS NOT THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE B UT THE BANK DEPOSITS ETC. THEREFORE, THE INTEREST INCOME WILL NOT BE ELIGIBLE FOR DEDUCTION U/S.10A. HOWEVER, THE PROVISION WRITTEN BACK WHICH IS AN INTEGRAL PAR T OF THE PROCESS OF COMPUTATION OF INCOME FROM THE EXPORT OF ARTICLE OR THINGS HAS TO BE CONSIDERED FOR DEDUCTION U/S 10A. DETAIL OF OTHER RECEIPTS IS NOT AVAILABLE. THE A.O. WILL OBTAIN THE DETAILS AND DECIDE THE ALLOWABILITY AFTER NECESSARY EXAMINA TION IN THE LIGHT OF ABOVE OBSERVATION AND AFTER HEARING THE ASSESSEE. WE HOLD ACCORDINGLY. 5.2 THE ONUS TO ESTABLISH THAT THE INTEREST AND MIS C. INCOMES, ON WHICH DEDUCTION U/S 10B WAS CLAIMED ARE, IN FACT, PROFIT FROM THE EXPORT, IS ON THE APPELLANT. AS THE APPELLANT HAS NOT DISCHARGED THAT ONUS, THE ASSESSING OFFICER IS RIGHT IN DISALLOWING DEDUCTION U/S 10B OF THE ACT O N THESE INCOMES. IN VIEW OF THIS DISCUSSION, IT IS HELD THAT THE APPELLANT IS NOT EL IGIBLE FOR DEDUCTION U/S 10B IN RESPECT OF INTEREST INCOME AND MISCELLANEOUS INCOME AND GROUND OF APPEAL TAKEN BY THE APPELLANT IS DISMISSED. 8. IN OUR OPINION LD. CIT(A) HAS CORRECTLY DECIDED THE ISSUE, WE ARE UNABLE TO AGREE WITH THE SUBMISSIONS OF LD. COUNSEL FOR THE A SSESSEE THAT WHEN INCOME IS ASSESSED AS BUSINESS INCOME THEN CORRESPONDING DEDU CTION HAS TO BE ALLOWED. THIS ISSUE AROSE BEFORE HONBLE SUPREME COURT IN CA SE OF STERLING FOODS VS. CIT (SUPRA). IN THAT CASE THE FOLLOWING QUESTIONS WAS F RAMED BEFORE THE APEX COURT. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE RECEIPT FROM T HE SALE OF IMPORT ENTITLEMENTS COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE RELIEF UNDER SECTION 80HH OF THE INCO ME TAX ACT, 1961? 9. THE HONBLE COURT NOTED THAT SIMILAR ISSUES AROS E BEFORE THE KARNATAKA HIGH COURT FOR EARLIER YEAR AND THE SAME WAS DECIDE D AGAINST THE ASSESSEE REPORTED AS STERLING FOODS VS. CIT [1984] 150 ITR 2 92. HOWEVER IN THE LATER YEAR THIS DECISION WAS NOT FOLLOWED. THE COURT FURTHER N OTED HOW IN THE EARLIER YEAR THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY FOLLO WING THE DECISION OF HONBLE SUPREME COURT IN CASE OF CAMBAY ELECTRIC SUPPLY IND USTRIAL CO. LTD. V. CIT (SUPRA). THE LOGIC FOR THE SAME IS GIVEN IN THE FOL LOWING PARA: THE QUESTION, THEREFORE, WAS WHETHER THE INCOME DERIVED BY THE ASSESSEE BY THE SALE OF THE IMPORT ENTITLEMENTS WAS PROFIT ND G AIN DERIVED FROM ITS INDUSTRIAL UNDERTAKING OF PROCESSING SEA FOOD. THE DIVISION BE NCH OF THE HIGH COURT CAME TO THE CONCLUSION THAT THE INCOME WHICH THE ASSESSE E HAD MADE BY SELLING THE IMPORT ENTITLEMENTS WAS NOT A PROFIT AND GAIN WHICH IT HAD DERIVED FROM ITS INDUSTRIAL UNDERTAKING. FOR THAT PURPOSE, IT RELIED UPON THE DECISION OF THIS COURT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT[1 978] 113 ITR 84. IT WAS THERE HELD THAT THE EXPRESSION ATTRIBUTABLE TO WAS WIDER IN IMPORT THAN THE EXPRESSION DERIVED FROM. THE EXPRESSION OF WIDER IMPORT, NAM ELY, ATTRIBUTABLE TO, WAS USED WHEN THE LEGISLATURE INTENDED TO COVER RECEIPT S FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. THE DIVISION BENCH OF THE HIGH COURT OBSERVED THAT TO OBTAIN THE BENEFIT OF SECTION 80 HH THE ASS ESSEE HAD TO ESTABLISH THAT THE PROFITS AND GAINS WERE DERIVED FROM ITS INDUSTRIAL UNDERTAKING AND IT WAS JUST NOT 5 SUFFICIENT THAT A COMMERCIAL CONNECTION WAS ESTABLI SHED BETWEEN THE PROFITS EARNED AND THE INDUSTRIAL UNDERTAKING. THE INDUSTRI AL UNDERTAKING ITSELF HAD TO BE THE SOURCE OF THE PROFIT. THE BUSINESS OF THE INDUS TRIAL UNDERTAKING HAD DIRECTLY TO YIELD THAT PROFIT. THE INDUSTRIAL UNDERTAKING HAD T HE DIRECT SOURCE OF THAT PROFIT AND NOT A MEANS TO EARN ANY OTHER PROFIT. REFERENCE WAS ALSO MADE TO THE MEANING OF THE WORD SOURCE, AND IT WAS HELD THAT THE IMPO RT ENTITLEMENTS THAT THE ASSESSEE HAD EARNED WERE AWARDED BY THE CENTRAL GOV ERNMENT UNDER THE SCHEME TO ENCOURAGE EXPORTS. THE SOURCE REFERABLE T O THE PROFITS AND GAINS ARISING OUT OF THE SALE PROCEEDS OF THE IMPORT ENTI TLEMENT WAS, THEREFORE, THE SCHEME OF THE CENTRAL GOVERNMENT AND NOT THE INDUST RIAL UNDERTAKING OF THE ASSESSEE. IN THE LATER YEAR THE ISSUE WAS DECIDED IN FAVOUR O F THE ASSESSEE BECAUSE THE HONBLE HIGH COURT NOTED THAT THERE WAS AMENDME NT IN THE ACT IN SECTION 28 BY FINANCE ACT 1990 BY INSERTION OF CLAUSE (III A) CLAUSE (III B). THUS BY OPERATION OF LAW ITSELF THE INCOME FROM SALE OF IMP ORT ENTITLEMENTS ETC. WAS TO BE TREATED AS BUSINESS INCOME. THEREAFTER THE HONBLE COURT GAVE THE FOLLOWING REASONING FOR NOT FOLLOWING THE EARLIER DECISION: WE HAVE ALREADY EXTRACTED WHAT WAS DECIDED BY THI S COURT. IT CANNOT BE SAID THAT THAT DECISION IS INCORRECT. WHAT HAS HAPPENED IS THAT THAT DECISION AS A BINDING PRECEDENT IS OF LITTLE VALUE IN THE LIGHT O F AMENDMENTS MADE TO SECTION 28 RETROSPECTIVELY. IT IS NOT BINDING ON US, THEN AT T HE TIME WE ARE CALLED UPON TO ANSWER A QUESTION FOR THE SUBSEQUENT ASSESSMENT YEA R, WE MUST LOOK AT THE LAW AS IT WAS AT THE RELEVANT TIME THAT IS RELEVANT FOR THE ASSESSMENT YEAR 1979-80. BOTH THE AMENDMENTS HAVE BEEN EFFECTIVE FROM 1962-63 AND THEREFORE, IN 1979-80, THE INCOME RECEIVED FROM THE GOVERNMENT OF INDIA BY SAL E OF IMPORT LICENSE AND INCENTIVES FOR EXPORT WAS INCOME WITHIN THE MEANING OF SECTION 28 ASSESSABLE TO TAX AS INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS IN THAT LIGHT THAT WE HAVE TO ANSWER THE QUESTION. FROM THE ABOVE IT BECOMES CLEAR THAT HIGH COURT DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT ONCE INCOME FROM SALE OF IMPORT ENTITLEMENTS WAS TO BE ASSESSED AS BUSINESS INCOME THEN ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 80 HH. THIS IS THE PRECISE CONTENTION WHICH HAS BEEN MADE BEFORE US BUT THIS CONTENTION DID NOT FIND FAVOUR WITH THE HONBLE SUPREME COURT AND IT WAS OBSERVED THAT IF I NCOME WAS NOT DERIVED FROM IMPORT ENTITLEMENTS THEN SAME WOULD NOT BE ELI GIBLE FOR DEDUCTION UNDER SECTION 80HH. CONCLUDING PARA OF THE JUDGMENT IS RE ADS AS UNDER : WE DO NOT THINK THAT THE SOURCE OF THE IMPORT ENT ITLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. T HE SOURCE OF THE IMPORT ENTITLEMENTS CAN, IN THE CIRCUMSTANCES, ONLY BE SAI D TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT WHEREUNDER THE EXP ORT ENTITLEMENTS BECOME AVAILABLE. THERE MUST BE, FOR THE APPLICATION OF TH E WORDS DERIVED FROM, A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND ONLY INCIDE NTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON O F SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERA TION THEREFROM CANNOT, IN OUR VIEW, BE HELD TO CONSTITUTE A PROFIT AND GAIN DERI VED FROM THE ASSESSEES INDUSTRIAL UNDERTAKING. 6 FROM ABOVE IT BECAME CLEAR THAT WHAT IS IMPORTANT I S NOT THE HEAD OF INCOME UNDER WHICH IT IS ASSESSED FOR DETERMINING WHETHER A PARTICULAR DEDUCTION IS ALLOWABLE OR NOT. THE IMPORTANT QUALIFICATION IS WH ETHER SUCH INCOME HAS BEEN DERIVED FROM SUCH IMPORT ENTITLEMENT OR NOT. RELEVA NT PART OF SECTION 10B READS AS UNDER: 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION , A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-O RIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SH ALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. PROVIDED .. (2) (3) (4) FOR THE PURPOSES OF SUB-SECTION(1), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER I RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEA RS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. (5). (6)..... (7). (8). (9). IT IS TO BE NOTED THAT SUB SECTION 4 PROVIDES THE F ORMULA FOR DETERMINATION OF THE DEDUCTION. THIS PROVISION CLEARLY REFER TO THE PROF ITS WHICH HAVE BEEN DERIVED FROM EXPORT OF ARTICLE OR THINGS THEREFORE, IN THIS SECTION ALSO THE REQUIREMENT OF PROFIT BEING DERIVED FROM THE ELIGIBLE ACTIVITY I.E ., EXPORT IS IMPORTANT IS PRESENT. IN OUR OPINION THE SAME PRINCIPLE WOULD APPLY WHICH HA S BEEN LAID DOWN BY THE HONBLE APEX COURT IN THE FOLLOWING CASES. 1. M/S STERLING FOODS VS. CIT 237 ITR 579 2. CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. C IT 113 ITR 84 THIS PRINCIPLE WAS AGAIN REITERATED IN A DETAILED F ASHION IN THE CASE OF M/S LIBERTY INDIA VS. CIT (SUPRA) 317 ITR 218 10. WE FURTHER FIND THAT THE QUESTION WHETHER THE C ONCEPT OF DERIVED FROM WOULD BE APPLICABLE IN CASE OF SECTION 10B ALSO CAM E FOR CONSIDERATION OF THIRD MEMBER (WHICH HAS EQUAL FORCE AS OF THE SPECIAL BEN CH) DECISION IN CASE OF ITO VS. BANYAN CHEMICALS P.LTD.310 ITR 384. AT PAGE 391 IT WAS OBSERVED AS UNDER: ON A PLAIN READING OF THESE TWO SUB-SECTIONS OF SECTION 10B, IT IS EVIDENT THAT A DEDUCTION IS TO BE ALLOWED ON SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS A ND AS COMPUTED UNDER SUB- SECTION(4) THEREOF. THE WORDS PROFIT AND GAINS AS ARE DERIVED BY ARE NARROWER THAN THE PROFITS ATTRIBUTABLE OR ARISING FROM THE B USINESS OF AN ASSESSEE OR AN UNDERTAKING. THE TERM DERIVED HAS BEEN SUBJECT MA TTER OF JUDICIAL INTERPRETATION IN VARIOUS DECISIONS, VIZ, CIT V. STERLING FOODS [1 999] 237 ITR 579(SC) AND PANDIAN 7 CHEMICALS LTD. V. CIT[2003] 262 ITR 278 (SC). IN ST ERLING FOODS [1999] 237 ITR 579 (SC), IT IS HELD THAT THE WORD DERIVE MEANS, GE T TO TRACE FROM A SOURCE; ARISE FROM, ORIGINATE IN, SHOW THE ORIGIN OR FORMATION OF . IN THIS CASE, THE COURT DEALT WITH THE NATURE OF IMPORT ENTITLEMENTS AND IT IS HE LD THAT THE SOURCE OF THE IMPORT ENTITLEMENTS COULD ONLY BE SAID TO BE THE EXPORT PR OMOTION SCHEME OF THE CENTRAL GOVERNMENT, WHEREUNDER THE EXPORT ENTITLEME NTS BECOME AVAILABLE. IT HELD THAT THERE MUST BE, FOR THE APPLICATION OF THE WORDS DERIVED FROM, A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTR IAL UNDERTAKING AND IN THE INSTANT CASE, THE NEXUS WAS NOT DIRECT BUT ONLY INC IDENTAL BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIED, WHEREU NDER, THE ASSESSEE WAS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT COULD SEL L. THE SALE CONSIDERATION THEREFROM COULD NOT BE HELD TO CONSTITUTE A PROFIT AND GAIN DERIVED FROM THE ASSESSEES INDUSTRIAL UNDERTAKING. THEREFORE IT IS CLEAR THAT FOR ALLOWING THE DEDUCTI ON IT HAS TO DETERMINED WHETHER PROFIT IS DERIVED FROM ELIGIBLE UNDERTAKING S OR NOT. SINCE INTEREST AND MISC. INCOME IN THE ABSENCE OF ANY DETAIL CANNOT BE SAID TO HAVE BEEN DERIVED FROM IMPORT ENTITLEMENTS THEREFORE, SAME IS NOT ENT ITLED FOR DEDUCTION. NO DETAIL OF THE INTEREST WAS FILED BEFORE. WE WOULD ALSO LIK E TO REFER TO THE OBSERVATIONS OF HONBLE SUPREME COURT IN CASE OF M/S PANDIAN CHEMIC ALS LTD. VS. CIT (SUPRA) IN THAT CASE THE ASSESSEE HAS RECEIVED THE INTEREST ON THE SECURITY DEPOSIT WITH THE ELECTRICITY DEPARTMENT WHICH IS ABSOLUTELY NECESSAR Y FOR PUTTING UP INDUSTRY BUT STILL THE HONBBLE SUPREME COURT MADE THE FOLLOWIN G OBSERVATIONS: THE WORDS DERIVED FROM IN SECTION 80HH OF THE INCOME-TAX ACT, 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A DIRECT OR IMMED IATE NEXUS WITH THE ASSESSEES INDUSTRIAL UNDERTAKING. ALTHOUGH ELECTRI CITY 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 UNDERTA KING. HELD ACCORDINGLY, THAT INTEREST DERIVED BY THE INDU STRIAL AND UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICI TY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTIO N UNDER SECTION 80HH. THEREFORE CLEARLY INTEREST CANNOT BE SAID TO HAVE B EEN DERIVED FROM IMPORT ENTITLEMENTS. IN VIEW OF THE ABOVE DETAILED DISCUSS IONS WE UPHOLD THE ORDER OF LD. CIT(A). 11. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/07/2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09/07/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR