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PETITIONER: M/S. ASHOK LEYLAND LIMITED,MADRAS

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX,MADRAS

DATE OF JUDGMENT:       19/12/1996

BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      B.P. JEEVAN REDDY, J.      In 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.      "Whether 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

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taken by  the Tribunal  and has  answered  the  question  in favour of the Revenue and against the assessee.      It is  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.      Sections 80-E and 80-I were couched in identical terms. They provided  for certain  deduction from  the profits  and gains  of  a  company  attributable  to  priority  industry. Insofar as relevant Section 80-I(1) reads:      "...(1) 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.      ...........................".      The expression  "priority industry"  occurring  in  the said Section was defined in sub-section (7) of Section 80-B. It reads:      "  ‘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. In the  said circumstances  and as  a matter  of  Commercial expediency, the  assessee imported such spare parts and sold

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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:      "8. 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.      Accordingly these  appeals are  allowed,  the  judgment

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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.