Dipak Kumar Sen, J.:— Davidson of India (P.) Ltd., Calcutta (which has since been amalgamated with Andrew Yule & Co. Ltd.), the assessee, was assessed to income-tax in the assessment year 1967–68, the corresponding accounting year ending on September 30, 1966.
2. At the material time, the assessee carried on the business, inter alia, of manufacture of tea garden machinery, a priority industry within the meaning of section 80E of the Income-tax Act, 1961. On export of machinery manufactured by it, the assessee became entitled to and obtained import entitlements which were sold during the relevant assessment year. The assessee contended that the profit arising from the sale of the import entitlements was also part of the profit derived from the priority industry, namely, manufacture of tea garden machinery carried on by it, and deduction provided under section 80E should be allowed on such profit. The contention of the assessee was not accepted by the Income-tax Officer who included the entire amount arising from the sale of the import entitlements in the income of the assessee. On an appeal by the assessee, the Appellate Assistant Commissioner held that the profit on sale of the import entitlements had been derived as a result of manufacture and export of the products of a priority industry in which the assessee was engaged and, in the circumstances, the income from sale of such entitlements would form part of the appellant's income from a priority industry. He directed the Income-tax Officer to allow appropriate deduction under section 80E of the Act.
3. Against the order of the Appellate Assistant Commissioner, the Revenue went up on further appeal before the Income-tax Appellate Tribunal.
4. The Tribunal followed its earlier decision in the case of Port Engineering Works Ltd. in Income-tax Appeals Nos. 1131-1133 of 1968–69 and held that profit from the sale of import entitlements was inseparable from and directly linked with the conduct of the assessee's business in a priority industry and, therefore, the assessee was entitled to relief under section 80E of the Act in respect of such profit. The order of the Appellate Assistant Commissioner was upheld by the Tribunal.
5. On an application by the Revenue under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question, as a question of law arising out of its order, for the opinion of this court:
“Whether, on the facts and in the circumstances of this case, the Tribunal was justified in holding that the profit arising from the sale of import entitlements was income derived from a ‘priority industry’ of manufacture and sale of tea garden machinery and, therefore, the assessee-company was entitled to relief under section 80E of the Income-tax Act, 1961, as it then stood for the assessment year 1967–68?”
6. section 80E of the Income-tax Act, 1961, as it stood at the relevant time, read as follows:
“Section 80E. Deduction in respect of profits and gains from specified industries in the case of certain companies.—(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent, thereof in computing the total income of the company.
(2) This section applies to—
(a) an Indian company; or……
but does not apply to any Indian company referred to in clause (a)… if such Indian or other company is a company referred to in section 108 and its total income as computed before applying the provisions of sub-section (1) does not exceed twenty-five thousand rupees.”
7. The Fifth Schedule to the Income-tax Act, 1961, referred to in the above section 80E, at the material time, included the following;
“Major items of specialised equipment used in specific industries;—…
(v) tea machinery”
8. At the hearing, learned advocate for the Revenue contended that import entitlement was itself a benefit conferred by another statute. The assessee should not be allowed a further benefit under the Income-tax Act in respect of profits arising from sale of such entitlement. He contended further that import entitlement could arise from export of different types and had no particular relation to export of products of priority industries and, therefore, the income arising from sale of such import entitlements should not be held to have arisen in the instant case in the business carried on in a priority industry. In support of his contentions, learned advocate cited the following decisions.
(a) Indian Aluminium Co. Ltd. v. CIT, [1980] 122 ITR 660 (Cal). In this case, the assessee was carrying on business as a manufacturer of aluminium which was a priority industry within the meaning of section 80-1 of the Income-tax Act, 1961. In the said business, the assessee procured funds, a part of which became a surplus. The said surplus was invested for a short period and earned interest. The assessee claimed deduction in respect of this interest under section 80-1. It was held by a Division Bench of this court to which I was a party on the facts that the interest had arisen not because that the surplus fund had been employed in the priority industry but because the said fund was not so employed and was utilised for temporary investment. The interest accruing on such fund had no connection direct or indirect with the priority industry and, as such, the assessee was not entitled to the deduction as claimed.
(b) CIT v. Universal Radiators (P). Ltd., [1981] 128 ITR 531 (Mad). In this case, the assessee had kept an amount in fixed deposit with the bank as security for borrowings made by the assessee for the purpose of its business. The assessee claimed deduction under section 80-1 in respect of the interest received on such deposit. On these facts, it was held by a Division Bench of the Madras High Court that there was no connection between the priority industry and the fixed deposit and the use of the deposit receipt as security for borrowing money for business would not make the interest earned from the deposit as income of a priority industry.
(c) Commissioner Of Income-Tax v. Flender Macneill Gears Ltd., [1984] 150 ITR 83 (Cal). In this case, the assessee was engaged in manufacture of gears, a priority industry. The assessee granted sole distributorship of its products to another person. One of the terms of the distributorship agreement was that the distributor would be allowed 12J% discount on all net sales if the bills were settled within sixty days. In the event of delay, the assessee would be entitled to charge interest from the distributor. During the relevant assessment year, interest accrued and became payable to the assessee from the distributor. On these facts, it was held by a Division Bench of this court that the amount of interest was relatable directly to the earning of profits and gains by the assessee company and hence the same was attributable to the earning of the business, a priority industry. It was held that the assessee was entitled to relief under section 80-1.
9. Learned advocate appearing for the assessee contended on the other hand that the controversy sought to be raised was covered by the decisions of this court as also those of the other High Courts and the Supreme Court. He submitted that the cases relied on by the Revenue were all on section 80-1 and not on section 80-E. He cited the following decisions.
(a) Cambay Electric Supply Industrial Co. Ltd. v. Cit reported in [1978] 113 ITR 84. In this case, the question arose before the Supreme Court whether the balancing charge arising as a result of sale of old machinery and buildings was to be taken into account in allowing deduction under section 80E of the Act. The Supreme Court held that the deduction should be allowed on such balancing charge and observed as follows: (at 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.”
(b) Shatdlow India Ltd. v. CIT, [1981] 128 ITR 571 (Mad). In this case, the assessee was engaged in a priority industry, being manufacturing of forgings and stampings for automobile parts and claimed relief under section 80E of the Income-tax Act, 1961, on profit arising on sale of import entitlements obtained on export of its manufacture. It was held by a Division Bench of the Madras High Court following the principles laid down by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd., [1978] 113 ITR 84, that the import entitlement was directly attributable to the export of the goods manufactured in the priority industry and the assessee was entitled to relief under section 80E of the Act on the profit derived from sale of the import entitlements.
(c) Jeewanlal (1929) Ltd. v. Commissioner Of Income-Tax, West Bengal-Iii., [1983] 139 ITR 865 (Cal). In this case, a Division Bench of this court answered a question in favour of the assessee to the effect that profits and gains from sale proceeds of import entitlements, if foreseen by the assessee at the time of making export, would be deemed to have been earned by the assessee in the ordinary course of business.
(d) Metal Rolling Works (P.) Ltd. v. CIT, [1983] 142 ITR 170 (Bom). In this case, the assessee manufactured and exported aluminium circles on which it was granted import entitlements. The assessee sold the import entitlements during the relevant assessment year and claimed that the receipts arising from such sale were capital receipts. It was held by a Division Bench of the Bombay High Court that import entitlements were obtained by the assessee directly in the course of business and that the value of the same constituted profits and gains of its business and the receipts were not of capital nature but were of business profits.
10. On the facts as on record, it appears to us that the import entitlements were received by the assessee by exporting items manufactured in a priority industry. It is not disputed that profit arising from the sale of import entitlements would be business profits. Revenue has not contended otherwise. The next question which arises is in which business did these profits arise. la Cambay Electric Supply Industrial Co. Ltd., [1978] 113 ITR 84, the Supreme Court has held that the expression “attributable to” is wider in import than the expression “derived from The import entitlements having accrued to the assessee for export of manufactured products of a priority industry, it must be held that the profits and gains from the sale of import entitlement are attributable to the business of the assessee in the manufacture of products in the priority industry.
11. The same view has been taken by this court and also the Madras High Court in the decisions referred to hereinabove. For the above reasons, we answer the question referred in the affirmative and in favour of the assessee.
12. There will be no order as to costs.
G.N Ray, J.:— I agree.