Karnataka H.C : The appellant is not eligible for deduction under Section 80-IA for the Act under the facts and circumstances of the case

High Court Of Karnataka

Sharavathy Steel Products (P.) Ltd. vs. ITO, Ward 12(2), Bangalore

Assessment Year : 1996-97

Section : 80-IA

V.G. Sabhahit And Ravi Malimath, JJ.

IT Appeal No. 3253 Of 2005

August 11, 2011

JUDGMENT

Ravi Malimath J – This appeal is by the assessee being aggrieved by the order of the Tribunal dismissing its appeal by holding that the assessee is not eligible for deduction under Section 80-IA of the Act.

2. The assessee is a Private Limited Company carrying on the business of manufacture and supply of M.S. Wires and G.I. Wires. For the relevant assessment year 1996-97, the assessee filed its return of income which included the income derived as net commission to an extent of Rs. 26,12,576/-. The assessee accordingly claimed the deduction under Section 80-IA towards the said amount. The Assessing Officer disallowed the claim on the ground that the assessee has earned the commission as an agent to supply certain goods and hence, this cannot be the activity of the assessee. Aggrieved by the same, the assessee preferred an appeal to the Commissioner who dismissed it. Aggrieved by the same, the assessee preferred an appeal to the Tribunal, wherein the order of the Assessing Officer and Appellate Authority were confirmed and the appeal was dismissed. Hence the present appeal by the assessee.

3. The appeal was admitted to consider the following substantial questions of law:

(i) Whether the Tribunal justified in law in holding that the appellant is not eligible for deduction under Section 80-IA for the Act under the facts and circumstances of the case?

(ii) Whether the Tribunal is justified in law in not holding the appellant is entitled to deduction under Section 80-IA of the Act, in view of the expression used “profit or gain derived from any business of an industrial undertaking” on the facts and circumstances of the case?

4. The learned Counsel appearing for the appellant-assessee by placing reliance on the provisions of Section 80-IA submitted that the income earned by the assessee would include the income earned as a commission for the services rendered. That the assessee has rendered the services since the assessee was in the said line of business and therefore, there was direct nexus with the business of the assessee. It: is further contended that even though the Appellate Commissioner has opined that the commission income earned by the assessee is attributable to its business but held that the assessee is not eligible for deduction under Section 80-IA. Therefore, he pleads that the authorities committed an error in misreading and misapplying Section 80-IA of the Act. That the assessee is entitled for the deductions claimed.

5. The learned Counsel appearing for the revenue defends the impugned order. He contends that the provisions of Section 80-IA have, been rightly interpreted and does not call for any interference by this Court. That the facts and circumstances of the case would disclose that the provisions are not applicable to the instant case. He placed reliance on the judgments in the case of CIT v. Siddaganga Oil Extractions (P.) Ltd. [1993] 201 ITR 968/ 67 Taxman 426 (Kar.), in the case of Cambay Electric Supply Industrial Co. Ltd., v. CIT [1978] 113 ITR 84 (SC) and the case of Liberty India v. CIT [2009] 317 ITR 218/ 183 Taxman 349 (SC) and pleads for dismissal of the appeal.

6. Heard Counsels.

7. The authorities came to the conclusion that the claim made by the assessee under Section 80-IA cannot be allowed. That the assessee has earned the commission as an agent to supply certain goods and this is not the activity of the assessee industrial undertaking. The business of the assessee is the manufacture and its supply of M.S. Wires and G.I. Wires. The income in dispute is earned as a result of a commission received by the assessee for the services rendered. It is outside the activity of the assessee. Hence the Assessing Authority rightly came to the conclusion on facts. The Tribunal came to the view that there is no nexus between the earning of commission income and the business of the industrial undertaking. The Tribunal is the last finding authority.

8. In support of his contention, the assessee relied on the judgment in the case of CIT v. Tara Agencies [2007] 292 ITR 444 / 162 Taxman 337 (SC) to contend that the intention of the Legislature has to be gathered from the language used in the Statute, which means that attention should be paid to what has been said as also to what has not been said.

9. We are in complete agreement with the law declared. The intention of the Legislature has been gathered and attention has been given to the facts and circumstances of the case. The commission earned by the assessee cannot under any circumstances be regarded as the business activity of the assessee. Hence, the said judgment is of no avail to the assessee.

10. The expression “profit or gain derived from any business of an industrial undertaking” will not stand attracted to the case of the assessee. The commission earned by the assessee cannot be considered as a “profit or gain from any business of an industrial undertaking”. It is not the business of the industrial undertaking to earn commission. Therefore, in the facts and circumstances of the case, we are of the considered view that the order of the Tribunal is justified. Further, we are of the considered view that in view of the facts and circumstances of the present case, the Tribunal was justified in holding that the assessee is not entitled for deduction under Section 80-IA of the Act. Consequently, both the questions of law are to be answered in favour of the revenue.

11. We do not see any error either on the application or interpretation on the facts of the case. All the lower authorities have held against the Assessee. Under these circumstances, we are of the considered view that the appeal has to fail. For the aforesaid reasons, the substantial questions of law are answered in favour of the revenue and against the assessee.

[Citation : 347 ITR 371]

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