Krishak Bharati Cooperative Ltd. vs Joint Commissioner Of Income Tax
2006 Latest Caselaw 2045 Del

JUDGMENT

1. These three Appeals by the assessed KRIBHCO are directed against the common Order dated 27.1.2006 passed by the ITAT whereby for the Assessment Year (AY) 1993-94, the assessed's appeal (ITA 6130/1997) was dismissed and the Revenue's appeal (ITA 154/1998) was allowed in part and for the Assessment Year 1994-95, the Revenue's appeal (ITA 5354/1998) was allowed in part. Although the impugned order also allowed in part the Revenue's appeal (ITA 756/2000) for Assessment Year 1996-97, there is no appeal against that part of the impugned order.

2. Briefly stated, the assessed, which is a multi state cooperative society, is the manufacturer of Urea and Ammonia at its plant at Hazira. It supplies Ammonia gas through two pipe connections from its plant at Hazira directly to the Heavy Water Plant of the Heavy Water Board (Department of Atomic Energy) which is located next to the assessed's plant. An Agreement had been executed by these two parties on 14.9.1994, a copy whereof has been filed as Annexure `B' to the Appeals. The arrangement between these two parties is that the assessed is reimbursed for the cost of Ammonia manufactured by the assessed and supplied by it to the Department of Atomic Energy and in addition thereto receives service charges and production linked incentives. There is no dispute in respect of the so-called "reimbursement of cost." The CIT (Appeals) has taken the view that the service charges received by the assessed could not be viewed as profits arising from the assessed's own manufacturing activity. In their opinion, these charges were linked to the manufacturing activity undertaken by the Heavy Water Plant (HWP) in the ownership of the said Department of Atomic Energy. Furthermore, the CIT (A) has also returned a finding that service charges do not depend upon the manufacturing activity of the Appellant, but under the Agreement is given with reference to the Production in the Heavy Water Plant. Accordingly, the benefits/deductions as envisaged in Section 80-I were found not to be admissible to the assessed. The ITAT has concurred in the findings of the CIT (A).

3. Mr. Manmohan, learned Senior Counsel appearing for the Appellant submits that the service charges are relateable to the business of the assessed i.e. sale of Ammonia gas to the Heavy Water Plant. The splitting up of the price into cost of production and service charges is only for convenience and cannot result in the denial to the assessed of the benefit of Section 80-I to the extent of such service charges. On a consideration of the facts of the case and the object of Section 80-I of the Act, we are unable to accept the assessed's contention. In view of the concurrent finding of the AO, the CIT (A) and the ITAT we hold that no substantial question of law arises.

4. Mr. Manmohan then urges that the ITAT was in error in disallowing the assessed's claim for deduction in respect of income from equipment hire charges. He has drawn our attention to the decision of the Supreme Court in Commissioner of Income-tax v. Rambal Pvt. Ltd. . The contention is that although the Respondent/assessed was engaged in the manufacture of nuts, bolts and screws for automobiles, but during the period when the machines were not being put to use the assessed had also manufactured items falling outside the Fifth Schedule. This decision is of no avail since in that case the assessed itself was engaged in the manufacturing of the items in question and not a third party. However, in the instant case, the ITAT while reversing the CIT (A) on this point, has held that the machinery hire charges received by the assessed "could not be considered as profits derived from its industrial undertaking for the purpose of computing deduction under Section 80-I."

5. We are also unable to appreciate how and why the decision of the Supreme Court in Pandian Chemicals Ltd. v. Commissioner of Income-tax is of any assistance to the assessed. In that case, a deposit had been made by the assessed with the Electricity Board for the supply of electricity for running the industrial undertaking, and the interest derived there from was held not to be eligible to the benefits under Section 80HH of the Income-Tax Act. A distinction was made between the words "derived from" and "attributable to"; this decision in fact militates against the assessed. We also concur with the view expressed in a decision of this Court in Additional Commissioner of Income-tax, New Delhi v. Indian Drugs and Pharmaceuticals Ltd. . Therefore, in this respect also, we are of the view that no substantial question of law arises in this case.

6. Finally, it is urged that the interest earned by the assessed on loans advanced by it to its employees was directly attributable to the business of the individual undertaking and has to be considered for deduction under Section 80-I. We concur with the view of the AO, the CIT (A) and ITAT that this income fails the direct nexus test and cannot be reckoned for the purposes of Section 80-I. This point also does not involve any substantial question of law.

7. These Appeals are dismissed accordingly.