Case Note & Summary
The dispute arose from an income tax reference under Section 256(1) of the Income Tax Act, 1961 concerning the assessee, M/s. Ashok Leyland Limited, a manufacturer of trucks and spare parts, and the Commissioner of Income Tax, Madras. The assessee was engaged in manufacturing Ashok Leyland trucks and their spare parts and also imported spare parts from abroad to sell to purchasers of its trucks. During the relevant assessment years 1966-67 and 1967-68, the assessee earned profit from the import and sale of spare parts, which was a small portion compared to income from vehicle sales. The Income Tax Officer denied the deduction under Sections 80-E and 80-I on the ground that the import and sale of spare parts was not attributable to the priority industry carried on by the assessee. The Income Tax Appellate Tribunal, however, held in favour of the assessee, finding that the import was a matter of commercial expediency due to insufficient domestic production of spare parts under a phased manufacturing programme. On a reference made by the Revenue, the High Court disagreed with the Tribunal and answered the question against the assessee. Subsequently, for assessment years 1968-69 and 1969-70, an identical reference between the same parties was answered by the same High Court in favour of the assessee, following the Supreme Court decision in Cambay Electric Supply Industrial Company Limited v. Commissioner of Income-tax, Gujarat-II, Ahmedabad. The Supreme Court was called upon to interpret the expression 'attributable to' in Sections 80-E and 80-I. The assessee argued that the income from import and sale of spare parts was intimately connected with the priority industry of manufacturing trucks and should qualify for the deduction, relying on the later High Court decision. The Revenue contended that the activity was not attributable to the industry because it was not derived from the manufacturing business. The Supreme Court examined the statutory provisions, noting that Section 80-I(1) allowed a deduction of eight per cent from profits and gains attributable to any priority industry, and that 'priority industry' was defined in Section 80-B(7). The Court held that the expression 'attributable to' is wider in import than 'derived from', and the Legislature deliberately chose the wider expression to cover receipts from sources other than the actual conduct of the priority industry. On the facts found by the Tribunal, the import and sale of spare parts was intimately connected with the priority industry set up and run by the assessee, undertaken as a matter of commercial expediency during the phased manufacturing programme. Therefore, the income qualified for the deduction. The Supreme Court accordingly allowed the appeals, set aside the High Court judgment under appeal, and answered the question referred to the High Court in the affirmative, in favour of the assessee and against the Revenue. No costs were awarded.
Headnote
A) Income Tax - Deduction under Sections 80-E/80-I - Interpretation of 'attributable to' - Income Tax Act, 1961, Sections 80-E, 80-I, 80-B(7) - The dispute concerned whether profits and gains from import and sale of spare parts by a manufacturer of trucks (a priority industry) qualified for the deduction available for profits and gains attributable to a priority industry. The Supreme Court, following Cambay Electric Supply Industrial Company Limited v. Commissioner of Income-tax, held that the expression 'attributable to' is wider in import than 'derived from' and was deliberately used by the Legislature to cover receipts from sources other than the actual conduct of the priority industry. On the facts found by the Tribunal, the import and sale of spare parts was intimately connected with the assessee's priority industry, undertaken as a matter of commercial expediency during a phased manufacturing programme, so the income was attributable to that industry. The High Court's decision to the contrary was set aside, and the question referred was answered in the affirmative in favour of the assessee and against the Revenue (Paras 8-12).
Issue of Consideration
Whether the assessee was entitled to relief under Section 80-E for assessment year 1966-67 and Section 80-I for assessment year 1967-68 of the Income Tax Act, 1961 on the income earned from import and sale of spare parts from abroad, and whether such income was 'attributable to' a priority industry.
Final Decision
Appeals allowed; judgment under appeal set aside; question referred to the High Court answered in the affirmative i.e., in favour of the assessee and against the Revenue. No costs.
Law Points
- Expression 'attributable to' is wider in import than 'derived from'
- profits and gains attributable to priority industry qualify for deduction under Sections 80-E/80-I
- import and sale of spare parts intimately connected with priority industry of manufacturing trucks is attributable to that industry
- Legislature deliberately used 'attributable to' not 'derived from' to cover receipts from sources other than actual conduct of business
- decision in Cambay Electric Supply followed
