Shardlow India Ltd. vs Commissioner of Income Tax, Madras

V. Ramaswami, J.—The following question has been referred at the instance of the assessee :

Whether, on the facts and in the circumstance of the case, the Tribunal was right in holding that the profit derived from the sales of import

entitlements would not be entitled to relief u/s 80E of the Income Tax Act, 1961 ?

The assessee is a priority industry, which is entitled to a rebate under s. 80E of the I.T. Act, 1961. It manufactures forgings and stampings,

which are automobile parts. In determining the income on which the rebate under s. 80E of the Act is available, the ITO excluded a sum of Rs.

1,70,245, being the profit on sales of import entitlements. The assessee obtained the entitlements on the basis of the export performance. The ITO

excluded the same on the ground that this did not have any relation to the manufacturing operations of the assessee. This view was confirmed by

the AAC and the Tribunal. Under s. 80E, in order to get the benefit of deduction, the profits and gains should be attributable to the business of

manufacture or sale. The Tribunal held that in order to make profits ""attributable"" to the manufacturing activity, there should be some direct nexus

with the profit earned and the manufacturing activity. As in the view of the Tribunal, there is no such nexus in the profit earned by sale of import

entitlement, for the purpose of the relief under s. 80E the profits on sale of import entitlements had to be excluded. The Supreme Court in Cambay

Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, , while interpreting the words ""attributable to

occurring in s. 80E, observed as follows (p. 93) :

As regards the aspect emerging from the expression ''attributable to'' occurring in the phrase profits and gains attributable to the business of'' the

specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that

the legislature has deliberately used the expression ''attributable to'' and not the expression ''derived from''. It cannot be disputed that the

expression ''attributable to'' is certainly wider in import than the expression ''derived from''. Had the expression ''derived from'' been used, it could

have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits

and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that

whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression

''derived from'', as, for instance, in section 80J. In our view, since the expression of wider import namely, ''attributable to'', has been used, the

legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.

The import entitlement in this case was given to the assessee on the basis of its export of the goods manufactured by them. Certainly, therefore,

the import entitlement was directly attributable to the export of goods manufactured and the business of sale of forgings and stampings. A similar

question came up for consideration before a Division Bench of this court in Commissioner of Income Tax, Tamil Nadu-V Vs. Universal Radiators

P. Ltd., . There it was held that the amount of incentive would qualify for the relief under s. 80-I which provisions was similar to s. 80E. The export

incentive, thus, being bound up with the manufacture, sale and export, the assessee is entitled to get the relief under s. 80E even in respect of these

profits and gains.

We, accordingly, answer the reference in the negative and in favour of the assessee. The assessee will be entitled to its costs. Counsel''s fee Rs.

500.