Jagannatha Shetty, J.:— The common question referred in these two references under s. 256(1) of the I.T Act, 1961 (shortly called “the. Act”), runs as follows:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80HH of the Income-tax Act, 1961?”

2. The facts giving rise to the question are as follows:

During the assessment years 1975–76 and 1976–77 the assessee-firm was engaged in the processing and export of prawns and other sea-foods. The assessee also earned some import entitlements granted by the Central Government under the Export Promotion Scheme. It is said that the person who has secured the import entitlements could either use the same or sell it to others. The assessee sold such import entitlements and earned some profits. The total income of the assessee for the years in question included the sale proceeds of such import entitlements. The ITO allowed relief under s. 80HH of the Act in respect of the entire receipts inclusive of the sale proceeds of the import entitlements.

3. The Commissioner in exercise of his power under s. 263 of the Act was of the opinion that the assessee was not entitled to the relief under s. 80HH in respect of the receipts from the sale of the import entitlements. He, accordingly, set aside the assessment and directed the ITO to re-do the assessment after excluding the proceeds of the sale of import entitlements. The assessee preferred appeals before the Appellate Tribunal with the contention that the import entitlements were secured in the course of the business in the industrial undertaking and the profits derived therefrom must, therefore, fall for relief under s. 80HH of the Act. The Tribunal did not accept that contention. While following the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. Cit , [1978] 113 ITR 84, the Tribunal rejected the contention urged and consequently dismissed the appeals.

4. Section 80HH of the Act, under which the relief is claimed by the assessee, reads:

“80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.— (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof.

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:

(i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area;

(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward area:

Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section.”(rest omitted as unnecessary).

5. The entitlement, of an assessee for relief under s. 80HH is in respect of the profit derived from his undertaking located in specified backward areas. There is no dispute that the assessee's undertaking has been located in the backward areas. The answer to the question before us, therefore, largely turns on the scope and meaning of the expression “derived from” used in s. 80HH.

6. The word “derived” has received judicial interpretation apart from its narrow meaning in the dictionary. As far back in 1948, the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh, [1948] 16 ITR 325, considered the scope of that word. It was held that interest on rent of agricultural land was not an agricultural income as it was not revenue derived from the land. In reaching that conclusion this is what the Privy Council observed at page 328:

“Equally clearly the interest on rent is revenue, but in their Lordship's opinion it is not revenue derived from land. It is no doubt true that without the obligation to pay rent—and rent is obviously derived from land—there could be no arrears of rent and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards the interest, land rent and non-payment of rent stand together as causae sine quibus non. The source from which the interest is derived has not thereby been ascertained.

The word ‘derived’ is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest, land indeed appears in the second degree, but the immediate and effective source is rent which has suffered the accident of non-payment. And rent is not land within the meaning of the definition.

There is no commercial connection between the interest and the rented land and effective source—not land—has become apparent”.

7. It is apparent from the above observations that the Privy Council assigned a restricted meaning to the word “derived”. In the view of the Privy Council, if an enquiry is to be made into the genealogy of the item or the product, the enquiry should stop as soon as the effective source is discovered, and there shall not be any further enquiry into any other matter, however closely connected with the effective source in question.

8. In Cambay Electric Supply Industrial Co. Ltd. v. Cit , [1978] 113 ITR 84, the Supreme Court has also given the same meaning to the word “derived” while examining the scope of s. 80E of the Act as it then stood. While explaining the distinction between the expression “attributable, to” and the expression “derived from” this is what the Supreme Court observed (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”.

9. From these observations, it becomes clear that the expression “derived from” has a-definite, but narrow meaning and it cannot receive a flexible or wider concept. If a word or expression has received judicial interpretation by the highest court or the tribunal and thereafter it is found to have been used in the legislative enactments, it must be presumed that the legislature must have used that word or expression with the same meaning as judicially determined unless the context apparently requires any other meaning.

10. As we have earlier seen, the assessee has an industrial undertaking mainly for the purpose of exporting sea-food. In that business, the assessee has earned import entitlements under a scheme approved by the Government of India. The scheme was not as such connected with the export of sea-food. It was generally for encouraging exports. The assessee has sold those import licences and realised some profits. The question is, whether that profit could be said to have been derived from the industrial undertaking of the assessee?

11. Sri Prasad contended that the assessee is engaged in only one business, i.e, the business of processing and exporting of sea-food. The assessee secured import entitlements in the course of such business and not independent of it. The import entitlements thus form part of the business of export of sea-food. The profits derived therefrom are also commercially connected with the industrial undertaking. If there is a commercial connection between such profits and gains and the industrial undertaking, then such profits and gains must also fall for relief under s. 80HH. He further urged that since the gross total income of the assessee is inclusive of the profits and gains derived from the sale proceeds of the import entitlements, it would be illogical to exclude such profits and gains from the purview of s. 80HH.

12. The last contention of Mr. Prasad requires no close scrutiny. The amount received by the assessee by sale of import entitlements is business income, and not capital proceeds. Quite naturally, therefore, that income must be included in the total income of the assessee tinder s. 5 of the Act. The total income of any previous year of the assessee includes income from whatever source derived. Therefore, the fact that the income from the sale of import entitlements falls to be included in the total income chargeable to income-tax, cannot by itself confer any right on the assessee to claim relief under s. 80HH.

13. In fact, s. 80HH(1) itself provides that “where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking…… there shall, in accordance with and subject to the provisions of this section, be allowed…………a deduction from such profits and gains of an amount equal to twenty per cent, thereof”. It is thus seen that a certain category of profits and gains included in the gross total income only falls for relief and not the entire total income of the assessee, the condition being that such profits and gains must have been derived from an industrial undertaking or the business of a hotel.

14. Section 80HH was meant to give a tax rebate to certain categories of assessees and one who wants to claim such relief must strictly satisfy the requirements prescribed thereunder. He must establish that his profits and gains were derived from his industrial undertaking or the business of a hotel. It is just not sufficient if a commercial connection is established between the profits earned and the industrial undertaking. The law requires that such profits must have been derived from the industrial undertaking. The industrial undertaking must itself be the source of that profit. The business of that industrial undertaking must directly yield that profit. It must be the direct source of that profit and not a means to earn any other profit.

15. “Source” means not a legal concept but something which a practical man would regard as a real source of income. [The assessee may have separate sources of income—see s. 3(3) of the Act]. All taxable income must necessarily have a definite source (see the Law and Practice of Income Tax by Kanga and Palkhivala, p. 162).

16. If that is the concept of the “source.”, can we legitimately say that the profits and gains derived by the sale proceeds of the import entitlements must be held to have been derived from the industrial undertaking of the assessee. Far from it, the import entitlements were awarded by the Central Government under a scheme to encourage exports. The source referable to the profits and gains arising out of the sale proceeds of the import entitlements would, therefore, be the scheme of the Central Government and not the industrial undertaking of the assessee.

17. Our view finds support from the decision of the Kerala High Court in Cochin Company v. Commissioner Of Income-Tax, Kerala, [1978] 114 ITR 822. Balakrishna Eradi J. (as he then was), speaking for the Bench, observed at page 830 thus:

“The argument advanced on behalf of the assessee is that since the assessee had become eligible for the import entitlements only on account of its having exported goods out of India, the income derived by conversion of the import entitlements into money by a process of sale should be regarded as profits or gains derived from the said activity of the export of goods. We are unable to accept this contention. Profit or gain can be said to have been ‘derived’ from an activity carried on by a person only if the said activity is the immediate and effective source of the said profit or gain. There must be a direct nexus between the activity and the earning of the profit or gain. The income, profit or gain cannot be said to have been ‘derived’ from an activity merely by reason of the fact that the said activity may have helped to earn the said income or profit in an indirect or remote mariner—see Commissioner of Income-tax v. Raja Bahadur Kamakhaya Narayan Singh, [1948] 16 ITR 325 (PC) and Mrs. Bacha F. Guzdar v. Commissioner of Income-tax, [1955] 27 ITR 1 (SC).”

18. The above decision of the Kerala High Court has been followed by the Bombay High Court in Hindustan Lever Ltd v. Commissioner Of Income-Tax, Bombay City-I., [1980] 121 ITR 951. The Bombay High Court also observed that the expression “derived from” cannot be accepted as equivalent to “referable to”.

19. In Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT, [1983] 143 ITR 590, the Madhya Pradesh High Court has also taken a similar view. Applying the test laid down by the Privy Council in Kamakhaya Narayan Singh's case, [1948] 16 ITR 325, the court went on to observe at p. 596 thus:

“…what is the source of the profits resulting from the import entitlements. In the genealogical tree of this income, import comes first and export appears in the second degree. The income arising from import entitlements is directly related to the import activities or the import business of the assessee. It may be that it was because of the export business that the assessee got import licences, yet the connection of the income resulting from import entitlements to the export business is indirect and the direct source of this income is the import business”.

20. Sri Prasad for the assessee, however, relied upon the decision of the Madras High Court in CIT v. Wheel and Rim Company of India Ltd., [1977] 107 ITR 168, in support of his contention. It was a case of claiming rebate under the provisions of s. 2(5)(a) of the Finance Act, 1966. Under a scheme framed by the Central Government to encourage export of goods, the assessee therein became entitled to import licence and he was granted import licence on the basis of his export performance. The assessee sold the import licence and made a profit of Rs. 4,00,000 odd and claimed rebate on the value of the export goods and on the value of the receipts from the sale proceeds of the import licence. The Madras High Court observed that the assessee was entitled to the relief since the receipt by way of the profits due to the sale of import entitlements are directly referable to the export of the cycle rims made by the assessee and, consequently, they can be said to be profits and gains derived from the export of cycle rims even on the basis of any theory of proximity.

21. The Bombay High Court in Hindustan Lever's case, [1980] 121 ITR 951, and the Madhya Pradesh High Court in Gwalior Rayon Silk's case, [1983] 143 ITR 590, have dissented from the view taken by the Madras High Court in the above-said case. In our opinion, the decision of the Madras High Court proceeded not with the precise meaning of the word “derived” as judicially determined by the Privy Council in Kamakhaya Narayan Singh's case, [1948] 16 ITR 325 (PC) and the Supreme Court in Cambay Electric Supply Industrial Co.'s case, [1978] 114 ITR 84.

22. In Metal Rolling Works Pvt. Ltd. v. CIT, [1983] 142 ITR 170, the Bombay High Court again reiterated the view taken in Hindustan Lever's case, [1980] 121 ITR 951. We are firmly of the opinion that the assessee is not entitled to relief under s. 80HH in respect of the profits and gains derived from the sale of import entitlements and we answer the question in the affirmative and against the assessee.

23. In the circumstances, we make no order as to costs.