Bombay H.C : Whether, on the facts and in the circumstances of the case and in law, the relief under s. 80-I of the Act is to be granted with reference to the composite profits or with reference to the proportionate profits on the cotton seed oil alone, being item No. 25 of Sch. VI?

Counsel Appeared

G.S. Jetley with D.H. Parekh, for the Revenue : D.Y. Pandit, for the Assessee

SUGLA, J.:

The only question of law referred to this Court for opinion at the instance of Revenue is : “Whether, on the facts and in the circumstances of the case and in law, the relief under s. 80-I of the Act is to be granted with reference to the composite profits or with reference to the proportionate profits on the cotton seed oil alone, being item No. 25 of Sch. VI?”

The facts are not in dispute. The assessee is a private limited company. It carries on business of manufacture and sale of cotton seed oil i.e., vanaspati oil. For asst. yr.1970-71, the assessee claimed deduction under s. 80-I on its profits from the aforesaid business. Observing that the profits on which relief was claimed under s. 80-I included profits on the sale of cotton seed oil cake, cotton seed lint, cotton seed husk, etc., which do not qualify for the relief under that section, the ITO restricted the relief on the profits from the manufacture and sale of cotton seed oil only. The AAC confirmed the order of the ITO. The Tribunal, however, accepted the assessee’s claim holding that the assessee was entitled to deduction under s. 80-I in respect of its entire profits which were attributable to the activity of manufacture and sale of cotton seed oil, i.e. “priority industry”.

There is no dispute that s. 80-I was in force during the previous year involved herein, that the section provided for deduction in respect of 8 per cent of the profits and gains attributable to any priority industry, that the expression ‘priority industry’ is defined in s. 80-B(7) of the said Act, inter alia meaning manufacture of any one or more of the articles or things specified in the list in the Sixth Schedule and that cotton seed oil is item 25 in the list of articles and things in the Sixth Schedule. The short question that arises for consideration, therefore, is whether the expression “profits and gains attributable to” priority industry means the profits directly relatable to the manufacture and sale of cotton seed oil or whether it means and includes all profits and gains which are attributable to such an industry. The question requires to be considered in the light of categorical finding given by the Tribunal in its impugned order that the cotton seed oil cake, lint, husk, etc., are by-products in the business of manufacture and sale of cotton seed oil.

The above facts are very near to the facts in the case decided by the Calcutta High Court in CIT vs. Sutna Stone and Lime Co. Ltd. (1982) 26 CTR (Cal) 343 : (1982) 138 ITR 37 (Cal) : TC25R.340. The assessee in that case was carrying on business of manufacture and sale of lime stone on its quarries which admittedly constituted ‘priority industry’ within the meaning of s. 80-I. In the course of its above business, the assessee was also deriving profits from the manufacture of lime. The question had arisen whether the profits derived from manufacture and sale of lime were attributable to the “priority industry”. The Tribunal had found as a fact that the production of lime and the production of lime stone are integrated composite parts of the one productive activity of the assessee. On the above finding it was held that the profits derived by the assessee from the manufacture and sale of lime were attributable to ‘priority industry’ so as to qualify for relief under s. 80-I. As against this, the assessee in the case decided by the Madras High Court in CIT vs. Coromandal Prodorite Pvt. Ltd. 1977 CTR (Mad) 371 : (1978) 111 ITR 132 (Mad) : TC25R.459, was engaged in the manufacture of prodorite (acid resisting cement), a priority industry, within the meaning of s. 80-I. In addition, it undertook contracts for laying acid resisting floors and other constructions in factories and also dealt in acid resisting bricks. The assessee had suffered losses in the latter activities. It was the case of the Revenue that the assessee- company was entitled to relief under s. 80-I on the net total income i.e. income derived from priority industry as reduced by the losses in the aforesaid other activities. The question, therefore, was whether losses suffered by the assessee from the contracts for laying acid resisting floors and other constructions in factories and also from dealing in acid resisting bricks, were attributable to the priority industry so that the assessee would be entitled to relief under s. 80-I on the net total income. There was no finding in the case that all these activities were integrated part of the activity of priority industry. It was held that the assessee was entitled to relief under s. 80-I on the profits of the priority industry and not the net profits from all its activities. In the case before us, the Tribunal has given a categorical finding that the cotton seed cake, lint, husk etc., are by-products in the business of manufacture and sale of cotton seed oil i.e. the priority industry. In the circumstances, the decision of the Calcutta High Court is applicable to the facts of the case in hand and not the decision of the Madras High Court.

Accordingly, we hold that the assessee’s business of manufacture and sale of cotton seed oil is a priority industry and that all profits and gains attributable to such a priority industry qualify for deduction under s. 80-I of the IT Act, 1961.

In the above view of the matter, the question is answered thus : The relief under s. 80-I of the IT Act, 1961 is to be granted with reference to the composite profits of the priority industry and not with reference to the proportionate profits as computed by the ITO.

No order as to costs.

[Citation : 169 ITR 158]