IN RE: NATIONAL FERTILIZERS LTD. Vs. STATE

JUDGEMENT

(1.) THE applicant in these applications, under Section 245Q(1) of the IT Act, 1961 (for short the "Act"), is common. It is a Central Government public sector undertaking engaged in the business of manufacturing and marketing of nitrogenous fertiliser. The applicant was incorporated on 22nd Aug., 1974. Initially, the object of setting up of the company was implementation of two fertiliser plants based on gasification technology at Bhatinda in Punjab & Panipat in Haryana. However, in 1978 fertiliser plants at Nangal, run by Fertiliser Corporation of India, were also transferred to the applicant. In these applications we are concerned with the fertiliser plant in Vijaipur, District Guna, which was entrusted to the applicant to execute the country's first inland gas based fertiliser project. The applicant has a corporate office and marketing division at Noida. The role of the corporate office is to manage all activities relating to corporate affairs which includes statutory compliance with the companies law, IT law and co -ordination between ministry and Government agencies. The role of marketing division is to promote the products of the company and to handle trading of the products which are not manufactured by the company. The expenses incurred by each of the divisions are accounted for initially in the respective divisions and they are debited to each of the unit including Vijaipur. In the same manner, expenses incurred in the corporate office and marketing office are also accounted for in the respective divisions. As a policy, the company prepares consolidated accounts at the year end and all the expenses incurred in the corporate office as well as marketing divisions are transferred to four units including Vijaipur unit in the ratio of installed capacity of each of these plants. It is worth noticing that the expenditure incurred by the corporate office as well as the marketing office is not directly relatable to any of the units. In preparing the P&L a/c for the purpose of claiming deduction under Section 80 -I, all income and expenditure allocated by the corporate office and marketing division to the Vijaipur unit are also taken into account. The controversy in these applications relates to asst. yrs. 1995 -96 and 1996 -97. While AAR/532/2001 is in respect of the asst. yr. 1995 -96, AAR/533/2001 relates to the asst. yr. 199697. The grievance of the applicant is that the AO objected to certain items of income but did not exclude corresponding expenditure while computing profits of Vijaipur unit for the purpose of deduction under Section 80 -I of the Act. It is stated that pursuant to the direction of the Committee on Dispute (COD) the applicant approached the Authority seeking rulings on the following questions :

(2.) THE CIT forwarded his comments to the applications, stating that the applicant raised two types of questions. In the first category fall questions (1), (3) and (4) which relate to claim of deductions on various types of income which may be attributable to but are not derived from the eligible industrial undertaking; question (2) which involves exclusion of certain expenditure for the purpose of arriving at permissible deductions under Section 80 -I, falls in the second category. The assessee failed to show that the income from various sources could be said to be derived from the industrial undertaking. The legislature had earlier used the expression "attributable to" but later that was changed to "derived from". These expressions were interpreted by the High Courts as well as the Hon'ble Supreme Court holding that "derived from" is used in a restricted meaning as opposed to the expression "attributable to". The claim of the assessee in regard to question No. 2 is that since interest income has not been included for the purpose of working out permissible deduction under Section 80 -I, various items of expenditure allocated to the industrial undertaking are also to be excluded. The interest income has been excluded because it is not derived from industrial undertaking but the claim that the interest expenditure as also other expenditure should also be excluded is based on an incorrect assumption that such expenditure is invariably linked to the interest income. The claim of the expenditure is not linked to earning of interest income. These are old issues. In the asst. yr. 1994 -95, the claim was disallowed and the order was confirmed by the CIT which the assessee accepted and settled the outstanding tax through Kar Vivad Samadhan Scheme (KVSS).