PANDIAN CHEMICALS LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE assessment year is 1979 -80. The questions referred are, as to whether the Tribunal was right in law in holding that the income from the sale of scrap is not relatable to the industrial activities of the assessee for the purpose of Section 80HH of the Income -tax Act, 1961, and, as to whether it was right in not granting relief under Section 80HH of the Act in respect of the amount received from the insurance company for the loss in transit of the raw materials imported by the assessee.

(2.) THIS court, in a case concerning the same assessee in Pandian Chemicals Ltd. v. CIT : [2002]254ITR562(Mad) , has held, inter alia, that scrap not being a necessary by -product in the process of manufacture, the income from the sale of scrap cannot be regarded as income derived from the industrial undertaking. The court therein referred to an earlier decision of this court also concerning this assessee in the case of CIT v. Pandian Chemicals Ltd. : [1998]233ITR497(Mad) . That decision has since been affirmed in appeal by the Supreme Court in the case of Pandian Chemicals Ltd. v. CIT : [2003]262ITR278(SC) . The first question is, therefore, required to be, and is, answered against the assessee.

(3.) THE source of this receipt was not the industrial undertaking, but the insurer who paid the amount to the assessee on account of the fact that the raw material which it had imported had been covered by insurance. The assessee is not engaged in the business of manufacturing or selling raw materials. The source of this receipt not being the industry, it cannot be said that the income was derived from this industrial undertaking. The Supreme Court in the case of Pandian Chemicals Ltd. : [2003]262ITR278(SC) , held that the interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for securing supply of electricity for running the industrial undertaking cannot be said to flow directly from the industrial undertaking itself, and was not derived by the undertaking for the purpose of the special deduction under Section 80HH of the Act. The principle of that decision applies to the facts of this case as well.