Leyland Limited, Madras Vs. Commissioner of Income Tax, Madras  INSC 1649 (19 December 1996)
Jeevan Reddy, K.S. Paripoornan B.P. Jeevan Reddy, J.
these appeals preferred by the assessees against the decision of the Madras
High Court, the words "attributable to" occurring in Section
80-E/80-I of the Income Tax Act fall for consideration. The following question
was referred to the High Court under Section 256(1) of the Income Tax Act.
on the facts and in the circumstances of the case, it has been rightly held
that the assessee would be entitled to relief under Section 80-E and 80-I of
the Income-Tax Act, 1961 for the assessment years 1966-67 and 1967- 68
respectively on the income earned by it, from import and sale of spare parts
from abroad?" The assessee is engaged in the business of manufacturing Ashok
Leyland trucks and also spare parts of those vehicles. It was also importing
the spare parts from abroad and selling the same to the persons who have purchased
the trucks from it. As and when the manufacture of spare parts by the assessee
increased, there was a corresponding reduction in the quantum of imports of
spare parts. Some profit was earned by the assessee on the sale of vehicles.
The volume of turnover and income relating to sale of spare parts is of course
far smaller compared to the turnover and income arising from the sale of
vehicles. The question is whether the assessee is entitled to relief under
Section 80-E (for the assessment year 1966-67) and 80-I (for the assessment
year 1967-68) on the income earned by it from import and sale of spare parts.
The Income Tax Officer took the view that the import and sale of spare parts is
not attributable to the industry carried on by the assessee and, therefore, the
income arising therefrom does not qualify for the benefit of Sections
80-E/80-I. The Tribunal, however, held in favour of the assessee whereupon the
aforesaid question was referred to the High Court at the instance of the
Revenue. The High Court has disagreed with the view taken by the Tribunal and
has answered the question in favour of the Revenue and against the assessee.
brought to our notice by the learned counsel for the appellant-assessee that
for subsequent assessment years 1968-69 and 1969-70, an identical reference was
made under Section 256 and on this occasion the High Court has answered the
very same question, between the very same parties, in favour of the assessee
and against the Revenue following the decision of this Court in Cambay Electric
Supply Industrial Company Limited v. The Commissioner of Income-tax, Gujarat-
II, Ahmedabad (113 I.T.R. 84). The later decision of the High Court is reported
in Commissioner of Income Tax, Tamil Nadu-III v. Ashok Leyland Limited (130
I.T.R. 900). The learned counsel for the assessee commended the reasoning of
the said decision for our acceptance.
80-E and 80-I were couched in identical terms.
provided for certain deduction from the profits and gains of a company
attributable to priority industry.
as relevant Section 80-I(1) reads:
In the case of a company to which this section applies, where the gross total
income includes any profits and gains attributable to any priority industry,
there shall be allowed, in accordance with and subject to the provisions of
this Section, a deduction from such profits and gains of an amount equal to
eight per cent thereof in computing the total income of the company.
expression "priority industry" occurring in the said Section was
defined in sub-section (7) of Section 80-B.
`priority industry' means 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 (Sixth) Schedule or the business of any hotel where such business is
carried on by an Indian company and the hotel is for the time being approved in
this behalf by the Central Government;" The industry being carried on by
the assessee is admittedly a priority industry as defined in Section 80-B (7).
The only question is whether the profits and gains arising from import and sale
of spare parts can be said to be "attributable to......... priority
industry" being carried on by the assessee. The Tribunal has found that
the assessee commenced manufacturing Ashok Leyland trucks in collaboration with
a foreign company Leyland from about 1966 onwards. There was a phased programme
for the manufacture of necessary spare parts. It was found that some of the
purchasers of the trucks from the assessee found it difficult during some years
to get the requisite spare parts either because the spare parts manufactured by
the assessee were not sufficient to meet the demand or because the assessee did
not manufacture those particular spare parts.
said circumstances and as a matter of Commercial expediency, the assessee
imported such spare parts and sold them during the accounting years relevant to
the assessment years concerned herein. It is on these facts that the question
referred has to be answered. We are of the opinion that reading the relevant
portion of sub-section (1) of Section 80-I alongwith the definition of
"priority industry" in Section 80-B(7), it must be held that the
profits and gains arising from import and sale of spare parts was attributable
to the industry (priority industry) carried on by the assessee. On the facts
found by the Tribunal it is difficult to disassociate the said activity from
the main activity carried on by the assessee viz., manufacture and sale of the Ashok
Leylands trucks. It was intimately connected with the priority industry set up
and being run by the assessee. The decision of this Court in Cambay Electric
Supply clearly supports the assessee's case. In that case the question was
whether the balancing charge arising as a result of the sale of old machinery
and buildings and worked out in accordance with Section 41(2) had to be taken
in the account and included in the profits and gains of the business carried on
by the assessee. The following observations are relevant for our purposes:
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" 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 80-J. 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." In our opinion
the said observations conclude the issue, as has been rightly held in the later
decision of the Madras High Court.
these appeals are allowed, the judgment under appeal is set aside and the
question referred to the High Court is answered in the affirmative i.e., in favour
of the assessee and against the Revenue. No costs.