Txa20-09Ors Dt. 18-04-19 v. Mansinghka Oil Mills Privateltd. 1988 169 Itr 158 Bom. The Assessee, Thus, Preferred Thisappeal Under Section 260-A Of The Act Before This Court

1 txa20-09ors dt. 18-04-19 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.20 OF 2009 Sesa Industries Limited,having its Office at “Sesa Ghor”,Patto Plaza, Panaji, Goa. …. Appellant. V/s.Commissioner of Income-tax,having his office at Aayakar Bhavan,Patto-Plaza, Panaji, Goa. ….. Respondent. Mr. R.G. Ramani, Advocate for the Appellant. Ms. Susan Linhares, Junior Standing Counsel for the Respondent. Coram : R.D. Dhanuka & Prithviraj K. Chavan, JJ. Reserved on : 20[th] March, 2019. Pronounced on : 18[th] April, 2019. JUDGMENT : (Per R.D. Dhanuka, J.) 1.This appeal under Section 260-A of the Income-tax Act,1961 (for short 'the Act') preferred by the Assessee, challenges theorder dated 18[th] February, 2009, passed by the Income Tax AppellateTribunal, Panaji Bench, Panaji in ITA No.177/PNJ/2007. Theimpugned order is in respect of Assessment Year 2004-05. 2.By an order dated 7[th] December 2009, this Court admittedthe Tax Appeal on the following substantial question of law : 2 txa20-09ors dt. 18-04-19 Whether on facts and in the circumstances of the case, theprofit from the sale of slag, which is a by-product in themanufacture of Pig Iron, could, for the purpose ofdeduction u/s. 80-IB of the Act, be considered as the profitderived from the business of the industrial undertakingengaged in the manufacture and sale of Pig Iron ? 3.Some of the relevant facts, for the purpose of deciding thisTax Appeal. are as under : (A)The Assessee had filed its original return of income for theassessment year under appeal on 30 October 2004, declaring a totalincome of 20,79,53,900/- based on the profit as per its accounts for₹the year ended 31[st] March, 2004. (B)On 6 January 2006, the Assessee filed revised return underSection 139(5) of the Act to claim deduction under Section 80-IBfor one of its industrial undertakings of 5,74,90,089/- which₹industrial undertaking was engaged in manufacture of Pig Iron. TheAssessee placed reliance on an audit report from a CharteredAccountant in this connection and furnished a copy thereof, alongwith revised return, as required under Section 80-IB (13), read withSection 80-IA(7) of the Act. (C) On 29 December 2006, the Assessing Officer completedthe assessment under Section 143(3), read with Section 147 of the 3 txa20-09ors dt. 18-04-19 Act and in determining the total income in the said assessment,computed the deduction under Section 80-IB of the Act only on theprofits arising from sale of Pig Iron, without considering the profitarising on sale of 'slag' which, according to the Assessee, was a by-product in the manufacture of Pig Iron. (D)The Commissioner of (Appeals) passed an order on 30 July2007 in the appeal preferred by the Assessee against the saidassessment order, dated 19 January 2007 and held that any profitearned on sale of such slag, has to be considered as part of the profitsderived from the business of the industrial undertakingmanufacturing Pig Iron. (E)Being aggrieved by the said order dated 30 July 2007passed by the CIT(A), the Assistant Commissioner of Income-tax,Circle 1(1), Panaji, Goa preferred an appeal before the Income TaxAppellate Tribunal. It was the case of the Revenue in the said Appealthat the slag being a by-product of the manufacturing process, theCIT(A) was not justified in holding that the profit from the sale ofslag was entitled for deduction under Section 80-IB of the Act. It wasthe case of the Revenue that the claim for deduction under Section80-IB was confined to the primary product for which manufacturingprocess was established by the industrial undertaking and that itcannot be extended to by-products. 4 txa20-09ors dt. 18-04-19 (E)Being aggrieved by the said order dated 30 July 2007passed by the CIT(A), the Assistant Commissioner of Income-tax,Circle 1(1), Panaji, Goa preferred an appeal before the Income TaxAppellate Tribunal. It was the case of the Revenue in the said Appealthat the slag being a by-product of the manufacturing process, theCIT(A) was not justified in holding that the profit from the sale ofslag was entitled for deduction under Section 80-IB of the Act. It wasthe case of the Revenue that the claim for deduction under Section80-IB was confined to the primary product for which manufacturingprocess was established by the industrial undertaking and that itcannot be extended to by-products. 4 txa20-09ors dt. 18-04-19 (F)By an order dated 18[th] February, 2009, the Income TaxAppellate Tribunal allowed the appeal preferred by the Revenue andheld that the profit arising from the sale of 'slag' was not derivedfrom the business of the industrial undertaking. The Tribunaldistinguished the Judgment of this Court in the case ofCommissioner of Income Tax vs. Mansinghka Oil Mills PrivateLtd. 1988 169 ITR 158 Bom. The Assessee, thus, preferred thisAppeal under Section 260-A of the Act before this Court. 4.Mr. R.G. Ramani, learned counsel for the Assessee invitedour attention to the orders passed by the Assessing Officer, CIT(A),and the order passed by the Income Tax Appellate Tribunal. It issubmitted by the learned counsel that the Tribunal reversed thedecision of the CIT(A) only on the ground that the decision of thisCourt in the case of Commissioner of Income Tax vs. MansinghkaOil Mills Private Ltd.(supra) was concerned with the thenprevailing Section 80-I of the Act, which provided for deductionwith reference to “profit and gains attributable to any priorityindustry”; whereas in the case of the Assessee, the applicable Section80-IB provides for deduction with reference to “profits and gainsderived from the business”. The Tribunal also held that the meaningof the words “derived from” is much narrow, compared to themeaning of the words “attributable to”. The learned counselsubmitted that the Tribunal did not go into the question as to 5 txa20-09ors dt. 18-04-19 whether the profit from the sale of by-product of an industrialundertaking could be considered as “profit derived from the business”of the industrial undertaking. 5.It is submitted by the learned counsel that the Tribunalcould not have rejected the submission that the by-product andprimary product are integral part of one productive activity of anindustrial undertaking and, thus, the profit from sale of by-productought to have been considered as part of the profit derived from thebusiness of an industrial undertaking. He submits that themanufacture of Pig Iron and generation of slag is the process, whichis integrated and composite part of one productive activity of theundertaking manufacturing pig iron. The Tribunal thus ought tohave held that the profit from sale of slag was a part of the profitderived from the business of the industrial undertakingmanufacturing pig iron. The learned counsel for the Assessee invitedour attention to the findings rendered by the CIT(A) and moreparticularly in paragraph 12 of the order dated 30 July 2007 holdingthat as far as slag generated out of manufacturing process and profitearned from such sale, is a part of profit derived from industrialundertaking engaged in the manufacturing of Pig Iron. 6.It is submitted by the learned counsel that the profitderived by the Assessee from the sale of slag had to be considered asprofit derived from the manufacturing process of the Pig Iron 6 txa20-09ors dt. 18-04-19 undertaken by the Assessee. He submits that the slag generated was aresult of manufacturing process of the Pig Iron and is an integral partof the manufacturing process and is the first degree source. 6.It is submitted by the learned counsel that the profitderived by the Assessee from the sale of slag had to be considered asprofit derived from the manufacturing process of the Pig Iron 6 txa20-09ors dt. 18-04-19 undertaken by the Assessee. He submits that the slag generated was aresult of manufacturing process of the Pig Iron and is an integral partof the manufacturing process and is the first degree source. 7.The learned counsel for the Assessee strongly placedreliance on the Judgment of the Supreme Court in the case of CITvs. Sterling Foods, 237 ITR 579 (SC) and submitted that in thesaid Judgment the Supreme Court had considered the questionwhether the income derived by the Assessee by sale of the importentitlements was profit and gain derived from its industrialundertaking of processing sea food. He submits that the SupremeCourt considered Section 80-HH of the Act in the said Judgmentand interpreted the expression “derived from”. There must be adirect nexus between the profits and gains and the industrialundertaking for the application of the words “derived from”. 8.It is submitted that the slag generated out of themanufacturing process had a direct nexus with the manufacturing ofthe Pig Iron. He placed reliance on the Judgment of the SupremeCourt in the case of Pandian Chemicals Ltd. vs. CIT, 262 ITR278 (SC) and in particular paragraphs 6 and 7. The Supreme Courtin the said Judgment construed the expression 'derived from'. Healso placed reliance on the Judgment of the Supreme Court in thecase of Liberty India and ors. vs. CIT, 317 ITR 218 (SC) and inparticular paragraphs 3 and 11. He submits that the Supreme Court 7 txa20-09ors dt. 18-04-19 in the said Judgment had considered the issue i.e. whether profit fromDuty Entitlement Passbook Scheme and Duty Drawback Schemecould be said to be profit derived from the business of the IndustrialUndertaking eligible for deduction under Section 80-IB of theIncome-tax Act,1961. He submits that the Supreme Court in the saidJudgment held that on analysis of Sections 80-IB and 80-IA itbecomes clear that any industrial undertaking which becomes eligibleon satisfying sub-Section (2), would be entitled to deduction undersub-Section (1) only to the extent of profits derived from suchindustrial undertaking after specified date. 9.It is submitted that the Tribunal could not havedistinguished the Judgment of this Court in the case ofCommissioner of Income Tax vs. Mansinghka Oil Mills PrivateLtd. (supra). It is submitted that that the Pig Iron itself is generatedby process of manufacturing. Slag is a by-product and is alsogenerated while manufacturing Pig Iron. Slag goes with Pig Iron.Since the slag itself is generated from the first degree source, theAssessee was eligible for deduction under Section 80-IB in respect ofthe profit earned from sale of such slag generated from the firstdegree source. 10.The learned counsel for the Assessee placed reliance on theJudgment in the case of CIT vs. Vidyut Corporation, 324 ITR221 (Bom). He would submit that the Judgment of the Supreme 8 txa20-09ors dt. 18-04-19 10.The learned counsel for the Assessee placed reliance on theJudgment in the case of CIT vs. Vidyut Corporation, 324 ITR221 (Bom). He would submit that the Judgment of the Supreme 8 txa20-09ors dt. 18-04-19 Court in the case of Liberty India and ors vs. CIT (supra) hasbeen followed by this Court in the said Judgment. This Court hasconsidered the issue, “whether on the facts and circumstances and inlaw, the Tribunal was right in upholding the order of CIT(A)directing the AO not to reduce the receipt of interest income by wayof bill discounting and to allow deduction under Section 80IB onthe said interest income without appreciating that said income is not'derived from' manufacturing”. He submits that the Division Benchin the said Judgment held that there can be no dispute about theposition that the price realised by the Assessee from the sale of goodsmanufactured by the Industrial Undertaking constitutes a componentof the profits and gains derived from the eligible business. Thepurchaser, on account of the delay in payment of the sale price alsopays to the Assessee interest, which forms a component of the saleprice and is paid towards the lag which has occurred in payment ofthe price of the goods sold by the Assessee. The Division Bench hasheld that payment of interest on account of delay in payment of thesale price of the goods supplied by the undertaking partakes of thesame nature and character as the sale consideration. The delayedpayment charges consequently satisfy together with the sale price, thefirst degree test which has been laid by the Supreme Court inLiberty India (supra). 11.It is submitted that in this case also since the slag generated 9 txa20-09ors dt. 18-04-19 during the manufacturing process of Pig Iron being the first degreesource, was eligible for deduction under Section 80-IB of the Act. Itis submitted that in the said Judgment in the case of VidyutCorporation (supra), this Court disallowed the deduction on theinterest on unsecured loan having found that the same was notderived from the first degree source. He submits that the slag waspart and parcel of the manufacture of Pig Iron and thus was eligiblefor deduction under the said provision. 12.Ms. S. Linhares, learned counsel for the Revenue, on theother hand, invited our attention to the findings rendered by theAssessing Officer, CIT(A) and the Tribunal and would submit thatthe findings rendered by the Assessing Office, while rejecting theclaim in so far as the deduction claimed on the slag generated in theprocess of manufacturing and by the Tribunal while allowing theAppeal preferred by the Revenue by distinguishing the Judgment ofthis Court in the case of Commissioner of Income Tax vs.Mansinghka Oil Mills Private Ltd.(supra), are correct and doesnot warrant any interference. 13.The learned counsel placed reliance on the followingJudgments in support of contention that the slag generated out ofthe manufacturing activity, if any, was not eligible for deductionunder Section 80-IB of the Act : 10 txa20-09ors dt. 18-04-19 (I)Judgment of the Madras High Court in the case of M/s.Computer Graphics Limited vs. The Assistant Commissioner ofIncome Tax Company Circle IV(2), (2006) 285 ITR 84 ; (II)Judgment of the Himachal Pradesh High Court in the case ofMrs. Poonam Arora vs. Income Tax Officer and others, 2009Supreme (HP) 852; and (III) Judgment of the Madras High Court in the case of M/s. IndiaCine Agencies vs. The Commissioner of Income Tax, 2002.Supreme (Mad) 1105 14.Mr. Ramani, learned counsel for the Assessee distinguishedthe Judgment cited by the learned counsel for the Revenue on theground that none of those Judgments applies to the facts of this case.In none of those Judgments, the issue was as to whether the slaggenerated out of manufacture of Pig Iron would be eligible fordeduction under Section 80IB of the Act or not ? (II)Judgment of the Himachal Pradesh High Court in the case ofMrs. Poonam Arora vs. Income Tax Officer and others, 2009Supreme (HP) 852; and (III) Judgment of the Madras High Court in the case of M/s. IndiaCine Agencies vs. The Commissioner of Income Tax, 2002.Supreme (Mad) 1105 14.Mr. Ramani, learned counsel for the Assessee distinguishedthe Judgment cited by the learned counsel for the Revenue on theground that none of those Judgments applies to the facts of this case.In none of those Judgments, the issue was as to whether the slaggenerated out of manufacture of Pig Iron would be eligible fordeduction under Section 80IB of the Act or not ? 15.The learned counsel for the Assessee submits that thoughthe Tribunal has rendered a finding in favour of the Assessee that theslag generated out of manufacturing process and profit earned fromsuch sale is a part of the profit derived from industrial undertakingwhich is engaged in manufacturing of pig iron, the Tribunal,contrary to such finding has allowed the Appeal filed by the Revenuepartly by distinguishing the Judgment of this Court in the case ofCommissioner of Income Tax vs. Mansinghka Oil Mills Private 11 txa20-09ors dt. 18-04-19 Ltd. (supra). 16.We have heard the learned counsel at length and have givenour anxious consideration to the rival submissions made by thelearned counsel. 17.Relevant portion of Section 80-IB of the Act reads thus : “Section 80-IB.(1) Where the gross total income of anassessee includes any profits and gains derived from anybusiness referred to in sub-sections (3) to 52[(11), (11A)and (11B) (such business being hereinafter referred to asthe eligible business), there shall, in accordance with andsubject to the provisions of this section, be allowed, incomputing the total income of the assessee, a deductionfrom such profits and gains of an amount equal to suchpercentage and for such number of assessment years asspecified in this section. (2) This section applies to any industrial undertaking which fulfills all the following conditions, namely :— (i) ... (ii) … (iii) it manufactures or produces any article or thing,not being any article or thing specified in the listin the Eleventh Schedule, or operates one or morecold storage plant or plants, in any part of India :not being any article or thing specified in the listin the Eleventh Schedule, or operates one or morecold storage plant or plants, in any part of India : Providedthat the condition in this clause shall, inrelation to a small scale industrial undertaking or anindustrial undertaking referred to in sub-section (4)shall apply as if the words "not being any article orthing specified in the list in the Eleventh Schedule" hadbeen omitted. 12 txa20-09ors dt. 18-04-19 (3)The amount of deduction in the case of anindustrial undertaking shall be twenty-five per cent (orthirty per cent where the assessee is a company), of theprofits and gains derived from such industrialundertaking for a period of ten consecutive assessmentyears (or twelve consecutive assessment years where theassessee is a co-operative society) beginning with theinitial assessment year subject to the fulfillment of thefollowing conditions, namely :— (i) it begins to manufacture or produce, articles orthings or to operate such plant or plants at any timeduring the period beginning from the 1st day ofApril, 1991 and ending on the 31st day of March,1995 or such further period as the CentralGovernment may, by notification in the OfficialGazette, specify with reference to any particularundertaking; (ii) where it is an industrial undertaking being asmall scale industrial undertaking, it begins tomanufacture or produce articles or things or tooperate its cold storage plant [not specified in sub-section (4) or sub-section (5)] at any time duringthe period beginning on the 1st day of April, 1995and ending on the 31st day of March, [2002]. (i) it begins to manufacture or produce, articles orthings or to operate such plant or plants at any timeduring the period beginning from the 1st day ofApril, 1991 and ending on the 31st day of March,1995 or such further period as the CentralGovernment may, by notification in the OfficialGazette, specify with reference to any particularundertaking; (ii) where it is an industrial undertaking being asmall scale industrial undertaking, it begins tomanufacture or produce articles or things or tooperate its cold storage plant [not specified in sub-section (4) or sub-section (5)] at any time duringthe period beginning on the 1st day of April, 1995and ending on the 31st day of March, [2002]. (4) The amount of deduction in the case of an industrialundertaking in an industrially backward State specified inthe Eighth Schedule shall be hundred per cent of theprofits and gains derived from such industrial undertakingfor five assessment years beginning with the initialassessment year and thereafter twenty-five per cent (orthirty per cent where the assessee is a company) of theprofits and gains derived from such industrialundertaking :” 13 txa20-09ors dt. 18-04-19 18.A perusal of the findings rendered by the CIT(A), clearlyindicates that the learned Commissioner of Income Tax (Appeals)adverted to the Judgment of this Court in the case ofCommissioner of Income Tax vs. Mansinghka Oil Mills PrivateLtd. (supra). It is held by the CIT(A) that there was justification inthe submission made by the Assessee that the cost should have beenattributed to the slag sold. There was also justification in thesubmission made by the Assessee that the slag was generated out ofthe manufacturing process and any profit earned from such sale, ispart of the profit derived from the Industrial Undertaking which isengaged in the manufacturing of pig iron. There was as differencebetween the sale of unused raw material and sale of slag. It is alsoheld that in the first case, the raw material did not enter in themanufacturing process at all, while in the second case, the slag wasgenerated out of manufacturing process and, thus, any profit earnedon sale of such slag has to be considered as part of the profits derivedfrom the manufacturing activity of the Industrial Undertaking. Thelearned CIT(A), accordingly, directed the Assessing Officer not toexclude the amount of 71,31,557/- from the sales. ₹ 19.A perusal of the order passed by the Tribunal in the appealfiled by the Revenue indicates that though the Tribunal, inparagraph 12 of the impugned order, has held that the CIT(A) hastaken a correct view as far as slag generated out of manufacturing 14 txa20-09ors dt. 18-04-19 process and profit earned from such sale holding that it is a part ofprofit derived from the Industrial Undertaking which is engaged inthe manufacturing of pig iron, and has rightly held that the slagcould be considered as part of profit derived from manufacturingactivity of the Industrial Undertaking, the Tribunal contrary to suchfindings rendered by it, and upholding the findings rendered by theCIT(A), has allowed the Appeal of the Revenue by distinguishing theJudgment of this Court in the case of Commissioner of Income Taxvs. Mansinghka Oil Mills Private Ltd.(supra). In our view, theconclusion drawn by the Tribunal in the impugned order is contraryto the finding rendered by it, shows perversity. 14 txa20-09ors dt. 18-04-19 process and profit earned from such sale holding that it is a part ofprofit derived from the Industrial Undertaking which is engaged inthe manufacturing of pig iron, and has rightly held that the slagcould be considered as part of profit derived from manufacturingactivity of the Industrial Undertaking, the Tribunal contrary to suchfindings rendered by it, and upholding the findings rendered by theCIT(A), has allowed the Appeal of the Revenue by distinguishing theJudgment of this Court in the case of Commissioner of Income Taxvs. Mansinghka Oil Mills Private Ltd.(supra). In our view, theconclusion drawn by the Tribunal in the impugned order is contraryto the finding rendered by it, shows perversity. 20.The Supreme Court in the case of Liberty India and ors.vs. CIT(supra), had considered a substantial question of law i.e.“Whether profit from Duty Entitlement Passbook Scheme and DutyDrawback Scheme could be said to be profit derived from thebusiness of the Industrial Undertaking eligible for deduction underSection 80-IB of the Income-tax Act,1961”. The Supreme Courtconsidered the provisions of Section 80-AB, 80-I, 80-IA and 80-IBin the said Judgment. After analysing Chapter VI-A, it is held by theSupreme Court that Sections 80-IB and 80-IA are the Code bythemselves as they contain both substantive, as well as proceduralprovisions. It is held that one needs to read Section 80-I, 80-IA and80-IB as having a common scheme and if so read, it is clear that the 15 txa20-09ors dt. 18-04-19 said sections provide for incentives in the form of deductions whichare linked to profits and not to investment. 21.It is further held by the Supreme Court that on analysis ofSections 80-IA and 80-IB, it becomes clear that any IndustrialUndertaking which becomes eligible on satisfying sub-section (2),would be entitled to deduction under sub-Section (1) only to theextent of profits derived from such Industrial Undertaking afterspecified dates. It is held that this is the importance of the words“derived from industrial undertaking” as against “profits attributableto industrial undertaking”. The Supreme Court held that Section80-IB provides for allowing deduction in respect of profits and gainsderived from the eligible business. The words “derived from” isnarrower in connotation as compared to the words “attributable to”.In other words, by using the expression “derived from”, theParliament intended to cover sources not beyond the first degree. 22.However, in the facts of that case, while considering theissue whether the Duty Entitlement Passbook Scheme and DutyDrawback Scheme could be said to be profit derived from thebusiness of the Industrial Undertaking eligible for deduction underSection 80-IB of the Act, the Supreme Court held that such profitswere not profits derived from the eligible business under Section 80-IB and they belong to the category of ancillary profits of suchundertakings. It is held that the said DEPB/Duty Drawback were 16 txa20-09ors dt. 18-04-19 the incentives which flew from the schemes framed by CentralGovernment or from Section 75 of the Customs Act, 1962 and,thus, incentives profits were not the profits derived from the eligiblebusiness under Section 80-IB. In our view, the principles of law laiddown by the Supreme Court in the said Judgment applies to thefacts of this case 23.The question that arises for consideration of this Court is,whether the slag generated out of the manufacturing process wouldsatisfy the test 'first y degree source' or not and, if satisfies such test,would be eligible to deduction under Section 80-IB of the Act ornot ? 16 txa20-09ors dt. 18-04-19 the incentives which flew from the schemes framed by CentralGovernment or from Section 75 of the Customs Act, 1962 and,thus, incentives profits were not the profits derived from the eligiblebusiness under Section 80-IB. In our view, the principles of law laiddown by the Supreme Court in the said Judgment applies to thefacts of this case 23.The question that arises for consideration of this Court is,whether the slag generated out of the manufacturing process wouldsatisfy the test 'first y degree source' or not and, if satisfies such test,would be eligible to deduction under Section 80-IB of the Act ornot ? 24.In our view, in view of the findings already rendered bythe CIT(A), which are upheld by the Tribunal that the slag generatedout of the manufacturing process, the profit earned from such sale,is derived from the Industrial Undertaking which is engaged inmanufacturing of Pig Iron, the Revenue cannot be allowed tocontend that the sale of slag would not be a part of profits earnedfrom the manufacturing process and would not be eligible fordeduction under Section 80-IB of the Act. The findings rendered bythe CIT(A) and upheld by the Tribunal having attained finality, arebinding on the Revenue. 17 txa20-09ors dt. 18-04-19 Ltd. vs. CIT (supra), has also construed the word “derived” afteradverting to the Judgment of the Privy Council in CIT vs. RajaBahadur Kamakhaya Narayan Singh [1948] 16 ITR 325, inwhich it was held that the inquiry should stop as soon as the effectivesource is discovered. In our view, the slag generated during theprocess of manufacturing activity of pig iron, was part of themanufacturing process and was a by-product of pig iron andintegrated part of the manufacturing activity conducted by theAssessee and thus the profits earned from the sale of such by-productwould have to be considered as part of the profits derived from thebusiness of the Industrial Undertaking. The slag generated duringthe manufacturing activity satisfies the test of first degree source and,thus, the Assessee was eligible to seek deduction under Section 80-IB of the Act for the profits earned out of the sale of pig iron, inaddition to the deduction already availed of by the Assessee on theprofits earned on sale of pig iron. 26.CIT vs.The Supreme Court in the case of SterlingFoods(supra), considered the question i.e. “whether the incomederived by the Assessee by sale of the import entitlements was profitand gain derived from its Industrial Undertaking of processing seafood.”. The Supreme Court construed the word “derived” and heldthat there must be, for the application of the words “derived from”, adirect nexus between the profits and gains and the Industrial 18 txa20-09ors dt. 18-04-19 Undertaking. In the facts of that case, the Supreme Court held thatrefining or cracking, of raw naphtha results in the said products.The source of the said products is crude petroleum. In this case, it isnot the case of the Revenue that the slag which was sold by theAssessee was a raw material used for manufacturing of pig iron. Aseparate claim made by the Assessee for deduction under Section 80-IB on sale of raw material was already disallowed by the AssessingOfficer, which order is upheld by the CIT(A). 18 txa20-09ors dt. 18-04-19 Undertaking. In the facts of that case, the Supreme Court held thatrefining or cracking, of raw naphtha results in the said products.The source of the said products is crude petroleum. In this case, it isnot the case of the Revenue that the slag which was sold by theAssessee was a raw material used for manufacturing of pig iron. Aseparate claim made by the Assessee for deduction under Section 80-IB on sale of raw material was already disallowed by the AssessingOfficer, which order is upheld by the CIT(A). 27.The Division Bench of this Court in the case of CIT vs.Vidyut Corporation (supra) has considered the question “whetheron the facts and circumstances and in law, the Tribunal was right inupholding the order of CIT(A) that the AO cannot deduct theincome under the head “interest” from the business income for thepurpose of computation of deduction under Section 80IB. TheDivision Bench of this Court held that there could be no disputeabout the position that the price realised by the Assessee from thesale of goods manufactured by the Industrial Undertaking constitutesa component of the profits and gains derived from the eligiblebusiness. It is further held that the payment of interest on accountof the delay in payment of the sale price of the goods supplied by theundertaking partakes of the same nature and character as the saleconsideration. The delayed payment charges consequently satisfy,together with the sale price, the first degree test which has been laid 19 txa20-09ors dt. 18-04-19 down by the Supreme Court in the case of Liberty India and ors vs.CIT (supra). 28.In the said Judgment, the Division Bench, however,rejected the deduction claimed in respect of the interest received bythe Assessee on unsecured loans under Section 80-IB by holding thatthe interest received by the Assessee on unsecured loans, cannot beregarded as being derived from Industrial Undertaking and wouldfail to meet the first degree test laid down by the Supreme Court inthe case of Liberty India and ors vs. CIT (supra). In our view, theprinciples laid down by the Division Bench of this Court in the saidCIT vs.Judgment in the case of Vidyut Corporation (supra)applies to the facts of this case. Since the slag generated out of themanufacturing activity of pig iron satisfies the test “first degreesource”, the assessee was entitled to seek deduction on the profitsgenerated out of the sale of such slag under Section 80-IB of theAct. The slag generated has a direct nexus with the manufacturingprocess of pig iron. 29.In so far as the Judgment of the Division Bench of thisCourt in the case of Commissioner of Income Tax vs. MansinghkaOil Mills Private Ltd. (supra) which is distinguished by the Tribunalis concerned, the Division Bench of this Court had considered thequestion “whether, on the facts and in the circumstances of the case,and in law, the relief under Section 80-I of the Income-tax Act, 1961, 20 txa20-09ors dt. 18-04-19 29.In so far as the Judgment of the Division Bench of thisCourt in the case of Commissioner of Income Tax vs. MansinghkaOil Mills Private Ltd. (supra) which is distinguished by the Tribunalis concerned, the Division Bench of this Court had considered thequestion “whether, on the facts and in the circumstances of the case,and in law, the relief under Section 80-I of the Income-tax Act, 1961, 20 txa20-09ors dt. 18-04-19 is to be granted with reference to the composite profits or withreference to the proportionate profits on the cotton seed oil alone,being item No.25 of Schedule VI to the said Act ?” The DivisionBench in the said Judgment held that the cotton seed oil-cake, lint,husk, etc., are the by-products in the business of manufacture andsale of cotton seed oil and accordingly, the business of the Assessee ofmanufacture and sale of cotton seed oil was a priority industry andthat all profits and gains attributable to such a priority industryqualify for deduction under Section 80-I of the Income-tax Act,1961. The Tribunal, however, distinguished this Judgment of theDivision Bench of this Court, which was considering the provisionsof Section 80-I, on the ground that in Section 80-IB of the Act, thewords used are “income derived” which is much narrow comparedto Section 80-I that was a concern with the High Court in the saidJudgment. In our view, the Tribunal has erroneously distinguishedthe said Judgment of this Court in the case of Commissioner ofIncome Tax vs. Mansinghka Oil Mills Private Ltd. (supra). 30.The Supreme Court in the case of Liberty India and orsvs. CIT (supra) has categorically held that Sections 80-I, 80-IA and80-IB have a common scheme. It is held that said sections providefor incentives in the form of deductions which are linked to profitsand not to investment. In our view, the view taken by the Tribunal iscontrary to the principles laid down by the Supreme Court in the 21 txa20-09ors dt. 18-04-19 31.If we consider the legislative history of Section 80-IB, it isclear that by the Finance Act, 1999, Section 80-IA was split. Thedeductions therein were divided in two sections i.e. Section 80-IAand 80-IB. Section 80-IA deals with deductions for IndustrialUndertakings or enterprises engaged in infrastructure developments;whereas Section 80-IB deals with several other activities and incomeof any profits and gains derived from any such business/activities arecovered by the provisions of Section 80IB. 32.In so far as the Judgment of the Madras High Court in thecase of M/s. Computer Graphics Limited vs. The AssistantCommissioner of Income Tax Company Circle IV(2) relied uponby the learned counsel for the Revenue is concerned, the substantialquestion of law before the Madras High Court was “whether on thefacts and in the circumstances of the case the Income Tax AppellateTribunal was right in law in holding that the appellant was notentitled to deduction under Section 80-IB of Income-tax Act 1961on the ground that conversion of jumbo rolls into salablepackets/rolls of standard sizes was not manufacture or production ofarticle or thing?” The Madras High Court, in the said Judgment, heldthat the activity of converting jumbo rolls into marketable small sizescannot be regarded as a marketing activity and as such, the Assesseewas not entitled to the benefit of Section 80-I. In our view, the 22 txa20-09ors dt. 18-04-19 reliance placed by the learned counsel for the Revenue on the saidJudgment is totally misplaced and would not even remotely apply tothe facts of this case. 22 txa20-09ors dt. 18-04-19 reliance placed by the learned counsel for the Revenue on the saidJudgment is totally misplaced and would not even remotely apply tothe facts of this case. 33.In so far as the Judgment of the Himachal Pradesh HighCourt in the case of Mrs. Poonam Arora vs. Income Tax Officerand others(supra) relied upon by the learned counsel for theRevenue is concerned, the substantial question of law underconsideration of the Himachal Pradesh High Court was, “whether inthe facts and in the circumstances of the case, the Income TaxAppellate Tribunal was right in holding that the manufacturing of“roasted groundnut” from “groundnut seed” was not by amanufacturing process, but was the same salable commodity withvariation in demand.” The Himachal Pradesh High Court in the saidJudgment held that the process of roasting raw groundnut seed intoroasted groundnut does not bring into a new and distinct productand, therefore, does not amount to manufacture and, thus, theAssessee is not entitled to the benefit of Section 80-IA or 80-IB of theAct. The facts before the Himachal Pradesh High Court were totallydifferent. In this case, there is a finding rendered by the CIT(A), aswell as the Tribunal that the slag was generated out of manufacturingprocess and the profit earned from such sale was a part of the profitderived from the Industrial Undertaking which was engaged inmanufacturing of pig iron. The Judgment of the Himachal Pradesh 23 txa20-09ors dt. 18-04-19 High Court, thus, would not advance the case of the Revenue in anymanner whatsoever and is clearly distinguishable. 34.In so far as the Judgment of the Madras High Court in the caseof M/s. India Cine Agencies vs. The Commissioner of IncomeTax (supra), relied upon by the learned Counsel for the Revenue isconcerned, the question of law under consideration of the MadrasHigh Court was, 'whether on the facts and in the circumstances ofthe case, the Tribunal was correct in not granting deduction underSection 32-A Income-tax Act for deduction under Section 80-I of theAct or not ?' The Madras High Court in the said Judgment held thatthe Assessee, in that case, had imported already manufactured colourpapers, which had been reduced in size according to the needs of thecustomers of the Assessee. The original goods, as well as the sizereduced goods by slitting were all one and the same i.e. they werephotographic colour paper. No new commercial commodityemerged out of the activity carried on, on the original goods i.e.jumbo rolls which could be considered as a manufacturing activity atthe hands of the Assessee. 35.It is held that the Assessee was only trading inphotographic colour papers as a wholesaler and slitted the alreadymanufactured and produced photographic paper into required size tosuit the requirement of its customers and in easily marketable sizes.It is held that slitting of bigger roll into marketable smaller rolls or 24 txa20-09ors dt. 18-04-19 sizes was an integral part of the trading activity of the Assessee and insuch process neither manufacture nor production is involved, nor anew product emerged. The facts before the Madras High Courtwere totally different. The said Judgment even does not remotelyapply to the facts of this case and is clearly distinguishable. 36. For the reasons indicated above the substantial question oflaw formulated herein above on 7[th] December 2009 by this Courtis answered in the affirmative, i.e against the respondent-Revenue andin favour of the appellant- Assessee. 37. Tax Appeal No.20/2009 is disposed of accordingly. . Prithviraj K. Chavan, J R.D. Dhanuka, J.