"IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. ITA No. 29 of 2003. Decided on: 30th May, 2013. Himachal Futuristic Communication Ltd. … Appellant Versus Commissioner of Income Tax. … Respondent _________________________________________________________________ Coram The Hon’ble Mr. Justice A.M. Khanwilkar, Chief Justice The Hon’ble Mr. Justice R.B. Misra, Judge. Whether approved for reporting? Yes. For the Appellant: Mr. Raman Sethi, Advocate. For the Respondent: Ms. Vandana Kuthiala, Advocate. ----------------------------------------------------------------------------------------- Justice A.M. Khanwilkar, C.J. (Oral) This appeal has been admitted in terms of order dated 15th October, 2003 in respect of the questions formulated in paragraph 1 of the Appeal Memo. The said questions read thus: “Q.1. Whether on the facts and in the circumstances of the case, the learned Bench ‘B’ of Chandigarh Income Tax Appellate Tribunal (ITAT) had not erred in law in denying the appellant M/s Himachal Futuristic Communications Limited (HFCL) its rightful claim of deduction under Section 80HH, 80-I & 8-IA of the IT Act, 1961, amounting to Rs.51,13,177/- and Rs.47,09,105/- relating to assessment years 1996-97 and 1997-98 ? Q.2. Whether the learned Bench ‘B’, by a misplaced sense of propriety and respect for consistency of the decisions of the ITAT, had not unwittingly committed graver impropriety of brushing aside later decisions of the Bombay High Court reported at 245 ITR 849, 245 and 246 ITR 443 ? Q.3. Whether the learned Bench ‘B’ have not erred in misinterpreting the ratio of the Supreme Court’s judgment in the case of Sterling Foods 237 ITR 579 as if it was the case of an industrial 2 company seeking relief under Section 801 and not an exporting concern seeking relief under Section 80HHC. Q.4. Whether the learned Bench ‘B’ has not erred in rejecting all material evidence led by the appellant M/s Himachal Futuristic Communications Limited to establish that the receipts of Rs.51,13,177/- and Rs.47,09,105/- earned by the appellant in the previous year relevant to the assessment year 1996-97 and 1997-98, nominally as interest, were indeed an integral part of the business actually conducted and would, therefore, be eligible for deduction under Section 80HH, 80-I & 80-IA even applying the Supreme Court’s decision in CIT vs. Karnal Cooperative Sugar Mills Limited 243 ITR 2 and CIT vs. Bokaro Steel Limited 236 ITR 315.” 2. The core issue that needs to be answered is dependant on the interpretation of expression “profits and gains derived from an industrial undertaking” occurring in Section 80HH, 80-I and 80-IA of the Income Tax Act. The Appellate Tribunal relying on the decisions pressed into service by the respective parties before it answered the same against the assessee. The Appellate Tribunal has held that income derived by the appellant by way of interest on the fixed deposit, which incidentally was in connection with the business transaction of the Industrial undertaking given by way of margin money for purchase of raw materials and giving guarantee for due performance of contract of sale to manufacture goods, cannot be treated as income derived from the business, as such. However, it would qualify the term income derived from other sources of the assessee. 3. The purport of Section 80-IA is no more res integra. The Apex Court has considered the same in more than one decision. The last decision in point, which can be 3 usefully referred to is the case of Liberty India vs. Commissioner of Income Tax1. In this decision, the Apex Court has analysed the subtle distinction between the expression “profit derived from” and “profit attributable to” the business activities of the industrial undertaking. The Apex Court has plainly held that the words “derived from” are narrower in connotation as compared to the words “attributable to”. Further, the expression derived has been intentionally used by the Parliament, to cover sources not beyond the first degree or first degree sources. That means, the profit must be generated from the business activity or operational profits. No more and no less. This interpretation was necessitated on account of the fact that the category of assessee covered by the said provision was entitled for profit linked incentive. The Apex Court has also noted that the provision such as Section 80IA was Code by itself, as it contained both substantive as well as procedural provision. 4. After this decision, there is hardly any doubt about the sweep of expression “profits and gains derived from any business of an industrial undertaking” referred to in sub-section (4). It is unnecessary to multiply the authorities on the point under consideration, which both sides wanted to rely in support of their respective submissions, except to mention that the counsel for the appellant vehemently persuaded us to accept the analogy stated by the Delhi High Court in the case reported 1 (2009) 9 SCC 328. 4 in CIT vs. Shahi Export House2. That decision, however, is an authority on the interpretation of Section 80HHC of the Income Tax Act, which is entirely different and is also a self- contained Code by itself. As aforesaid, the argument that if the profit is linked or having nexus with the business, as in the present case, because of the pre-condition of the business activity to keep margin money in fixed deposit, which, in turn, derives interest is also covered by Section 80IA, cannot be countenanced. For, it cannot be treated as first source income, which is the quintessence for attracting the benefit and incentive provided under Section 80IA of the Act. 5. As aforesaid, the decision of the Apex Court in Liberty India (supra) is an authority on the proposition, which is canvassed before us. A priori, we can safely dispose of this appeal and the questions as formulated, on the basis of the said decision. Hence, dismissed, so also the pending applications, if any. (A.M. Khanwilkar), Chief Justice. 30th May, 2013. (R.B. Misra), (tr/vs) Judge. 2 (2010)195 Taxman 163. "