M/S.indian Additives Ltd.,Express Highway,Manali, Chennai-600 068 v. The Assistant Commissioner Of Income Tax,Company Circle-Ii (3)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 19.11.2018 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR Tax Case (Appeal) No.1943 of 2008 M/s.Indian Additives Ltd.,Express Highway,Manali, Chennai-600 068.PAN AACC11445G ... Appellant -vs- The Assistant Commissioner of Income Tax,Company circle-II (3),121, Nungambakkam High Road,Chennai-600 034. ... Respondent Tax Case (Appeal) filed under Section 260-A of the IncomeTax Act, 1961 against the order of the Income-tax AppellateTribunal'A'Bench,Chennaidated13.06.2008inI.T.A.No.443/Mds/2007 for the assessment year 2003-04. For Appellant:Ms.Sree Lakshmi ValliFor Respondent :Mr.Karthik Ranganathan,Standing Counseland Mr.S.Rajesh,Junior Standing Counsel JUDGMENT(Delivered by T.S.Sivagnanam, J.) This appeal, filed by the assessee under Section 260A of theIncome-tax Act, 1961, (hereinafter referred to as “the Act”) isdirected against the order of the Income-tax Appellate Tribunal'A' Bench, Chennai, (for brevity “the Tribunal”) dated13.06.2008, in I.T.A.No.443/Mds/2007 for the assessment year2003-04. 2. Before we proceed to set down the substantial questionsof law, which arise for consideration, it would be necessary torefer to the order dated 19.01.2009, by which, the appeal wasadmitted. The Hon'ble Division Bench, while admitting theappeal, has not entertained all the substantial questions law https://hcservices.ecourts.gov.in/hcservices/ raised by the assessee. The order reads as follows:- “Heard the learned counsel for the assessee.Eight questions have been formulated for admissionof this appeal. 2. The first question of law is as follows:- “Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in rejectingthe appellant's computation pertaining to theinclusion of interest from deposits in thecomputation of deduction under section 80HHC ofthe Income Tax Act?” It is fairly stated by the learned counsel forthe assessee that this question is covered againstthe assessee by the decision of this Court in thecase of Dollar Apparels v. ITR, 294 ITR 484. Hence,the appeal is dismissed so far as it relates to thefirst question of law. 3. The second question of law runs as follows:-“Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in confirmingthe disallowance of a sum of Rs.5,50,000/- beingthe reimbursement of expenditure incurred by theManaging Director?” As far as the second question of law isconcerned, it is submitted by the learned counselfor the assessee that the assessee has filed anadditional affidavit to confirm before this Court asto what transpired before the Tribunal when thematter was argued before it by producing thememorandum of understanding. Hence, this questionis admitted subject to production of the additionalaffidavit and subject to the Court accepting thesame. 4. The third question of law, which is asunder, is admitted subject to production of IALSupervisor's Separation Scheme, 2001: “Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in nowallowing the entire compensation paid to itsemployees on termination of their services as anallowable expenditure?” 5. The fourth question of law, as to whether,on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal is right in law innot adjudicating on the exclusion of income fromother sales and scrap sales from total turnoverwhile computing relief under section 80HHC of theAct, is not take up for consideration as there was a 4. The third question of law, which is asunder, is admitted subject to production of IALSupervisor's Separation Scheme, 2001: “Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in nowallowing the entire compensation paid to itsemployees on termination of their services as anallowable expenditure?” 5. The fourth question of law, as to whether,on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal is right in law innot adjudicating on the exclusion of income fromother sales and scrap sales from total turnoverwhile computing relief under section 80HHC of theAct, is not take up for consideration as there was a clear adjudication on the issue of scrap sale.6. Questions of law Nos.5, 6, 7 and 8 areadmitted as it is stated by the learned counsel thatthe assessee's own case in T.C. (A) No.350 of 2008raising similar questions was admitted on30.06.2008. Those questions of law are:5.Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in allowingthe claim relating to scrap and other sales incomputing the relief under section 80HHC of theAct?6. Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in notaccepting the inclusion of the following amountsin computing deduction under Section 80 IB ofthe Act: a) Commissionb) Receipts from contractorsc) Margin moneyd) Octrol7. Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in confirmingthe assessment of the interest received fromstaff as the appellant's income?8. Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in treating theentire interest received from employees asexempt under Section 80IB of the Act?Notice. Tag this appeal along with T.C. (A)No.350 of 2008.” 3. From the above, it is clear that the first substantialquestion of law was dismissed. 3.1. Substantial question of law No.2 was to be consideredsubject to the conditions laid down in paragraph 3 of the order. 3.2. Substantial question of law No.3 was subject toproduction of the scheme, which has been produced before us. 3.3. Substantial question of law No.4 was rejected, as theHon'ble Division Bench held that there has been an adjudicationof the issue on the sale of scrap. 3.4. So far as the subsequent questions of law nos.5, 6, 7and 8 are concerned, the same were admitted, since in theassessee's own case, similar questions were admitted in T.C. (A)No.350 of 2008. https://hcservices.ecourts.gov.in/hcservices/ 4. The learned counsel for the assessee sought to canvasscertain grounds with regard to substantial question of law no.1,which we cannot entertain, in the light of the above order.Thus, the following substantial questions of law alone arise forconsideration:- “1. Whether on the facts and in thecircumstances of the case the Income Tax AppellateTribunal is right in law in confirming thedisallowance of a sum of Rs.5,50,000/- being thereimbursement of expenditure incurred by theManaging Director? 2. Whether on the facts and in thecircumstances of the case the Income Tax AppellateTribunal is right in law in now allowing the entirecompensation paid to its employees on termination oftheir services as an allowable expenditure? 3. Whether on the facts and in thecircumstances of the case the Income Tax AppellateTribunal is right in law in allowing the claimrelating to scrap and other sales in computing therelief under section 80HHC of the Act? 4. Whether, on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal is right in law in not accepting theinclusion of the following amounts in computingdeduction under Section 80 IB of the Act: 2. Whether on the facts and in thecircumstances of the case the Income Tax AppellateTribunal is right in law in now allowing the entirecompensation paid to its employees on termination oftheir services as an allowable expenditure? 3. Whether on the facts and in thecircumstances of the case the Income Tax AppellateTribunal is right in law in allowing the claimrelating to scrap and other sales in computing therelief under section 80HHC of the Act? 4. Whether, on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal is right in law in not accepting theinclusion of the following amounts in computingdeduction under Section 80 IB of the Act: a) Commission b) Receipts from contractors c) Margin money d) Octroi 5. Whether, on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal is right in law in confirming theassessment of the interest received from staff asthe appellant's income? 6. Whether, on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal is right in treating the entire interestreceived from employees as exempt under Section 80IBof the Act?” 5. So far as the substantial question of law no.3 isconcerned, though it is observed in the above order that such aquestion was admitted in T.C. (A) No.350 of 2008, we find thatthe same has not been admitted. Therefore, we will have todecide the said question of law separately. 6. So far as the remaining substantial questions of law areconcerned, substantial questions of law nos.5 and 6 are fullycovered by the decision in the assessee's own case in T.C. (A)Nos.349 and 350 of 2008 dated 02.11.2018. The operativeportions of judgment read as follows:- https://hcservices.ecourts.gov.in/hcservices/ 48. In Liberty India vs. Commissioner of Income-tax [(2009) 183 Taxman 349 (SC)], the assesseeclaimed deduction under Section 80IB on theincreased profits earned/derived on account of DutyEntitlement Passbook (DEPB) Scheme and Duty DrawbackScheme. The Assessing Officer denied the deductionon the ground that the said two benefits constitutedexport incentives and that they did not representprofits derived from an industrial undertaking. Wehave to consider as to what would be the appropriatetest. https://hcservices.ecourts.gov.in/hcservices/ 48. In Liberty India vs. Commissioner of Income-tax [(2009) 183 Taxman 349 (SC)], the assesseeclaimed deduction under Section 80IB on theincreased profits earned/derived on account of DutyEntitlement Passbook (DEPB) Scheme and Duty DrawbackScheme. The Assessing Officer denied the deductionon the ground that the said two benefits constitutedexport incentives and that they did not representprofits derived from an industrial undertaking. Wehave to consider as to what would be the appropriatetest. 49. In Madras Motors Ltd. (supra), theDivision Bench held that the true test would bewhether such interest would be available to theassessee otherwise also, as in the said case, theassessee earned interest on belated payments frompurchase of products and if the answer to thequestion is in the negative, the assessee would beentitled for the deduction. Admittedly, theassessee does not carry on the business of financingfor housing loan and or for vehicles. Thebenefit/concession is extended to the employees ofthe assessee as a part of a labour welfare package. 50. It is not disputed by the Revenue that theassessee borrows amounts from the bank at a higherrate of interest and extends housing and vehicleloans to its employees at subsidised rates. Thus,these loans and advances being incentives to theemployees, has to be held to be directly relatableto the interest of industrial undertaking. 51. With regard to the advances paid to thesuppliers, the CIT(A) was of the view that theassessee would get a discount on account of paymentof such advances. On the other hand, the assesseehas been able to establish that on account ofpayment of advances, the supplies are done promptly,which is directly relatable to the business of theindustrial undertaking. Furthermore, it is also acommercially prudent decision to enable theindustrial undertaking to efficiently function togenerate better returns.“52. In Arul Mariammal Textiles Limited(supra), we had an occasion to consider similarissue and after taking note of several decisions onthe point, decided the question in favour of theassessee holding that the interest income earned bythe assessee is merely incidental and not the primepurpose of doing the act in question. In thisregard, it would be useful to take note of theoperative portions of the judgment, which read asfollows:- “10. As may be seen from the impugnedorder passed by the Tribunal, the Tribunalreiterated its earlier order dated 17.03.2006,wherein, the Revenue's appeal was allowed andeven at that stage, the Assessee did not appearbefore the Tribunal. The Tribunal followed thedecision in Pandian Chemical's case and heldthat the Assessee is not entitled for deductionunder Section 80 IA of the Act. The applicationfiled by the Assessee to recall the said orderwas allowed and the Tribunal afforded one moreopportunity to the Assessee. Nevertheless, theAssessee appeared before the Tribunal and soughtfor adjournment, which in the opinion of theTribunal was a delaying tactics and accordingly,it reiterated its order dated 17.03.2006 andheld that the interest earned from bank depositfor the purpose of margin money do not qualifyfor deduction. In other words, it is held thatPandian Chemical's case will hold the field andaccordingly, allowed the Revenue's appeal. 11. Thus, we are first required to examineas to whether the decision in Pandian Chemical'scase would apply to the facts and circumstancesof the case. In preceding paragraphs, we havereferred to the factual position of theAssessee's case. The margin money by way offixed deposit was available with the Assessee'sbankers so as to enable the Bank to open aForeign Letter of Credit, which was essentialfor the purpose of import of critical componentsfor the purpose of manufacture of the wind millfor generation of electricity. 12. Firstly, we note that the case ofPandian Chemical's arose out of a claim underSection 80HH of the Act. The Assessee thereinhad made deposits with the Tamil NaduElectricity Board, which had earned interest.The question arose was whether interest ondeposits with the Tamil Nadu Electricity Boardshould be treated as income derived on the partof the industrial undertaking for the purpose ofSection 80HH of the Act? 13. The Supreme Court referred to thedecision of the Privy Council in the case of CITV. Raja Bahadu Kamakhaya Narayan Singh, (1948)16 ITR 325 (PC), and held that the althoughelectricity may be required for the purposes ofan industrial undertaking, the deposit requiredfor its supply is a step removed from thebusiness of the industrial undertaking and the derivation of profits on deposits made with theElectricity Board cannot be said to flowdirectly from the industrial undertaking itself. 14. Firstly, we note that Section 80I,80IA and 80IB have a common scheme and from thereading of those Sections it is clear that thesaid sections provide for incentive in the formof deduction(s), which are linked to the profitsand not to investment, whereas, in the otherprovisions, namely, Sections 80H, 80HH, 80HHA,80HHB, 80 HHBA and 80HHC, the scheme isdifferent. In fact, this distinction was noticedby a Division Bench of the Kerala High Court inK.Ravindranathan Nair V. DCIT, (2003) 262 ITR669 (Ker), wherein, the Court, while consideringthe decision of the Hon'ble Apex Court in KarnalCo-operative Sugar Mills Limited, pointed outthat the said decision was not rendered in thecontext of all the provisions of Section 80HHCof the Act, as the decision in Karnal Co-operative Sugar Mills Limited followed thedecision in the case of CIT V. Bokaro SteelsLimited, (1999) 236 ITR 315 (SC). In KarnalCooperative Sugar Mills Limited, the deposit ofmoney was directly linked with the purchase ofplant and machinery and therefore, it was heldthat any income earned on such deposit wasincidental to the acquisition of assets for thesetting up of plant and machinery. Therefore, inour view, the Tribunal committed an error inallowing the Revenue's appeal by merely placingreliance on the decision in the case of PandianChemical's, which arose out of a case underSection 80HH of the Act and this error committedby the Tribunal goes to the root of the matteraffecting the very correctness of the orderpassed by the Tribunal. 15. In the case of CIT V. M/s.T.T.G.Industries Limited, 2012 SCC Online 1691, thequestion arose was whether the service chargesfor maintenance, charges for transportation,etc., to be included as profits and gains of anindustrial undertaking for the purpose ofcomputation of deduction under Section 80IA ofthe Act. The Court, after taking note of thedecision in the case of Liberty India, pointedout that Section 80IA/80IB of the Act, has acommon scheme and a reading of Section 80IAmakes it clear that the only requirement for theapplicability is deriving of income by anundertaking or an enterprise from any business 15. In the case of CIT V. M/s.T.T.G.Industries Limited, 2012 SCC Online 1691, thequestion arose was whether the service chargesfor maintenance, charges for transportation,etc., to be included as profits and gains of anindustrial undertaking for the purpose ofcomputation of deduction under Section 80IA ofthe Act. The Court, after taking note of thedecision in the case of Liberty India, pointedout that Section 80IA/80IB of the Act, has acommon scheme and a reading of Section 80IAmakes it clear that the only requirement for theapplicability is deriving of income by anundertaking or an enterprise from any business referred to in sub section (4) and thus, anyprofits and gains derived from an industrialundertaking from any business would qualify fordeduction under Section 80IA of the Act. In ourview, the decision rendered in the case ofT.T.G. Industries Limited would squarely applyto the case on hand. 16. In the case of Priviera HomeFurnishing V. Additional CIT, (2016) 237 Taxmann520 (Delhi), the Assessee has stated that theinterest on Fixed Deposit Receipts was receivedas margin money kept in the bank for utilizationof Letter of Credit and Bank Guarantee limitsand the Court held that the decision of theTribunal that such interest bears the requisitecharacteristic of business income and has nexusto the business activities of the assesseecannot be faulted with. This decision alsosupports the case of the Assessee. 17. Equally, the decision in the case ofCIT V. Shah Alloys Limited, (2017) 396 ITR 0711(Guj), where, the Assessee had deposited moneyto open a Letter of Credit for the purchase ofthe machinery required for setting up its plantin terms of the agreement with the supplier andthe money so deposited earned some interest,which was claimed as deduction. The Court heldthat it is not the case, where, any surplusshare capital money, which is lying idle hasbeen deposited in the bank for the purpose ofearning interest and the deposit of money isdirectly linked with the purchase of plant andmachinery. Accordingly, the Court answered thequestion in favour of the Assessee. 18. In the case of CIT V. Shree Rama MultiTech Limited, 2018 SCC Online SC 433, the Court,after taking note of various decisions includingthat of Bokaro Steel Limited and KarnalCooperative Sugar Mills Limited, held as follows: “12. The common rationale that isfollowed in all these judgement is that ifthere is any surplus money which is lying idleand it has been deposited in the bank for thepurpose of earning interest then it is liableto be taxed as income from other sources butif the income accrued is merely incidental andnot the prime purpose of doing the act inquestion which resulted into accrual of someadditional income then the income is notliable to be assessed and is eligible to be 18. In the case of CIT V. Shree Rama MultiTech Limited, 2018 SCC Online SC 433, the Court,after taking note of various decisions includingthat of Bokaro Steel Limited and KarnalCooperative Sugar Mills Limited, held as follows: “12. The common rationale that isfollowed in all these judgement is that ifthere is any surplus money which is lying idleand it has been deposited in the bank for thepurpose of earning interest then it is liableto be taxed as income from other sources butif the income accrued is merely incidental andnot the prime purpose of doing the act inquestion which resulted into accrual of someadditional income then the income is notliable to be assessed and is eligible to be claimed as deduction. Putting the aboverationale in terms of the present case, if theshare application money that is received isdeposited in the bank in light of thestatutory mandatory requirement then theaccrued interest is not liable to be taxed andis eligible for deduction against the publicissue expenses. The issue of share relates tocapital structure of the company and henceexpenses incurred in connection with the issueof shares are to be capitalized because thepurpose of such deposit is not to make someadditional income but to comply with thestatutory requirement, and interest accrued onsuch deposit is merely incidental. In thepresent case, the responsibilities wasstatutorily required to keep the shareapplication money in the bank till theallotment of shares was complete. In thatsense, we are of the view that the High Courtwas right in holding that the interest accruedto such deposit of money in the bank is liableto be set-off against the public issueexpenses that the company has incurred as theinterest earned was inextricably linked withrequirement of the company to raise sharecapital and was thus adjustable towards theexpenditure involved for the share issue.” 19. In the above referred decision, theCourt analysed the purpose of deposit and heldthat it was not for some additional income, butto comply with the statutory requirements andthe interest accrued on such deposit is merelyincidental. In our considered view, this will bethe right test to be applied to the case on handand essentially, the answer to the substantialquestion should be in favour of the Assessee. 20. In the case of CIT V. Jaypee DSCVentures Ltd., CDJ 2011 DHC 308, the Court heldthat the deposit made by the Assessee was notthe surplus money lying idle with it to earninterest, but it was the amount of interestearned from fixed deposit, which was kept in thebank for the purpose of furnishing the BankGuarantee. In our view, this decision also willenure in favour of the Assessee. 21. Equally is the decision in the case ofCIT V. Paramount Premises (P) Ltd., (1991) 190ITR 259 (Bom), wherein, analysing the purpose,for which, the deposits were made by theAssessee and the interest earned thereon, the Bombay High Court affirmed the view of theTribunal to the effect that the entire interestearned from the business activity of theAssessee and did not arise out of anyindependent activity. Bombay High Court affirmed the view of theTribunal to the effect that the entire interestearned from the business activity of theAssessee and did not arise out of anyindependent activity. 22. The sheet-anchor of the submission ofthe learned counsel for the Revenue is based onthe decision of the High Court of HimachalPradesh in Himachal Futuristic CommunicationLtd. V. CIT, (2014) 42 taxmann.com 179 (HP).Firstly, we may point out that there were twotypes of transactions, one by way of marginmoney for the purpose of purchase of rawmaterial and the other by furnishing BankGuarantee for due performance of the contract ofsale to manufacture of goods. The question aroseas to whether the same cannot be treated asincome derived from the business, as such. TheCourt referred to the decision of the Apex Courtin Liberty India (supra) and culled out thelegal principle evolved therein stating that theprofit must be generated from the businessactivity or operational profits. No more or noless. In fact, in paragraph 4 of the decision,the Court pointed out that the interpretation ofSection 80HHC of the Act was entirely different,as it was a self-contained Code by itself.However, so far as the facts of the said caseare concerned, the Court held that theexpenditure incurred cannot be treated as afirst source of income, which is thequintessence for attracting the benefit andincentive provided under Section 80IA of theAct. It was found that the monies, which weregiven by the Assessee, were towards performanceguarantee and certain margin money forpurchasing raw material. The Court, however, hasnot elaborated upon the facts of the decision ofthe Hon'ble Apex Court in Karnal Co-operativeSugar Mills Limited (supra) and Bokaro SteelLimited (supra) and on facts, we find that thesaid decision of the High Court of HimachalPradesh cannot be applied to the facts andcircumstances of the case on hand. 23. So far as the decision in the case ofLiberty India (supra) is concerned, the samewould not apply to the facts of present case,because the said decision arouse out of adrawback incentive, which was on account of ascheme framed by the Central Government and theCourt held that the incentive profits are not profits derived from eligible business underSection 80IB of the Act and they belong to thecategory of ancillary profits of suchundertakings. Therefore, on facts, learnedcounsel for the Revenue cannot place reliance onthe case of Liberty India (supra) to deny thebenefit to the Assessee. 24. So far as the decision in the case ofCyber Pearl IT Park Limited, the Court, aftertaking into consideration various decisions,pointed out that in order to come to aconclusion as to whether such profits or gains,that is, income would be amenable to deduction,the effective source of income is to be lookedat. Thus, essential factual matrix needs to belooked to arrive at a conclusion as to theeffective source from which such income earnedand if it is found that it is derived fromsecondary source, it is not the effectivesource, which falls outside the purview of suchlike provision, which provides for deduction. 24. So far as the decision in the case ofCyber Pearl IT Park Limited, the Court, aftertaking into consideration various decisions,pointed out that in order to come to aconclusion as to whether such profits or gains,that is, income would be amenable to deduction,the effective source of income is to be lookedat. Thus, essential factual matrix needs to belooked to arrive at a conclusion as to theeffective source from which such income earnedand if it is found that it is derived fromsecondary source, it is not the effectivesource, which falls outside the purview of suchlike provision, which provides for deduction. 25. In the instant case, the requirementof the Assessee to furnish the fixed deposit wasa pre-condition to enable the Assessee to open aforeign Letter of Credit for the purpose ofimport of critical components for themanufacture of wind mill. This incidentally hadearned some interest. As pointed out by theHon'ble Supreme Court in Shree Rama Multi TechLimited, it is not the Assessee's surplus money,which was deposited by way of fixed deposit,which had earned interest ; on the contrary, itwas a pre-condition for the purchaser/Assesseeto enable him to import the critical componentfor the purpose of manufacturing. Furthermore,it is not the case of the Revenue that theamount was deposited in fixed deposit solely forthe purpose of earning interest nor it is thecase of the Revenue that the amount, which wasdeposited in fixed deposit was a surplus money,which was lying idle in the hands of theAssessee. Therefore, whatever income accrued ismerely incidental and not the prime purpose ofdoing the act in question, which resulted intoaccrual of some additional income and therefore,the said income is not liable to be assessed andis eligible to be claimed as deduction.” 53. In the light of the above discussion, we are of the considered view that the substantialquestions of law framed for consideration have to beanswered in favour of the assessee. Accordingly,the same are answered.54. In the result, T.C.(A) Nos.349 and 350 of2008 are allowed and the substantial questions oflawareansweredinfavouroftheappellant/assessee. No costs.” 6.1. Accordingly, substantial questions of law nos.5 and 6are answered in favour of the assessee. 7. So far as the substantial question of law no.4 isconcerned, the assessee had claimed deduction under four heads,namely, a) Commissionb) Receipts from contractorsc) Margin moneyd) Octroi 7.1. Of the above four, we are of the clear view that thereceipts from contractors for belated payment would be relatedto the business activity of the appellant/assessee. Therefore,the assessee would be entitled to claim deduction under Section80IB. Similarly, margin money was provided for the purpose ofbank guarantee for certain customers and also to the CustomsDepartment, and therefore, these are also relatable to thebusiness activity of the appellant. 7.2. So far as octroi is concerned, if the goodsmanufactured by the appellant are entered into the State ofMaharashtra, it is duty bound to pay octroi charges. The octroicharges are similar to delivery charges, which are recovered.These form part of business income for the purpose of Section80IB. Thus, the assessee is entitled for deduction underSection 80IB for receipts of contractors, margin money andoctroi. 7.3. So far as commission is concerned, we find that thecommission received by the assessee is from the sale of productsmanufactured by Chevron to the customers of the appellant inIndia. The assessee would claim that the products sold byChevron to their customers are identical to those manufacturedin the industrial undertaking and manufactured using the sametechnology as used by the assessee-company. This, in ourconsidered view, can at no stage be qualified for deductionunder Section 80IB of the Act. 7.3. So far as commission is concerned, we find that thecommission received by the assessee is from the sale of productsmanufactured by Chevron to the customers of the appellant inIndia. The assessee would claim that the products sold byChevron to their customers are identical to those manufacturedin the industrial undertaking and manufactured using the sametechnology as used by the assessee-company. This, in ourconsidered view, can at no stage be qualified for deductionunder Section 80IB of the Act. 7.4. It appears that this commission was given to theassessee by the Chevron because of some reason. Though they arenot able to supply their customers, supplies have been effectedthrough the Chevron. Therefore, probably a commission is paidto the assessee for the purpose of notifying the customer, whois in the need of manufacturer. Therefore, the Tribunal as well as the authority is right in rejecting the claim for deductionunder Section 80IB for the commission received by the assesseefrom Chevron. 7.5. Accordingly, substantial question of law no.4 isanswered in the above terms. 8. The next question to be decided is substantial questionof law no.1. It pertains to disallowance of a sum ofRs.5,50,000/-, which was reimbursed by way of expenditureincurred by the Managing Director. It appears that relevantdocuments were not placed before the Tribunal. While admittingthe appeal, the Hon'ble Division Bench, by order dated19.01.2009, referred above, granted liberty to the assessee toplace those documents before the Court. Accordingly, thelearned counsel for the appellant placed relevant documents andin particular, the revision of terms and conditions of theManaging Director to include fees as perquisites. 8.1. The Agenda Note placed before the Board bycirculation during July 2001 provided for the expenditure ofchildren studying in or outside of India and reimbursement ofeducation expenditure incurred by the employees, who wereexpatriates. This was approved by the Board. Thus, we findthat the expenses incurred by the Managing Director was for theeducation of his son, who is appeared to have pursued his schoolin the American International School, Chennai. Therefore, wefind that the assessee would be entitled to the allowance for asum of Rs.5,50,000/- being the reimbursement of expenditureincurred by the Managing Director. Hence, substantial questionof law no.1 is answered in favour of the assessee. 8.2. The above finding is further strengthened by thefactual aspect, that is, there was an amendment to the JointVenture Agreement pertaining to the reimbursement of all costfor the Managing Director, which includes his salary, allowanceand benefits as a seconded Chevron employee. This amendment wasthe subject matter of the agenda note, which was approved by theBoard. Therefore, the disallowance of the said amount wasincorrect. Hence, substantial question of law no.1 is answeredin favour of the assessee. 9. Substantial question of law No.2 relates to notallowing the entire compensation paid to its employees ontermination of their services. On a perusal of the assessmentorder, we find that the Assessing Officer took note of the factthat during the year under consideration, the assessee claimedexpenditure of Rs.2,01,06,015/- and Rs.49,150/- on account of ascheme by which, the employees were retired beforesuperannuation. The Assessing Officer examined the scheme andfound that though it is titled as “Voluntary Separation Scheme”,in fact, it is equal to Voluntary Retirement Scheme. Therefore,by Section 35DDA of the Act, deduction to the expenditure of1/5[th] share was allowed. We have perused the said claim. Thoughthe scheme titled as Supervisors' Separation Scheme and it gives 9. Substantial question of law No.2 relates to notallowing the entire compensation paid to its employees ontermination of their services. On a perusal of the assessmentorder, we find that the Assessing Officer took note of the factthat during the year under consideration, the assessee claimedexpenditure of Rs.2,01,06,015/- and Rs.49,150/- on account of ascheme by which, the employees were retired beforesuperannuation. The Assessing Officer examined the scheme andfound that though it is titled as “Voluntary Separation Scheme”,in fact, it is equal to Voluntary Retirement Scheme. Therefore,by Section 35DDA of the Act, deduction to the expenditure of1/5[th] share was allowed. We have perused the said claim. Thoughthe scheme titled as Supervisors' Separation Scheme and it gives discretion to the management to apply the benefits of the schemeto any supervisory employee, the sum and substance of the schemeis a retirement scheme. In all such voluntary retirementschemes, right of the employee to accept or refuse to accept thevoluntary retirement is always preserved. Therefore, what isrequired to examine is the factum of the scheme and not thetitle given to the scheme. Therefore, we find that the findingof the Assessing Officer is perfectly valid and the Tribunal hasrightly confirmed the same. Accordingly, substantial questionof law no.2 is answered against the assessee. 10. So far as the substantial question of law no.3 isconcerned, it pertains to whether the claim relating to scrap isto be considered for computing the relief under Section 80HHC.The Assessing Officer after considering the factual matrix, heldthat the scrap sale is a byproduct in the manufacturing processand therefore, it has to be added to the total turnover and itcannot be netted against any other expenditure. This wasconsidered by the CIT(A) in its order and it was held that saleof scrap should not be included as a part of total turnover,since the profit on account of sale of scrap is included ineligible business profits, the gross sales pertaining to suchitems are required to be included in the total turnover andtherefore, held against the assessee. The Tribunal alsoconcurred with the Assessing Officer and the lower appellateauthority, and taking note of the decision of the Hon'bleSupreme Court in the case of CIT vs. Ravindranathan Nairreported in 295 ITR 228, rejected the contention advanced by theassessee. We do not find any ground to interfere with thefindings recorded by the authorities, as confirmed by theTribunal. 11. Accordingly, substantial question of law no.3 isanswered against the assessee. 12. In the result, the appeal is partly allowed to theextent indicated above. No costs. s/d- Assistant Registrar True Copy Sub-Assistant Registrar abr https://hcservices.ecourts.gov.in/hcservices/ To 1.The Income-tax Appellate Tribunal 'A' Bench, Chennai. 2. The Commissioner of Income Tax (Appeals)III 121 Mahathma Gandhi Road Chennai 34. 121 Mahathma Gandhi Road Chennai 34. 3. The Assistant Commissioner of Income Tax Company Circle II(3) Chennai 34. Company Circle II(3) Chennai 34. +1 CC to Muthukumar, Advocate sr 78953(14/06/2019) Tax Case (A) No.1943 of 2008 SS(CO)SP(19/12/2018)