Expression ‘’derived’’ is narrower then ‘’attributable to’’ in section 80IA or like sections. Income derived from secondary source not the effective source, falls outside deductions – High Court
ABCAUS Case Law Citation:
ABCAUS 2025 (2017) (08) HC
Assessment Year : 2009-10
Important Case Laws Cited/relied upon by the parties:
Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, [2003] 262 ITR 278 (SC)
Commissioner of Income Tax Vs. Jagdishprasad M.Joshi, (2009) 318 ITR 420 (Bom.)
C.I.T. V. Menon Impex P. Ltd., [2003] 259 ITR 403 (Mad.)
Cambay Electric Supply Industrial Co. Ltd. V. CIT, [1978] 113 ITR 84
Brief Facts of the Case:
The appellant assessee was in the business of developing and leasing of Information Technology Parks (IT Parks). For the relevant AY, the assessee had filed its return declaring NIL income.
The assessee’s case was picked up for scrutiny. Accordingly, notice under Section 143(2) of the Income Tax Act, 1961 (the Act) was issued. In these proceedings, the Assessing Officer (AO) discovered that the assessee had claimed deduction under Section 80-IAB of the Act which also included a sum representing interest, which, the assessee had earned from security deposit made over by persons / entities, who had taken on lease, the facilities / infrastructure set up in the IT Parks.
The AO passed the order u/s 143(3) of the Act, treating the interest received by the assessee from security deposit as above as income from other sources. The CIT(confirmed the order of the Assessing Officer. The assessee carried the matter in appeal to the Tribunal (ITAT) also ruled against the assessee.
The ITAT rejected the claim on two counts, first, on the basis that the auditor in its certificate in Form 10CCB, did not consider the interest for the claim under Section 80-IAB and secondly that the interest received from security deposit had “no direct nexus” with the industrial undertaking.
Observations made by the High Court:
The Hon’ble High Court opined that the submission that the revised Form 10CCB should have been taken into account, could not add much mileage to the case of the petitioner, for the reason that before the AO, the assessee, despite such situation obtaining, advisedly, continued to take the stand that the claim made in the return of income for deduction of the entire amountwas a mistake that it and had been made “inadvertently” and at no point of time the assessee asserted that the assessee was entitled to a deduction for the entire amount, and therefore, should be granted deduction qua the same under Section 80-IAB.
Therefore the Hon’ble High Court held that the Tribunal, rightly restricted the deduction.
Further the Hon’ble High Court deliberated on argument advanced by the counsel of the petitioner that the interest derived from interest-free security deposit was invested in Fixed Deposits with the banks, was income derived from business of developing a Special Economic Zone, and hence, fall within the ambit of Section 80-IAB of the Act.
The Hon’ble High Court noted that a bare perusal of the provisions of Section 80IA shows that an assessee is entitled to a deduction of the specified amount from any profits and gains, which are ‘derived’ by an undertaking or an enterprise from any business of developing a Special Economic Zone. Thus the Hon’ble High Court opined that the term “derived”, is critical in appreciating the kind of deduction, which would fall within the ambit of Section 80-IAB of the Act.
The Hon’ble High Court noted that the Hon’ble Supreme Court had observed that in appreciating the term “derived”, the enquiry should stop as soon as the effective source of the income is discovered. In other words, the Court held that there should be a “direct or immediate nexus” with the assessee’s industrial undertaking.
The Hon’ble High Court opined that the consistent view of the Courts has been that wherever, in such like sections, the expression “derived” is used, as against “attributable to”, the width and the amplitude is narrower. Therefore, courts have held consistently that in order to come to a conclusion as to whether such profits or gains, i.e., income, would be amenable to deduction, the effective source of such income is to be looked at. Once, it is found that the income is derived from a secondary source, which is not the effective source, it falls outside the purview of such like provisions, which provide for deductions with purpose of giving fillip to the designated activity, which, in the instant case, was the business of developing a Special Economic Zone.
Also, the Hon’ble High Court noted a contrary decision of the Bombay High Court whereby it had taken a view qua the provisions of Section 80-IA The Hon’ble High Court expressed its disagreement with the view of the Bombay High Court.
Held:
The appeal of the assessee was dismissed.
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