SHARDLOW INDIA LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred at the instance of the assessee :

(2.) THE assessee is a priority industry, which is entitled to a rebate under s. 80E of the I.T. Act, 1961. It manufactures forgings and stampings, which are automobile parts. In determining the income on which the rebate under s. 80E of the Act is available, the ITO excluded a sum of Rs. 1,70,245, being the profit on sales of import entitlements. THE assessee obtained the entitlements on the basis of the export performance. THE ITO excluded the same on the ground that this did not have any relation to the manufacturing operations of the assessee. This view was confirmed by the AAC and the Tribunal. Under s. 80E, in order to get the benefit of deduction, the profits and gains should be attributable to the business of manufacture or sale. THE Tribunal held that in order to make profits "attributable" to the manufacturing activity, there should be some direct nexus with the profit earned and the manufacturing activity. As in the view of the Tribunal, there is no such nexus in the profit earned by sale of import entitlement, for the purpose of the relief under s. 80E the profits on sale of import entitlements had to be excluded. THE Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT , while interpreting the words "attributable to" occurring in s. 80E, observed as follows (p. 93) :