International Components India Ltd v. The Assistant Commissioner Of Income Tax Company Circle-Ii(3), Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE R.KARUPPIAH T.C.(A).No.713 of 2007 International Components India Ltd.7, Subbramaniasiva SalaiIndustrial EstateMaramalai NagarChennai – 603 209... AppellantVs. The Assistant Commissioner of Income Tax Company Circle-II(3), Chennai... Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal 'A' Bench,Chennai, dated 15.9.2006 made in I.T.A.No.307/Mds/2006 for the theassessment year 2000-2001 and appeal against the order of theCommissioner of Income Tax (Appeals) III Chennai in ITA.No.25/2005-06 dated 7.10.2005 and appeal against the order of the AssistantCommissioner of Income Tax Company circle II (3) Chennai-34 inGI.No.1X2-033/2000-01 dated 2.3.2005. The assessee has filed this appeal assailing the order of theIncome Tax Appellate Tribunal 'A' Bench, Chennai, dated 15.9.2006made in I.T.A.No.307/Mds/2006 for the the assessment year 2000-2001and the same was admitted on the following questions of law:(i)Whether the Tribunal was right in holding thatthe assessing officer was justified in rectifyingthe intimation under Section 143(1) of the Act by https://hcservices.ecourts.gov.in/hcservices/ resorting to provisions of Section 154 of the Act?(ii)Whether the Tribunal was right in law in holdingthat the question of admissibility of deduction ofinterest income under Section 10B of the Act is amistake apparent from the face of the record andhence the intimation under Section 153(1) can berectified in a proceeding under Section 154 of theAct? 2.1. The facts in a nutshell are as under: Theappellant/assessee is engaged in the business of manufacturing andexport of electronic battery charges and sub-assemblies and itsprofits are exempt under Section 10B of the Income Tax Act. For theassessment year 2000-2001, the assessee filed its return of incomeadmitting income of Rs.25,48,580/- and the return was processedunder Section 143(1) of the Act on 26.3.2002. 2.2. Subsequently, it was found by the Assessing Officer thatthe appellant has derived interest income of Rs.11,27,629/- fromdeposits with Corporation Bank, Electricity Board and on staffadvances. The Assessing Officer was of the view that the interestincome, as stated above, is not derived from the business of theundertaking and, therefore, the same is not eligible for exemptionunder Section 10B of the Act. On this premise, notice was issuedto the assessee under Section 154 of the Act setting out proposalsfor rectification and after considering the reply submitted by theassessee, the Assessing Officer excluded the interest income ofRs.11,27,629/- holding that the same is not eligible for exemptionunder Section 10B of the Act and assessed the same under the headother sources. 2.3. Challenging the said order, the assessee appealed to theCommissioner of Income Tax (Appeals) contending that the interestreceipts had direct nexus with the assessee's business and,therefore, should be allowed as income from business undertaking andexemption should be granted under Section 10B of the Act. TheCommissioner of Income Tax (Appeals) accepted the said plea raisedby the assessee and allowed the appeal. 2.4. Aggrieved by the said order, the Revenue preferred appealbefore the Tribunal. The Tribunal allowed the appeal of the Revenueand held as under:“3. We have heard the rival submissions in the light ofmaterial placed before us and precedents relied upon.Return filed by the assessee was processed undersection 143(1). Subsequently, it was found by the A.O.that assessee had interest income of Rs.11,27,629/-from deposits with Corporation Bank and assessee didrecover interest from staff of loans given. On thatbasis it was concluded that since the interest income https://hcservices.ecourts.gov.in/hcservices/ 2.4. Aggrieved by the said order, the Revenue preferred appealbefore the Tribunal. The Tribunal allowed the appeal of the Revenueand held as under:“3. We have heard the rival submissions in the light ofmaterial placed before us and precedents relied upon.Return filed by the assessee was processed undersection 143(1). Subsequently, it was found by the A.O.that assessee had interest income of Rs.11,27,629/-from deposits with Corporation Bank and assessee didrecover interest from staff of loans given. On thatbasis it was concluded that since the interest income https://hcservices.ecourts.gov.in/hcservices/ is not derived from the business of the undertaking,the same is not eligible for exemption under Section10B. Ex consequenti, eligible deduction under Section10B was reduced pro tanto by resorting to theprovisions of section 154. 4. As per the mandate of section 10B any profitsderived by a 100% export oriented undertaking from theexport of articles or things or computer software shallbe exempted from tax for the specified number of years.It is obvious from the perusal of the section thatprofits must be derived from the export orientedundertaking from the export of articles. Hon'bleSupreme Court in the case of Pandian Chemicals Ltd. v.CIT (262 ITR 278 – SC) has held that interest onsurplus funds cannot be said to be derived fromindustrial undertakings for the purpose of section 80HH.” 2.5. Calling in question the said order, the assessee has filedthis appeal on the questions of law, referred supra. 3. We have heard Mr.Venkat Narayanan, learned counsel appearingfor the assessee and Mr.T.Ravi Kumar, learned Senior StandingCounsel appearing for the Revenue and perused the orders passed bythe Tribunal and the authorities below. 4. The main plea raised by the learned counsel for theassessee is that the grant of deduction under Section 10B of the Actis a debatable issue, which does not fall within the purview ofprima facie adjustment under Section 143(1) of the Act, and,therefore, rectification under Section 154 of the Act is notpermissible, as the power of rectification can be invoked only inrespect of mistakes apparent on the face of record. 5. The above said plea of the assessee ex facie cannot becountenanced in view of the decision of the Supreme Court in PandianChemicals Ltd. v. Commissioner of Income-tax, [2003] 262 ITR 278 SC,wherein it is held as under: “It is clear, therefore, that the word 'derived from'in section 80HH of the Income-tax Act, 1961, must beunderstood as something which has direct or immediatenexus with the appellant's industrial undertaking.Although electricity may be required for the purposesof the industrial under-taking, the deposit requiredfor its supply is a step removed from the business ofthe industrial undertaking. The derivation of profitson the deposit made with Electricity Board cannot besaid to flow directly from the industrial undertaking https://hcservices.ecourts.gov.in/hcservices/ 5. The above said plea of the assessee ex facie cannot becountenanced in view of the decision of the Supreme Court in PandianChemicals Ltd. v. Commissioner of Income-tax, [2003] 262 ITR 278 SC,wherein it is held as under: “It is clear, therefore, that the word 'derived from'in section 80HH of the Income-tax Act, 1961, must beunderstood as something which has direct or immediatenexus with the appellant's industrial undertaking.Although electricity may be required for the purposesof the industrial under-taking, the deposit requiredfor its supply is a step removed from the business ofthe industrial undertaking. The derivation of profitson the deposit made with Electricity Board cannot besaid to flow directly from the industrial undertaking https://hcservices.ecourts.gov.in/hcservices/ itself. The learned counsel appearing on behalf of theappellant has referred to several decisions of theMadras High Court in order to contend that the word“derived from” could be construed to includesituations, where the income arose from somethinghaving a close connection with the industrial under-taking itself. All the decisions cited by the appellanthave been considered by the Madras High Court in thecase of Pandian Chemicals Ltd. [1998] 233 ITR 497. Wesee no reason to disagree with the reasoning given bythe High Court in Pandian Chemicals Ltd.'s case [1998]233 ITR 497 with respect to those decisions to holdthat they do not in any way allow the word “derived” insection 80HH to be construed in the manner contendedby the appellant. The learned counsel for theappellant then contended that having regard to theobject with which section 80HH was introduced in thestatute book, this court should give a liberalinterpretation to the words in a manner so as to allowsuch object to be fulfilled. The rules ofinterpretation would come into play only if there isany doubt with regard to the express language used.Where the words are unequivocal, there is no scope forimporting any rule of interpretation as submitted bythe appellant.” (emphasis supplied) 6. In the light of the above said decision, we are of the firmview that the interest earned from deposits with Corporation Bank,Electricity Board and on Staff advances does not have direct orimmediate nexus with the business of the assessee's undertaking andconsequently, they are not eligible for grant of deduction underSection 10B of the Act, which is akin to Section 80HH of the Actdealt with in the decision referred supra. 7. That apart, the Tribunal rightly relied upon a decision ofthis Court in Southern Industrial Corporation Ltd. v. Commissionerof Income Tax, (2002) 258 ITR 481 (Mad), wherein it is held that arectification to give effect to the law laid down by the SupremeCourt is valid. The relevant portion of the said decision isextracted hereunder: “When a statutory provision is interpreted by theSupreme Court in a manner different from theinterpretation made in the earlier decisions of asmaller Bench, the order which does not conform to thelaw laid down by the larger Bench in the later decisionwhich decision would constitute the law of the land andis to be regarded as the law as it always was, unlessdeclared by the court itself to be prospective in operation, would clearly suffer from a mistake whichwould be apparent from the record.” (emphasis supplied) 8. In such view of the matter, we have no hesitation to holdthat the order passed by the Assessing Officer under Section 154 ofthe Act is valid in the eye of law and the same has been rightlyupheld by the Tribunal, as the true intent behind passing such arectification order is to ensure that the law laid down by theSupreme Court in Pandian Chemicals case, referred supra, is strictosensu given effect to. For the foregoing reasons, this appeal is dismissed byanswering the questions of law against the assessee and in favour ofthe Revenue. No costs. operation, would clearly suffer from a mistake whichwould be apparent from the record.” (emphasis supplied) 8. In such view of the matter, we have no hesitation to holdthat the order passed by the Assessing Officer under Section 154 ofthe Act is valid in the eye of law and the same has been rightlyupheld by the Tribunal, as the true intent behind passing such arectification order is to ensure that the law laid down by theSupreme Court in Pandian Chemicals case, referred supra, is strictosensu given effect to. For the foregoing reasons, this appeal is dismissed byanswering the questions of law against the assessee and in favour ofthe Revenue. No costs. Sd/- Asst.Registrar (AD I) /true copy/ Sub Asst. RegistrarsasiTo:1. The Assistant Registrar, Income Tax Appellate Tribunal Chennai Bench "A", Chennai.2. The Secretary, Central Board of Direct Taxes, New Delhi.3. The Commissioner of Income Tax (Appeals) - III Chennai.4. The Assistant Commissioner of Income Tax Company Circle II (3), Chennai.1 cc to Mr.R. Venkatnarayanan, Advocate, Sr. 73251 cc to Mr.T. Ravikumar, Advocate, sr. 7160 T.C.(A).No.713 of 2007 KK (CO)kk 25/2