Bombay H.C : Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in including the amount of Rs. 3,00,000 (which the assessee- company received from the Andhra Pradesh Paper Mills Ltd., as part of the consideration for the technical know- how supplied by the former to the latter) as profit attributable to its priority industry for the purpose of the deduction under s. 80-I of the IT Act, 1961, for the asst. yr. 1969-70 ?

High Court Of Bombay

CIT vs. West Coast Paper Mills Ltd.

Section 80-I

Asst. Year 1969-70

S.P. Bharucha & T.D. Sugla, JJ.

IT Ref. No. 333 of 1975

2nd April, 1987

Counsel Appeared

G.S. Jetly & Mrs. Manjula Singh, for the Revenue : S.J. Mehta & I.M. Munim, for the Assessee

BHARUCHA, J.:

This reference under s. 256 of the IT Act, 1961, raises three questions, all at the instance of the Revenue. For the asst. yr. 1969-70, two questions are raised which read thus:

” 1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in including the amount of Rs. 3,00,000 (which the assessee- company received from the Andhra Pradesh Paper Mills Ltd., as part of the consideration for the technical know- how supplied by the former to the latter) as profit attributable to its priority industry for the purpose of the deduction under s. 80-I of the IT Act, 1961, for the asst. yr. 1969-70 ?

2. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the profit of Rs. 1,78,606 on the sale of the assets and miscellaneous receipts of Rs. 2,65,548 should be included in the profits attributable to the priority industry for the purpose of the deduction under s. 80-1 of the IT Act, 1961 ?”

2. For the asst. yr. 1970-71, only one question is raised, which reads thus:

” Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in including the amount of Rs. 2,75,000 (which the assessee-company received from the Andhra Pradesh Paper Mills Ltd., as part of the consideration for the technical know-how supplied by the former to the latter) as profit attributable to its priority industry for the purpose of the deduction under s. 80-I of the IT Act, 1961, for the asst. yr. 1970-71 ? “

3. It will be seen that the first question for the asst. yr. 1969-70 and the only question for the asst. yr. 1970-71 concern the same issue. The assessee is engaged in the production of pulp and paper from bamboo. That the production of paper is a priority industry for the purposes of s. 80-I of the IT Act is not in dispute. On April 30, 1965, the assessee entered into an agreement with a company called the Andhra Pradesh Paper Mills Ltd. to supply to it technical know-how and assistance for installing, commissioning and successfully running a pulp and paper plant. The agreement recited this: ” Whereas, Andhra Paper desires the technical assistance for installing and commissioning and successful running of the new pulp and paper plant have approached the management of the West Coast for arranging the necessary technical know-how and rendering such assistance as may be needed and available with West Coast to avail of the benefit of its experience in the manufacture of such products; and “Whereas, West Coast is presently engaged in the production of pulp and paper from bamboo since last 5 years with a quality production of 30,000 tons of paper per annum; and Whereas, West Coast is willing to furnish such collaboration to Andhra Paper subject to the provisions of this Agreement; …”

The assessee claimed deduction under s. 80-I of the fees that it received from the said company on the ground that they constituted a part of its profits and gains attributable to its said priority industry. The ITO rejected the claim on the ground that such deductions would be admissible only in regard to the profits that directly emerged from the manufacture and sale of paper. In appeal, the AAC, following the decision of the Tribunal in respect of the same assessee for an earlier year, held that the assessee was entitled to the deduction it claimed. The Tribunal upheld the AAC’s finding. In the earlier year, the Tribunal had accepted the argument of the assessee that the

technical know-how and assistance which it gave to the said company had been acquired by it as a result of the carrying on of the priority industry and that, therefore, the technical fees it received from the said company were attributable to that industry.

It is clear from the agreement between the assessee and the said company that the assessee agreed to give to the company technical know-how and assistance which it had acquired in commissioning and successfully running its own pulp and paper plant. The technical fees that it derived consequent upon such agreement cannot but be held to be profits and gains attributable to its priority industry.

We are fortified in the view that we take by the judgment of the Karnataka High Court in Mysore Electrical Industries Ltd. vs. CIT (1980) 14 CTR (Kar) 24:(1978) 114 ITR 865(Kar), rendered in similar circumstances. The Karnataka High Court held that the income received by the assessee was only the result of another way of exploitation of the business in which the assessee was engaged and was ” attributable to its priority industry “. Accordingly, the first question for the asst. yr. 1969-70 and the only question for the asst. yr. 1970-71 must be answered in the affirmative and in favour of the assessee.

The second question raised for the assessment year 1969-70 encompasses two items. The first relates to the amount of Rs. 1,78,606 realised by the assessee upon the sale of its assets. It is common ground that, in so far as this item is concerned, the question must be answered in the affirmative and in favour of the assessee having regard to the judgment of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. vs. CIT (1978) 113 ITR 84(SC).

The second question for the asst. yr. 1969-70 also relates to the item of Rs. 2,65,548 which represents the recoveries of rent by the assessee from its staff and workers. It is common ground that this amount has been treated as part of the assessee’s business income. So treated, it must necessarily be attributed to the priority industry carried on by the assessee and must, therefore, qualify for deduction under s. 80-I.

In the circumstances, the second question for the asst. yr. 1969-70 must also be answered in the affirmative and in favour of the assessee.

[Citation : 169 ITR 288]

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