The Commissioner Of Income Tax Appellantcoimbatore v. Sri Ramakrishna Mills (Cbe) Ltd.coimbatore-641 006

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANand THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) No.27 of 2004 The Commissioner of Income Tax AppellantCoimbatore. versus Sri Ramakrishna Mills (Cbe) Ltd.Coimbatore-641 006... Respondent PRAYER: Appeal filed under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal 'D' Bench,Chennai, dated 10.7.2003 in I.T.A.No.1909/Mds/1994. JUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) The following two questions of law are raised in this appeal,relating to the assessment year 1991-92, filed by the Revenue: (i) Whether on the facts and in the circumstances of the case theIncome Tax Appellate Tribunal was right in holding that sales taxand excise duty collected by the assessee will not form part oftotal turnover for the purpose of computation of deduction underSection 80 HHC? (ii)Whether on the facts and in the circumstances of the casethat the Income Tax Appellate Tribunal was right in holding thatinterest received on deposit with the Tamil Nadu Electricity Boardand margin money received for letter of credit formed part of the https://hcservices.ecourts.gov.in/hcservices/ 'profits and gains from business' of the industrial undertakingfor purposes of computing deduction under Section 80 HH and 80 I? 2. Learned counsel for the Revenue fairly submits that accordingto a decision of this Court to which one of us is a party(P.D.Dinakaran.J.), reported in 275 ITR 319 (CIT Vs. WHEELS INDIALTD), sales tax and excise duty collected will not form part of thetotal turnover for the purpose of working out the relief underSection 80 HHC. The first question is therefore answered against theRevenue. 3. As regards the second question whether the interest receivedon deposit with the Tamil Nadu Electricity Board and margin moneyreceived for letter of credit formed part of the profits and gainsfrom business of the industrial undertaking for the purpose ofcomputing deduction under Section 80 HH and 80 I, the Apex Court heldin the decision reported in 262 ITR 278 (PANDIAN CHEMICALS LTD. Vs.CIT), that the word "derived from" in Section 80-HH of the Income TaxAct, 1961, must be understood as something which has direct orimmediate nexus with the assessee's industrial undertaking.Referring to the Electricity deposit made with the State ElectricityBoard for the purpose of getting electricity for industrialundertaking, the Apex Court held that the deposit required for itssupply is a step distanced from the business of industrialundertaking. Consequently, the Apex Court held that interest on thedeposit made with the Electricity Board could not be said to flowdirectly from the industrial undertaking itself. In thecircumstances, applying the decision of the Apex Court in the saidcase, the Revenue's contention merits to be accepted. 4. As regards the margin money required for opening Letter ofcredit, it may be noted that in the decision reported in 257 ITR 60(CIT Vs. MADRAS MOTORS LTD.), this Court has also considered theinterest earned from bank deposits made for obtaining letters ofcredit. This Court held that there is no direct nexus with theindustrial undertaking; hence, not to be taken into account incomputing the deduction under Section 80 HH. In the light of thesaid view already taken, the question has to be answered in favour ofthe Revenue. The said decision would apply in full force to therelief claimed under Section 80-I also. Consequently, the appeal bythe revenue on the second question stands allowed. In the result, this appeal preferred by the Revenue standsallowed accordingly. No costs. Sd/Asst. Registrar(records) /true copy/ Sub Asst.Registrar In the result, this appeal preferred by the Revenue standsallowed accordingly. No costs. Sd/Asst. Registrar(records) /true copy/ Sub Asst.Registrar To:1. THE ASST REGISTRAR INCOME TAX APPELLATE TRIBUNALRAJAJI BHAVAN III FLOOR,BESANT NAGARCHENNAI-902. THE COMMISSIONER OF INCOME TAXCOIMBATORE3. THE COMMISSIONER OF INCOME TAX(APPEALS)COIMBATORE4. THE DEPUTY COMMISIONER OF INCOME TAXSPECIAL RANGE I COIMBATORE+1 CC TO MR.V.MURALIKUMARAN, ADVOCATE SR.12003ksv Tax Case (Appeal) No.27 of 2004MJ(CO)NS(26/03/2007) Dated: 26.02.2007