Commissioner of Income Tax vs Coral Telecom Ltd.

Heard counsel for the parties. This appeal has been admitted with regard to two substantial questions of law, formulated in paragraph 6 of the appeal memo.

The appellant is relying on the exposition in the case of Liberty India Vs. Commissioner of Income Tax, to contend that the Tribunal committed manifest error in not only misconstruing the purport of Section 80-IB but its decision is also untenable because of the subsequent decision of the Apex Court upholding the view taken by the Punjab and Haryana High Court. According to the appellant, the income received from the installation and commissioning of equipment at the premises of a customer is not the income derived from the industrial undertaking within the meaning of Section 80-IB amenable to deduction provided thereunder. For this purpose, reliance is placed on the exposition of the Apex Court in the abovesaid decision from paragraphs 23 to 36 of the decision.

The respondent, however, has relied on the decision of the Division Bench of this Court in Spray Engineering Devices Ltd. versus Assistant Commissioner of Income Tax and another, in ITA No. 39 of 2006, decided on 7th November, 2009, which, in turn, after referring to the decision in Liberty India supra, answered the very question, which arises for consideration in the present appeal.

In that appeal, the question formulated was: whether the income of the appellant from erection and commissioning charges can be termed as having been derived from industrial undertaking? The Division Bench answered that question in favour of the assessee.

Counsel for the appellant, however, has assailed the correctness of the conclusion reached by the Division Bench of this Court on the argument that the Division Bench has misinterpreted and misapplied the exposition of the Apex Court in Liberty India supra.

In the first place, the relevant discussions and findings of the Apex Court in paragraphs 23 to 36 have not been noticed by the Division Bench at all and more so, the efficacy of sub-section (2) of Section 80-IB has also not been considered by it. The purport of Section 80-IB (2) is that the Section would apply only to industrial undertaking fulfilling the requirements provided for in sub-section (2). If the industrial undertaking fails to fulfill the requirement specified in sub-section (2) as a concomitant thereof, deduction u/s 80-IB will be unavailable to such assessee. To put it differently, though the assessee is engaged in manufacturing and producing of the electronic PABX Unit, and is an industrial undertaking, the income received by it on account of erection and commissioning of equipment cannot be said to be derived from the source of the profits to manufacture, which is the quintessence for application of Section 80-IB of the Act.

Prima facie, we are in agreement with the submission canvassed by the appellant that the Division Bench has completely glossed over the above aspects, for which it would be appropriate to reconsider the principle stated in its decision in Spray Engineering Devices Ltd. supra. As a result, we are inclined to refer this matter to Full Bench for reconsideration of the two questions on which this appeal has been admitted keeping in mind the principle stated by the Apex Court in Liberty India supra. As regards, substantial question No. 2, formulated in paragraph 6, the same, no doubt, is answered in the decision in Liberty India supra, however, that can be dealt with after the opinion of the Full Bench is rendered with regard to the referred question.