Itta/254/2003 Of The Commissioer Of Income Tax I v. M/S Globe Organics Limited

* THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.254 of 2003 %Date: 12.11.2014 The Commissioner of Income Tax-I, Hyderabad.and …appellant. $M/s. Globe Organics Limited. …Respondent ! Counsel for appellant: Sri J.V.Prasad ^ Counsel for Respondent : Sri Pushyam Kiran < GIST: > HEAD NOTE: ? Cases referred THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM JUDGMENT:(Per the Hon’ble Sri Justice L.Narasimha Reddy) The respondent is a manufacturer and exporter of drugs andintermediaries and the unit was established in an area declared as‘Backward’. In the income tax returns submitted for the assessmentyear 1993-94, it claimed deduction under four heads, viz., (a) interestreceived on letter of credit/margin money, being Rs.4,35,858/- (b) interest on intercorporate deposits of Rs.10,30,980/- (c) interest inthe form of rebate given by ICICI Bank, being Rs.7,30,000/- and (d)lease rent of Rs.25,000/-. The Assessing Officer disallowed all theclaims. In the appeal preferred by the respondent, theCommissioner of Income Tax (Appeals) granted the relief in respectof items (a) and (c). The respondent filed I.T.A.No.1902/Hyd/1996,feeling aggrieved by the denial of relief in respect of (b) and (d)before the Hyderabad Bench ‘B’ of the Income Tax AppellateTribunal (for short ‘the Tribunal’). Through order, dated 27.11.2001,the Tribunal allowed the appeal. Hence, this further appeal underSection 260A of the Income Tax Act, 1961 (for short ‘the Act’). Heard Sri J.V.Prasad, learned counsel for the appellant and Sri Pushyam Kiran, learned counsel for the respondent. Though the Assessing Officer disallowed four claims made bythe respondent, the Commissioner granted the relief in respect oftwo, and the relief, as regards remaining two, was granted by theTribunal. The order passed by the Commissioner granting relief inrelation to items (a) and (c) has assumed finality. We are concernedwith the grant of relief as regards items (b) and (d). The deduction allowed under Section 80HH of the Act is inthe form of incentive for establishment of an industry in a backward area. The interest paid on intercorporate deposits can by no meansis said to be an activity of the industry so established. When themaking of intercorporate deposits itself is not part of themanufacturing activity, the question of the income derived therefrombeing treated as qualified for deduction under Section 80HH of theAct, does not arise. In I.T.T.A.No.216 of 2003, this Court dealt with the matter and thesame factual situation obtains in this case also. The other item regarding which the Tribunal granted the reliefis the lease rent, aggregating to Rs.25,000/-. Necessary facts arenot placed before this Court. In case the lease is referable to, orconnected with the principal activity of manufacture, the deductioncan certainly be allowed. However, if the principal activity is only ofmanufacturing drugs, it is difficult to infer the leasing of anymachinery or premises as part of that activity. At any rate, theTribunal also did not analyse and record a finding that the leasingwas part of the principal activity of the respondent. Therefore, wefind that the view taken by the Tribunal cannot be sustained in law. Hence, the appeal is allowed and the order passed by theTribunal is set aside. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J.