ORDER
Joginder Singh, J.M.
1. Out of these two appeals, one is preferred by the assessee and remaining one by the Revenue. The assessee has raised the following grounds :
1. That the CIT(A) (Central) was not justified to uphold the action of the assessing authority in having not allowed exemption under Section 10(33) on dividend income of Rs. 10,33,500. Even the spirit of CBDT Circular No. 763, dt. 18th Feb., 1998 was not appreciated.
2. That the CIT(A) (Central) was further not justified in having not allowed deduction under Section 80-IA in respect of interest income at Rs. 20,42,542 and miscellaneous income at Rs. 7,90,690.
3. That the CIT(A) (Central) was not justified in confirming the action of the AO in adjusting the unabsorbed deprecation of earlier years at Rs. 2,28,09,725 before allowing deduction under Section 80-IA.
4. Notwithstanding, the fact that a specific ground of appeal was taken to the effect that no interest under Section 234B should have been charged in the absence of specific directions in this regard, such ground was not adjudicated in first ‘appeal, the issue being legal, charging of interest under Section 234B at Rs. 17,97,693 was not justified in the ratio of Supreme Court judgment in the case of CIT v. Ranchi Club Ltd. .
2. The assessee in its return declared nil income and deemed income of Rs. 60,18,557 under Section 115JA was filed on 30th Nov., 1998 which was processed under Section 143(1)(a) on 9th Dec., 1998. The statutory notices under Section 143(2) and detailed questionnaire was served upon the assessee. The assessee is a manufacturer of fertilizer and paper. The assessee received dividend income amounting to Rs. 10,33,550. He claimed the same as exempt both under Sections 10(33) and 115JA in computation of total income. On scrutiny of return, the AO found that the assessee received this dividend income before 1st of June, 1997 and TDS on such income has not been deducted, On asking, the assessee vide its letter dt. 7th Oct., 2000 claimed that the same is exempt under Section 10(33) of the Act. The AO held that the dividend income will be taxable and, therefore, added to the total income.
3. The assessee also advanced, interest-free amounts to Uma Khanna, Abhishek Indl. Corpn and Trident Udyog Ltd. As per the AO, the assessee company was incurring huge interest liability by taking term loan for financing its expansion plans and on the other hand giving interest-free loans to sister concerns instead of utilizing funds for the purpose for which they were taken and thus disallowed the interest and added Rs. 44,34,980 as income of the assessee. The AO also disallowed the claimed deduction under Section 80-IA in respect of interest income at Rs. 20,42,542 and miscellaneous income at Rs. 7,90,690. The AO adjusted the unabsorbed depreciation of the earlier years at Rs. 2,28,09,725 before allowing deduction under Section 80-IA. Interest under Section 234B was also charged. The assessee challenged the assessment order before the learned CIT(A), where the appeal of the assessee was partly allowed. Now, the assessee is in further appeal before the Tribunal.
4. At. the time of hearing, we have heard Shri Ashwani Kumar, learned chartered accountant for the assessee and Shri Ravi Aggarwal learned Departmental Representative for the Revenue.
5. On perusal of record and after considering the rival contentions put forth by both the learned representatives, it is seen that the issue of exemption under Section 10(33) on dividend income is covered against the assessee by the decision of the Tribunal in the case of Smt. Madhu Gupta (ITA No. 594/Chandi/2004). Section 10(33) as it existed at the relevant point of time is as under:
(33) Any income by way of–
(i) dividends referred to in Section 115-0; or
(ii) income received in respect of units from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); or
(iii) income received in respect of the units of a mutual fund specified under Clause (23D)
So it is clear from the plain language of Section 115-0 r/w Section 10(33) that exemption in the hands of the recipient of dividend is available only in respect of dividends which have been declared by the domestic companies on or after 1st day of June, 1997. Section 10(33) and Section 115-0 may be applicable from asst. yr. 1998-99. Nevertheless, the said section specifically provides for exemption in the dividends declared only on or after 1st day of June 1997. In view of these facts, this ground of the assessee is dismissed.
6. The next ground pertains to deduction under Section 80-IA in respect of interest income at Rs. 20,42,542 and miscellaneous income at Rs. 7,90,690 is also covered against the assessee by the decision of the Hon’ble apex Court pronounced in the case of Pandian Chemicals Ltd v. CIT . While computing the deduction the AO excluded the interest; income and miscellaneous income. The Hon’ble apex Court clearly held that deposit made with Electricity Board for supply of Electricity and interest from business of such deposits is not derived from business of such undertaking. The Hon’ble apex Court further held that the word ‘derived from’ must be understood as something which has a direct or immediate nexus with the assessee’s industrial undertaking and thus could not be said to flow directly from the industrial undertaking itself and thus special deduction is not allowable. The Hon’ble apex Court approved the decision of the Hon’ble High Court of Madras pronounced in CIT v. Pandian Chemicals Ltd. . So this ground of the assessee is also dismissed.
7. Ground No. 3 for adjusting unabsorbed depreciation of earlier years before allowing deduction under Section 80-IA and interest under Section 234B were not pressed during arguments by the assessee, the same is dismissed as not pressed:
8. In the result the appeal of the assessee is dismissed. Stand of the learned CIT(A) is upheld.
9. We shall take up the appeal of the Revenue in which following grounds have been raised :
1. The learned CIT(A) has erred both in law and on facts of the case in deleting the disallowance made by the AO on account of interest of Rs. 44,34,980 on interest-free loans given to sister-concerns.
2. The learned CIT(A) has erred both in law and on facts in treating the Insurance claim of Rs. 16,38,501 as business receipts derived from the industrial undertaking which is includible for the purpose of computing deduction under Section 80-IA.
10. The AO made an addition of Rs. 44,34,980 on account of interest on interest-free loans/advances which were claimed to be advanced out of surplus funds to the sister-concern without charging any interest. The AO held that the assessee has not used these funds for which the purpose for these were taken. The assessee also received Rs. 16,38,501 as insurance claim during the course of business and claimed deduction under Section 80-IA which was disallowed. The assessee successfully carried the same in appeal before the learned CIT(A). Now the Revenue is aggrieved and is in appeal before the Tribunal.
11. During arguments we have heard Shri Ravi Aggarwal, learned Departmental Representative for the Revenue and Shri Ashwani Kumar learned chartered accountant for the assessee,
12. In nutshell the learned Departmental Representative supported the orders of the AO whereas Shri Ashwani Kumar supported the orders of the first appellate authority. Mr. Aggarwal contended that assessee is not eligible for deduction under Section 80-IA and on the issue of interest-free loans to the sister-concerns, it was contended that no nexus was established by the assessee.
13. After hearing the rival contentions and on perusal of the record it is seen that the Chandigarh Benches of the Tribunal in the case of assessee itself on the issue of interest-free loans to sister concerns by following the decision of the Tribunal wherein the appeal of the Department in ITA No. 729/Chd/2000 for the asst. yr. 1996-97 decided the issue against the Revenue and in favour of the assessee. Since the facts under consideration are also similar to the facts already decided by the Tribunal, respectfully following the same that is too in the case of the assessee this ground of the Revenue deserves to be dismissed. However, the learned Departmental Representative relied upon certain judicial pronouncements and contended that these judicial pronouncements were not considered by the Tribunal at earlier occasion. On perusal of record, we have found that during arguments of ITA Nos. 838, 842, 841/Chd/2000, both the learned representatives were same and on asking a specific question by the Bench to the learned Departmental Representative whether these judicial pronouncements were brought to the notice of the Bench, the specific reply was “no. Under these circumstances, we are of the view that there was no occasion for the Bench to consider these judicial pronouncements. In ITA No. 838/Chandi/2000 the similar issue, i.e., interest-free loans to sister-concerns was discussed in detail and the relevant findings which are available at p. 14 in ITA No. 729/Chandi/2000 are reproduced as under :
10 Ground No. 2 of the appeal of the Revenue relates to the disallowance of interest of Rs. 52,43,188 on interest-free loans given to sister-concern.
10.1 The relevant and material facts for the disposal of this ground of appeals are that the assessee-company has advanced interest-free loans to its sister-concern. Withdrawals for these loans were from the cash credit account. The AO concluded that withdrawals from the cash credit accounts are those borrowing on which the company is paying interest and the diversion thereof would restrict the deduction admissible under Section 36(1)(iii) of the Act and accordingly he disallowed a sum of Rs. 52,45,188.
10.2 On appeal, the CIT(A) deleted the impugned addition after considering the submissions of the assessee.
10.3 At the outset of the assessment proceedings, learned Authorised Representative for the assessee submitted that the identical issue as involved in the instant ground of appeal of the Revenue camp up for consideration before the Tribunal, Chandigarh Bench, in the case of this very assessee for the asst. yrs. 1993-94, 1994-95 and 1995-96 in ITA Nos. 19, 142, 347/Chd/1997 and the Tribunal vide its order dt. 26th May, 2004 decided the issue in favour of the assessee and against the Revenue by making following observations :
‘Before us, learned Authorised Representative for the assessee referring to the order dt. 22nd Aug., 2002 of the Tribunal, Chandigarh Bench, in ITA No. 1145/Chd/1995 asst. yr. 1990-91 and order dt. 25th July, 2001 in ITA No. 225/Chd/1995 asst. yr. 1991-92, submitted that this issue decided in favour of the assessee and against the Revenue by the orders of the Tribunal dt. 22nd Aug., 2002 and 25th July, 2001 (supra) and so the respective grounds of appeals of the assessee pertaining to the disallowance of interest are required to be allowed because the CIT(A) in his order, while sustaining these disallowances has relied upon his earlier appellate orders passed in asst. yrs. 1991-92, 1992-93 and 1993-94.
6.3 Learned Departmental Representative for the Revenue was fair enough to concede on this issue.
6.4 In this view of the matter and respectfully following orders for the Tribunal dt. 22nd Aug., 2002 and 25th July 2001 (supra), the issue involved in the above mentioned grounds of appeal of the assessee is decided in favour of the assessee and against the Revenue. Accordingly, the impugned orders of the CIT(A) sustaining the impugned disallowance pertaining to the interest as stated above, are set aside and ground No. l(ii) of ITA No. 19/Chandi/1997, ground No. 1 of ITA No. 142/Chandi/1997 and ground No. 2 of ITA No. 347/Chandi/1997 pertaining to the disallowance of interest of Rs. 7,73,518, Rs. 7,74,940 and Rs. 5,24,250, respectively by the tax authorities below out of interest payment claimed by the assessee on account of interest-free loans given for non-business purposes out of the other profit account, are allowed.
Thus learned Authorised Representative for the assessee submitted that the issue involved in the ground No. 2 of the instant appeal of the Revenue is liable to be decided against the Revenue and in favour of the assessee.
10.4 Learned Departmental Representative for the Revenue was fair enough to concede on the issue.
10.5 In this view of the matter and respectfully following the order dt. 26th May, 2004 (supra) of the Tribunal, the issue involved in ground No. 2 of the instant appeal of the Revenue is decided against the Revenue and in favour of the assessee. Accordingly, we uphold the impugned order of the CIT(A) and reject ground No. 2 of the instant appeal of the assessee.
14. In Para 10.4 at p. 16 of the said order it has been specifically mentioned that learned Departmental Representative for the Revenue was fair enough to concede on the issue and in view for these facts, the issue was decided against the Revenue and in favour of the assessee. Keeping in view the parity with judicial pronouncements of the Hon’ble Bench, this issue is decided in favour of the assessee specially when the facts under appeal are similar to the earlier years.
15. The next ground pertains to insurance claim of Rs. 16,38,501 as business receipts claimed to be derived from industrial undertaking which is includible for the propose of computable deductions under Section 80IA of the Act. Our attention was drawn by the learned Departmental Representative to the decision of the Hon’ble jurisdictional High Court in IT Ref. No. 86 of 1995 in the case of CIT v. Khemka Container (P) Ltd. reported at (2005) 193 CTR (P&H) 427–Ed. wherein at the instance of the Revenue, the similar question was referred for the opinion of the Hon’ble Court under Section 256(1) of the Act. The Hon’ble Court relied upon the decision of the Hon’ble apex Court pronounced in the case of Pandian Chemical Ltd. v. CIT (supra), decision from the Hon’ble Calcutta High Court in the case of CIT v. Andaman Timber Industries Ltd. , judgment of the Hon’ble Gauhati High Court in the case of North East Gases (P) Ltd. v. CIT and also a decision from the Hon’ble apex Court in CIT v. Sterling Foods , wherein the expression “derived from industrial undertaking” used in Section 80-I of the Act was considered. In the case of Pandian Chemicals (supra) it was observed by the Hon’ble apex Court as under :
…It is clear, therefore, that the words “derived from” in Section 80HH of the IT Act, 1961 must be understood as something which has direct or immediate nexus with the appellant’s industrial undertaking. Although, electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with electricity board cannot be said to flow directly form the industrial undertaking itself.
Similarly in Sterling Food (supra), the question was whether income derived by the assessee by sale of import entitlements was profit and gain “derived from” its industrial undertaking of processing sea food. Answering the question in favour of the Revenue, the apex Court observed :
We do not think that the sources of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the export promotion scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words ‘derived from’, a direct nexus between the profit and gain and the industrial undertaking, In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the export promotion scheme applied, Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived form the assessee’s industrial undertaking.
In case of North East Gases (supra) the question was whether income derived from interest could be treated as income derived from industrial undertaking. It was held that since sources of income did not emerge from the running of the undertaking, the income is not held to be income derived from industrial undertaking.
16. In the present case, respectfully following the aforesaid judicial pronouncements, we are of the view that the insurance claim of Rs. 16,38,501 cannot be said to be derived from industrial undertaking for the purposes of deduction under Section 80-IA of the Act. However in view of the specific observation of the Hon’ble jurisdictional High Court in the case of Khemka Container (P) Ltd. (supra) for the purpose of deduction under Section 80-I what has to be excluded is not gross receipts but the income arising out of these receipts. Such income can only be computed by deducting the cost from the gross receipts of the insurance claim. The AO is directed to recompute the deduction in the light of the observation of the Hon’ble jurisdictional High Court. .
17. This appeal of the Revenue is disposed of in the above said manner.