An income, so as to be characterized as 'derived from' an undertaking u/s 80-IA,

An income, so as to be characterized as `derived from' an undertaking u/s 80-IA, should directly result from it; it should be "generation of profits (operational profits)" of eligible undertaking

In order to be covered within the expression "derived from" it is sine qua non that the relation between the income and source must be that of the first degree
Where the relation between income and source slips from first to second degree, income stands excluded from the scope of expression "derived from" and may fall within the purview of "attributable to"


[2010] 6 taxmann.com 88 (Mum. - ITAT)

ITAT MUMBAI BENCHES, `E', MUMBAI

ITO

v.

E. A. Infrastructure Operations Pvt. Ltd.

ITA Nos. 887 & 4555/Mum/2008

July 9, 2010

FACTS
The only issue projected through the solitary ground in assessment years 2004-05, 2005-06 and the first ground in assessment year 2006-07 is against the direction of the learned CIT(A) for allowing deduction u/s.80-IA(4) in respect of compensatory payment received by the undertaking. This issue has been discussed at length in the assessment order for assessment year 2004-05, which are taking up on representative basis. The factual matrix of this ground is that the assessee was awarded the project for Biomedical Waste Treatment ("BMW" for short) at G.T.B. Hospital on BOOT basis by the Municipal Corporation of Greater Mumbai ("MCGM" for short). The assessee claimed deduction u/s.80-IA of the Income-tax Act, 1961, similar to that claimed in earlier years. The entire profit of the business amounting to Rs.1,47,25,111 was claimed as deductible. The Assessing Officer sent a letter dated 14-8-2006 to the Director (ES&P), MCGM requesting to furnish certain information. In reply, the Chief Engineer (Solid Waste Management) replied vide letter dated 29-8-2006 stating that the assessee was awarded contract to set up the requisite BMW facility like incinerator and autoclave system at Sewree in the premises of G.T.B. Hospital of MCGM on Built, Own, Operate & Transfer (BOOT) basis. As per the terms of contract MCGM was to make payment towards the weight of BMW treated at their plant with minimum guaranteed charge for 5000 kg. which included 3500 kg. of non-anatomical waste (treated by autoclave) and 1500 kg. of anatomical waste (burnt by incinerator). The rate agreed for the above guaranteed load was Rs.10.50 per kg. with fixed escalation of 10% compounded annually effective after 24 months from the date of submission of bid (November, 1999) till the plant is handed over to MCGM after the completion of BOOT period. It was further informed by the Chief Engineer that work order to assessee was issued in 2000 and the plant started its operation in November, 2001. From the reply submitted by the Chief Engineer, the Assessing Officer noted that the assessee was not getting the payments for actual work carried out of treatment of BMW only but also against the guaranteed supply of BMW for treatment. Information was called from Municipal Corporation about the actual BMW treated by the assessee, which has been tabulated on pages 4 and 5 of the assessment order. It was noted by the Assessing Officer that the assessee was entitled to deduction for a sum of Rs.40,46,173 for the actual work done by it towards treatment of anatomical waste, whereas the assessee was actually paid a sum of Rs.57,91,200. Similarly for non-anatomical waste treatment, the assessee was entitled to deduction for a sum of Rs. 47,90,112 whereas the actual payment was made to it to the tune of Rs.1,35,12,800. The total excess amount received by the assessee came to Rs.1,04,67,715, representing difference between the minimum guaranteed work and actual work carried on. On being show caused as to why deduction u/s.80-IA(4) be not denied on such excess amount, the assessee furnished its reply which has been reproduced on pages 5 to 8 of the assessment order. The Assessing Officer noted that section 80-IA(1) talks of deduction for profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4). Relying on some judgments including that of the Hon'ble Supreme Court in Pandian Chemicals Ltd. Vs. CIT [(2003) 262 ITR 278 (SC)], the Assessing Officer noted that the deduction is available in respect of profits and gain derived from business as referred to in sub-section (4). Since the expression "derived from" has a narrower meaning than the expression "attributable to", the Assessing Officer opined that the excess receipts could not be considered as derived from the eligible business. He, therefore, excluded the excess receipt of Rs.1.04 crore from the eligible profit for deduction u/s.80-IA(4) in assessment year 2004-05. In the same manner he did not allow deduction u/s.80-IA(4) in the other two assessment years under consideration amounting to Rs.1,55,19,246 for assessment year 2005-06 and Rs.88,84,565 for assessment year 2006-07. The learned CIT(A) concurred with the submission advanced on behalf of the assessee and held that the entire minimum guaranteed charges received by the assessee were eligible for deduction u/s.80-IA. The Revenue is in appeal against such order.

HELD
On going through the principle laid down in above judicial pronouncements, it is manifest that the expression "derived from" is constricted in its ambit when considered in juxtaposition to the expression "attributable to". In order to be covered within the former expression it is sine qua non that the relation between the income and source must be that of the first degree. In other words, income must directly spring from the source, which is subject-matter of consideration in the language of section. Where the relation between income and source slips from first to second degree, income stands excluded from the scope of expression "derived from" and may fall within the purview of "attributable to". Consequently an income, so as to be characterized as `derived from' an undertaking, should directly result from it. To put it simply, it should be "generation of profits (operational profits)" [as held in Liberty India (supra)] of the eligible undertaking. If however the income has got some indirect or remote relation with the industrial undertaking but does not spring from it, the same cannot be held to be derived from it.

The entire receipt, whether on account of actual treatment (4000 kgs) or notional treatment (1000 kgs.) of BMW, has direct relation with the eligible enterprise. There is no trace of the source of income from 1000 kgs. of BMW without the eligible undertaking. It is but for such undertaking alone that there is a receipt on account of 1000 kgs. Relation between the income from the notional treatment of BMW with the undertaking is direct, as it is so in the case of actual treatment of BMW. Since the very source of such income is from undertaking, which is otherwise eligible for deduction u/s.80-IA, it falls beyond our comprehension as to how deduction could be denied on receipts towards such notional treatment of BMW.

The payment in respect of notional treatment of BMW is not flowing from any different scheme or any other provisions of the Act. The entire receipt of 5000 kgs is flowing from the contract entered into by the assessee with MCGM. Whole of the amount is operational income, be it from actual or notional operation of undertaking. As the relation between income from notional operation and undertaking is direct and not indirect or remote, by no standard can it be viewed as anything other than not derived from the eligible undertaking. Under such circumstances we hold that the learned CIT(A) has taken an unimpeachable view. The same is, therefore, upheld.

ORDER


Per R.S.Syal, AM :

These three appeals by the Revenue arise out of the orders passed by the Commissioner of Income-tax (Appeals) in relation to the assessment years 2004-2005, 2005-2006 and 2006-2007. Since one issue raised in these three appeals is common, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.

2. The only issue projected through the solitary ground in assessment years 2004-2005, 2005-2006 and the first ground in assessment year 2006-2007 is against the direction of the learned CIT(A) for allowing deduction u/s.80-IA(4) in respect of compensatory payment received by the undertaking. This issue has been discussed at length in the assessment order for assessment year 2004-2005, which are taking up on representative basis. The factual matrix of this ground is that the assessee was awarded the project for Biomedical Waste Treatment ("BMW" for short) at G.T.B. Hospital on BOOT basis by the Municipal Corporation of Greater Mumbai ("MCGM" for short). The assessee claimed deduction u/s.80-IA of the Income-tax Act, 1961, similar to that claimed in earlier years. The entire profit of the business amounting to Rs.1,47,25,111 was claimed as deductible. The Assessing Officer sent a letter dated 14.8.2006 to the Director (ES&P), MCGM requesting to furnish certain information. In reply, the Chief Engineer (Solid Waste Management) replied vide letter dated 29.8.2006 stating that the assessee was awarded contract to set up the requisite BMW facility like incinerator and autoclave system at Sewree in the premises of G.T.B. hospital of MCGM on Built, Own, Operate & Transfer (BOOT) basis. As per the terms of contract MCGM was to make payment towards the weight of BMW treated at their plant with minimum guaranteed charge for 5000 kg. which included 3500 kg. of non-anatomical waste (treated by autoclave) and 1500 kg. of anatomical waste (burnt by incinerator). The rate agreed for the above guaranteed load was Rs.10.50 per kg. with fixed escalation of 10% compounded annually effective after 24 months from the date of submission of bid (November 1999) till the plant is handed over to MCGM after the completion of BOOT period. It was further informed by the Chief Engineer that work order to assessee was issued in 2000 and the plant started its operation in November 2001. From the reply submitted by the Chief Engineer, the Assessing Officer noted that the assessee was not getting the payments for actual work carried out of treatment of BMW only but also against the guaranteed supply of BMW for treatment. Information was called from Municipal Corporation about the actual BMW treated by the assessee, which has been tabulated on pages 4 and 5 of the assessment order. It was noted by the A.O. that the assessee was entitled to deduction for a sum of Rs.40,46,173 for the actual work done by it towards treatment of anatomical waste, whereas the assessee was actually paid a sum of Rs.57,91,200. Similarly for non-anatomical waste treatment, the assessee was entitled to deduction for a sum of Rs.47,90,112 whereas the actual payment was made to it to the tune of Rs.1,35,12,800. The total excess amount received by the assessee came to Rs.1,04,67,715, representing difference between the minimum guaranteed work and actual work carried on. On being show caused as to why deduction u/s.80-IA(4) be not denied on such excess amount, the assessee furnished its reply which has been reproduced on pages 5 to 8 of the assessment order. The Assessing Officer noted that section 80-IA(1) talks of deduction for profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4). Relying on some judgements including that of the Hon'ble Supreme Court in Pandian Chemicals Ltd. Vs. CIT [(2003) 262 ITR 278 (SC)], the Assessing Officer noted that the deduction is available in respect of profits and gain derived from business as referred to in sub-section (4). Since the expression "derived from" has a narrower meaning than the expression "attributable to", the Assessing Officer opined that the excess receipts could not be considered as derived from the eligible business. He, therefore, excluded the excess receipt of Rs.1.04 crore from the eligible profit for deduction u/s.80-IA(4) in assessment year 2004-2005. In the same manner he did not allow deduction u/s.80-IA(4) in the other two assessment years under consideration amounting to Rs.1,55,19,246 for assessment year 2005-2006 and Rs.88,84,565 for assessment year 2006-2007. The learned CIT(A) concurred with the submission advanced on behalf of the assessee and held that the entire minimum guaranteed charges received by the assessee were eligible for deduction u/s.80-IA. The Revenue is in appeal against such order.

3. Before us the learned Departmental Representative contended that the ld. first appellate authority was not justified in granting deduction on the excess amount which was not derived from the eligible business. He argued that the use of expression "derived from" in the language of section 80IA shows that the income must directly result from the eligible business and hence it should have a direct nexus with the eligible business. He made up the case that since the excess receipts was not derived from the eligible business, the deduction ought not to have been allowed. In support of the contention that excess realization on account of guaranteed clause of contract could not be treated as derived from the eligible business, he relied on the judgement of the Hon'ble Supreme Court in the case of Liberty India Vs. CIT [(2009) 317 ITR 218 (SC)] and that of the Hon'ble Madhya Pradesh High Court in CIT Vs. Alpine Solvex Ltd. [(2005) 276 ITR 92 (MP)].

4. In the opposition the learned A.R. supported the impugned order. His submissions were the reiteration of the reasoning adopted by the ld. CIT(A) in accepting the assessee's case. To bolster his submission that deduction was rightly

allowed on the excess realization, he relied on several judgements including Fenner (India) Ltd. Vs. CIT (No.2) [(2000) 241 ITR 803 (Mad.)] and CIT Vs. Ratnagiri District Central Co-operative Bank Ltd. [(2002) 254 ITR 697 (Bom.)] for bringing home the point that excess receipt was very much profit derived from the eligible business and hence the learned CIT(A) was justified in allowing the deduction. On a specific query, he admitted that there was no direct precedent available on the issue.

5. We have heard the rival submissions in the light of material placed on record and precedents relied upon. It is an admitted position that the issue involved in this batch of appeals is virgin inasmuch as there is no direct precedent available on it in the public domain. There is no dispute on the fact that the assessee has, otherwise, satisfied other necessary conditions entitling it to deduction u/s.80-IA(4). The controversy centers around only on the amount which was received by the assessee representing the excess amount over and above the actual work done up to the minimum guaranteed amount in respect of treatment of BMW pursuant to contract with MCGM assuring minimum 5000 kg. of BMW load. It has not been controverted that in the earlier year the assessee claimed deduction on the entire minimum guaranteed amount including such excess realization, which was promptly allowed by the Assessing Officer without any fuss. Without any difference in the facts of this year via-a-vis the earlier year, the principle of consistency should have come to play inhibiting the AO from going ahead with this disallowance. Be that as it may we will decide the issue on merits as well.

6. In the instant years the contention of the Revenue is that the excess realization over and above the actual work done should not be considered as eligible for deduction u/s.80-IA(4). Before we proceed to examine and evaluate the rival contentions, it will be befitting to note down the provisions of section 80-IA(1) as under:-

"80-IA(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years."

7. On circumspection of this provision it is discernible that deduction u/s 80IA is allowable to an enterprise on the profits and gains derived from the eligible business. The case of the Revenue is that the excess amount of realization on account of guarantee clause of the contract cannot be held as profit derived from the eligible business. The point of debate is the interpretation of the expression "derived from" such business, which has been used in this section. In contrast to that, some provisions employ the expression "attributable to". It is fairly settled that ambit of the expression "derived from" is much narrower than `attributable to'. In order to be covered within its purview, there must be a direct nexus between two ends preceded and succeeded by this expression. Such nexus should be of first degree. On the other hand the expression `attributable to' has a wider scope and brings within its fold not only the items having direct nexus of one with the other but also having indirect nexus. In the case of CIT vs. Sterling Foods [(1999) 237 ITR 579 (S.C.)] it has been held that the sale consideration of import entitlements would not be held to constitute profits and gains derived from assessee's industrial undertaking for the purpose of computing deduction under section 80HH as the source of import entitlements was the export promotion scheme of the Central Government and not the industrial undertaking. Similarly in the case of Pandian Chemicals Ltd. vs. CIT [(2003) 262 ITR 278 (S.C.)] their Lordships did not accept the argument on behalf of the assessee that the interest earned by the industrial undertaking on deposits with the Electricity Board qualified for relief under section 80HH for the reason that section 80HH contains the words `derived from'. It was observed that though electricity may be required for the purposes of industrial undertaking but the deposit required for the purpose of supply of electricity was a step away from the business of the industrial undertaking and hence the interest on the deposits could not be said to flow directly from the industrial undertaking itself. It was emphasized that the words "derived from" must be understood as something which has direct or immediate nexus with the assessee's industrial undertaking. However, where the words "attributable to" have been used, the Courts have held that if the income is related to the industrial undertaking, even though not directly emanating there from, it would still fall within the scope of this expression. In the case of Ashok Leyland vs. CIT [(1997) 224 ITR 122 (S.C.)] the Hon'ble Supreme Court held that the assessee engaged in manufacturing and sale of trucks in collaboration with a foreign company importing spare parts and selling it to the purchasers of the trucks when such purchaser found it difficult to get them in the initial years of production, profits and gains from the sale of such spare parts was `attributable to' the priority industry carried on by the assessee as the same was intimately connected with the main activity of priority industry.

8. Let us examine the facts of Liberty India (supra), which is trump card case of the learned Departmental Representative. In that case the assessee owned a small scale industrial undertaking engaged in manufacturing of fabrics. Deduction u/s.80-IB was claimed on the increased profits of Rs.22.70 lakhs as profits of the industrial undertaking on account of DEPB and duty draw back credited to the profit and loss account. The Assessing Officer denied deduction on the ground that the said two benefits constituted export incentives and hence did not represent profits derived from industrial undertaking. The Hon'ble High Court, relying on the judgement in the case of CIT vs. Sterling Foods [(1999) 237 ITR 579 (S.C.)], held that the assessee failed to prove the nexus between duty draw back / DEPB benefit and industrial undertaking. When the matter came up before the Hon'ble Apex Court, it was held that DEPB and duty drawback are incentive profits which flow from the schemes framed by the Central Government u/s.75 of the Customs Act, 1962, hence, such incentive profits are not profits derived from the eligible business but belong to the category of ancillary profits of such undertaking and, therefore, they do not form part of net profit of industrial undertaking for the purposes of deduction u/s.80-IA or 80-IB. The Hon'ble Supreme Court illuminated on the scope of the expression "derived from" by reiterating that it is narrower in connotation as compared to the words "attributable to". In this case, it has been thus held that: "What attracts the incentives under section 80-IA / 80-IB is the generation of profits (operational profits)".

9. On going through the principle laid down in above judicial pronouncements, it is manifest that the expression "derived from" is constricted in its ambit when considered in juxtaposition to the expression "attributable to". In order to be covered within the former expression it is sine qua non that the relation between the income and source must be that of the first degree. In other words, income must directly spring from the source, which is subject matter of consideration in the language of section. Where the relation between income and source slips from first to second degree, income stands excluded from the scope of expression "derived from" and may fall within the purview of "attributable to". Consequently an income, so as to be characterized as `derived from' an undertaking, should directly result from it. To put it simply, it should be "generation of profits (operational profits)" [as held in Liberty India(supra)] of the eligible undertaking. If however the income has got some indirect or remote relation with the industrial undertaking but does not spring from it, the same cannot be held to be derived from it.

10. With this background in mind, we now advert to the facts of the instant case. The assessee set up the project for BMW treatment, income from which is otherwise eligible for deduction u/s.80-IA. The project was awarded by MCGM for treatment of BMW on BOOT basis. As per terms of contract, the assessee was to treat BMW at the specified rate. It was subject to minimum guarantee of treating BMW for 5000 kgs. Minimum guarantee here means that if assessee gets more than 5000 kgs of bio medical waste for treatment, it would get the amount at the rate specified for such quantity actually treated. If, however the assessee gets lower quantity of bio medical waste for treatment, then it would be entitled to such minimum receipt. It has been accepted by the A.O. in the former case, that the assessee is entitled to deduction u/s.80-IA(4) on the full amount as such income is derived from the operation of infrastructure project. The problem is only in the latter case, that is, where the quantity of BMW available for treatment is less than 5000 kgs., and the assessee has got receipts from MCGM at the rate specified for 5000 kgs. of BMW. For the sake of proper understanding, we are splitting this 5000 kgs. into two parts viz., 4000 kgs. actually treated by the assessee and 1000 kgs. which are not treated but payment is made as per agreement with MCGM. Deduction has been negatived by the AO on the income from receipts towards 1000 kgs. by assigning the reason that it can not be held as derived from the eligible undertaking.

11. We are not convinced with the view point of the AO. The entire receipt, whether on account of actual treatment (4000 kgs) or notional treatment (1000 kgs) of BMW, has direct relation with the eligible enterprise. There is no trace of the source of income from 1000 kgs. of BMW without the eligible undertaking. It is but for such undertaking alone that there is a receipt on account of 1000 kgs. Relation between the income from the notional treatment of BMW with the undertaking is direct, as it is so in the case of actual treatment of BMW. Since the very source of such income is from undertaking, which is otherwise eligible for deduction u/s.80-IA, it falls beyond our comprehension as to how deduction could be denied on receipts towards such notional treatment of BMW.

12. We have noted from the case of Liberty India (supra) that the dispute in that case was towards duty draw back / DEPB incentives which the assessee claimed to have derived from the eligible business. The Hon'ble Supreme Court noted that these incentive flow from the scheme framed by the Central Government u/s.75 of the Customs Act, 1962, hence, the incentive profits are not profits derived from eligible business u/s.80-IB. Coming back to the facts of our case we note that the payment in respect of notional treatment of BMW is not flowing from any different scheme or any other provisions of the Act. The entire receipt of 5000 kgs is flowing from the contract entered into by the assessee with MCGM. Whole of the amount is operational income, be it from actual or notional operation of undertaking. As the relation between income from notional operation and

undertaking is direct and not indirect or remote, by no standard can it be viewed as anything other than not derived from the eligible undertaking. Under such circumstances we hold that the learned CIT(A) has taken an unimpeachable view. The same is, therefore, upheld.

13. The only other ground in appeal for assessment year 2006-2007 is against the deletion of addition of Rs.7,50,000 made by the AO u/s 41(1) of the Act. Factual scenario of this ground is that the assessee included a sum of Rs.7,50,000 in the list of sundry creditors shown as payable to M/s.PHE Consultants, Mumbai. The assessee was called upon to submit details in this regard. On the perusal of such details it was noticed by the A.O. that this amount was outstanding since accounting year 2001-2002. The assessee claimed that there was some dispute with M/s.PHE Consultants which was not yet settled and hence the amount was outstanding. Information u/s.133(6) was called for from M/s PHE Consultants, who stated as under:-

"We worked as Consultant to EA Infrastructure Operation Pvt. Ltd. during the FY 99-2000 when EA infrastructure Operations Pvt. Ltd. was setting up a Bio Medical Waste Treatment plant at GTB Hospital, Mumbai for MCGM. The consultation fee of Rs.750000/- was agreed to be paid to us. However, dispute regarding the extent of services provided and fees payable arose between EA Infrastructure having disputed the consultation work and did not shown any amount as due from EA Infrastructure Operations P.Ltd. till date, the dispute is still not settled. We therefore, do not have any ledger account in the name of EA Infrastructure Operations Pvt. Ltd. in our books of accounts."

14. In the light of this reply of PHE Consultants, the Assessing Officer made addition of Rs.7,50,000 u/s 41(1) of the Act as in his opinion the amount was no more payable by the assessee. The learned CIT(A) overturned the assessment order on this point and ordered for the deletion of this addition.

15. After considering the rival submissions and perusing the relevant material on record we find that the assessee availed some consultation from M/s PHE Consultants in the previous year relevant to the assessment year 2002-2003 for which a sum of Rs.7.50 lakhs was credited to their account. The assessment year under consideration is 2006-2007 and the amount has been continuously shown as liability by the assessee. However, letter from M/s PHE Consultants clarified the position that some dispute arose between the assessee and them, which was not settled and consequently they squared up assessee's account in their books by showing Nil balance. From here it is obvious that it is a case of remission or cessassion of trading liability by M/s PHE Consultants in favour of the assessee. Both the authorities below have recorded a categorical finding that the said sum of Rs.7.50 lakhs was claimed by the assessee as an expenditure in assessment year 2002-2003. On a pertinent query from the bench, the learned A.R. admitted that till date the said amount of Rs.7.50 lakhs has not been paid. In view of these facts it becomes patent that the provisions of section 41(1) are rightly attracted here inasmuch as the assessee claimed deduction for the same in an earlier year and subsequently the amount ceased to be payable as is manifest from the information supplied by M/s PHE Consultants who erased the amount due from assessee by showing Nil balance as recoverable. In our considered opinion the learned CIT(A) was not justified in deleting this addition. We, therefore, set aside the impugned order on this issue and restore the action of the Assessing Officer.

16. In the result, appeals for assessment years 2004-2005 and 2005-2006 are dismissed and that of assessment year 2006-2007 is partly allowed.

Order pronounced on this 9th day of July, 2010.

Whether services like repair and maintenance constitute an integral part o

 

Whether services like repair and maintenance constitute an integral part of manufacturing of Industrial Undertaking as per Sec 80IB - NO, rules ITAT SB

KOLKATA, AUG 18, 2011: THE issues before the Special Bench are - Whether services like repair and maintenance constitute an integral part of manufacturing of industrial undertaking - Whether any income derived from such jobwork of repair and maintenance is also eligible for Sec 80IB benefits and whether such income has any direct nexus with the main activity of the industrial activity. And the verdict has gone against the assessee.

Facts of the case

Assessee is a manufacturer of moulds for ball pen and mould parts. Revenue issued notices u/s 143(2) and 142(1). Assessee stated that it was a manufacturing unit and claimed deduction u/s. 80-IB of the Act but it failed to produce details due to fire break-out in the office premises of M/s Today's Writing Product Ltd and all the records were destroyed. Assessee HUF through Karta Shri `R' was one of the promoters/directors of `TWPL'. AO made assessment u/s 144 stating that assessee was selling as well as providing services to `TWPL' and another group concern `PWP' by way of repair and maintenance of moulds sold to them. Deduction claimed u/s 80IB in respect of repair and maintenance was disallowed stating that it provided only services for repairing and maintenance of moulds which did not constitute manufacturing activity and no new article or thing came into existence. CIT (A) allowed the appeal of the assessee following the order of the ITAT in preceding years.

In appeal, the Revenue contended that the repair and maintenance was not an ancillary activity of the assessee and once assessee did not file details and did not produce books of account, it was not possible to know the exact nature of `job work charges' on which assessee claimed deduction u/s 80IB. It was further contended that the Tribunal heavily relied upon erroneous interpretation of "job work charges". In the preceding year also nature of "job work charges" remained vague, unclear and liable to be misinterpreted by CIT(A) as well as Tribunal. The job work was nothing but repairing and maintenance of the mould which had been sold by the assessee earlier. Due to repairs and maintenance of old moulds, their life might be renewed and they might become useful for further use. But, the activity of repairing and maintenance brings no new article or thing, therefore, assessee was not eligible for deduction U/s 80IB of the Act on such job charges. Reliance was placed on the judgement of Apex Court in the case of Liberty India v CIT (2009-TIOL-100-SC-IT), wherein it was held that the words "derived from" are narrower in connotation as compared to the words "attributable to" and that by using the expression "derived from" the Parliament intended to cover sources not beyond the first degree and also that the source of receipts must be manufacture and production of an article. Deduction U/s.801B of the Act will be available to assessee only if a new article comes into existence as a result of manufacture or production but in the present case, assessee was doing only repairs and maintenance of old moulds which were sold by him earlier in the garb of so-called job charges. As a result of repairs and maintenance, no new articles came into existence. Accordingly, it was urged that the order of CIT(A) be reversed and that of the AO be restored.

On the order hand, the assessee contended that it was a manufacturer of moulds for ball pen and mould parts and these moulds were hollow design of ball pen parts which were manufactured with the help of Injection moulding machines. Mould manufactured consisted of the parts punches, pin point, guide pins, guide/degree bush, hanging pin/link rode, ejector bush and cavities which were also manufactured by the assessee itself. Manufacture of these parts with its own material as well as steel supplied by customers and sale of moulds as well as supply of mould parts manufactured qualifies for deduction u/s 80-IB of the Act, whether manufactured on its own material or on job work basis. It was further contended that supplying of manufactured parts in the course of after sales service s very much manufacturing activity. Assessee provided after sales service to its valued customers, which was essential for selling moulds. After sales service was an exclusive service to its own customers and it was not that assessee carried on the business of doing repair. It was an indispensable part of manufacturing, almost universally, undertaken by manufacturers to maintain confidence and dependence of the users and to retain market of manufactured items.

It was further contended by the assessee that until recently nowhere in Section 80 IA or 80 IB of the Act, no definition of the word `manufacture' was available. The absence of definition of the word was not by chance but by design to leave the word to its widest amplitude possible consonant with incentive nature of benefits of deduction/exemption under various sections hinging on manufacture as the central condition precedent. Under Export Import Policy 2002 to 2007, the word `Manufacture' is defined as "Manufacture means to make, produce, fabricate, assemble, process or drawing into existence by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, polishing, blending, reconditioning, repair, refurbishing, testing calibration, reengineering. "Manufacture" for the purpose of this policy shall also include agriculture, aquaculture, animal husbandry, floriculture, pisci-culture, poultry, sericulture, viti-culture and mining." which is inserted in Explanation 1 below sub section 9 of section 10AA by insertion of clause (c) of Schedule of the SEZ Act where the said definition is lifted. The work relating to "repair" finds place in definition of "manufacture" as adopted for the purpose of Section 10AA of the Act and it is for the first time that a definition of the word "manufacture" is available in the Act. Logic for calling into aid the definition in section 10AA of the Act is straightforward and forthright and provisions of deduction in Section 80-IB of the Act are undisputedly meant to encourage entrepreneurs to set up manufacturing undertakings in identified backward areas. This section gives entrepreneurs reward for undergoing hardihood in venturing out in such areas and contributing towards nation's strife for even growth of the industry nationwide. So, it is essentially an incentive provision and a relief provision as well. This needs a purposive approach while giving the word "manufacture" its connotation. It was further contended that since definition of "manufacture" in Section 10AA of the Act includes repair as one of the parameters of the expression "manufacture", it is only fair, reasonable and irresistible that repair should also be taken as a parameter of "manufacture" for the purpose of Section 80-IB of the Act. There is nothing in the object of Section 80-IB of the Act, which can be said to be repugnant to the object of Section 10AA of the Act. Both provisions stand on equation in regard to the basic nature of the objects, i.e., growth of industry - one, for the purpose of export development and the other for the purpose of removing the pockets of industrial backwardness of the national economy. Further in case of doubts the construction most beneficial or favourable to assessee should be adopted even if it results in his obtaining a double advantage and if it is a case of considering respective hardships or inconveniences of revenue and assessee, the court should lean in favour of assessee.

After hearing both the parties, the Special Bench, ITAT held that,

++ the expression used in section 80-IB of the Act is "where the gross total income of an assessee includes any profits and gains derived from any eligible business in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains….", it means that the purpose for providing deduction from business profits u/s. 80-IB of the Act was to encourage industrial activity in India and it is inconceivable that deductions should be made available in respect to profits and gains which are not derived from an activity having a direct nexus to the industrial activity as contemplated in this section. The entire section has to be read as a whole and interpretation placed thereon has to fit the overall scheme of the provision, which is to encourage industrial activity in India and if the interpretation sought to be placed by the assessee is accepted, then it might possibly lead to a situation where profits from repairs and maintenance apart from job work for which industrial undertaking has been set up for manufacturing may undertake very little manufacturing in an assessment year but assessee yet claimed deduction from the profits and gains of business including repairs and maintenance;

++ service and maintenance is not an integral part of manufacturing activity of industrial undertaking and as is clear from the opening word of section 80-IB of the Act that deduction in respect of profits and gains from certain industrial undertaking is to be allowed under the provisions of section 80-IB of the Act while computing taxable income in respect of profits derived from an industrial undertaking and not from any other activity which has no immediate or direct nexus to the essential activity of the industrial undertaking. Section 80-IB of the Act uses the opening word that where the gross total income of assessee includes any profits and gains derived from any business and the deduction under this provision be allowed in computing the total income of the assessee from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. The Apex Court has also drawn a distinction between the expression `derived from' and `attributable to' in the case of Cambay Electric Supply Co. Ltd Vs. CIT (2002-TIOL-76-SC-IT), wherein it is held that the expression `attributable to' was wider in import than the expression `derived from'. But in the present case, the assessee's source of income is from repairs and maintenance i.e. after sale services and it may have commercial connection between the profits earned and the industrial undertaking but industrial undertaking itself is not the source of this profit. This profit from repair and maintenance earned by assessee is not a direct yield from industrial undertaking as the word used in section 80-IB of the Act of profits and gains derived from;

++ the provisions of section 10AA(9) and explanation (1) below section 10AA(9) of the Act is for the purpose of this section only and it cannot be enlarged to other chapters of this Act as section 10AA is a code in itself and it gives complete exemption to the income earned by units in SEZs. The income earned from units in SEZs do not form part of total income u/s. 10AA of the Act, whereas u/s. 80-IB of the Act the deduction is to be allowed where gross total income of assessee includes any profits and gains derived from business profits of industrial undertaking while computing the total income of the assessee. Inclusion of the definition of `manufacture' as assigned in clause (r) of section 2 of the SEZ Act, 2005 in section 10AA of the Act, will not apply to other provisions of the Act, particularly section 80-IB of the Act in view of specific mention in Explanation (1) that these definitions are for the purposes of this section i.e. sec. 10AA of the Act. There is marked difference between the provisions of section 10AA of the Act that is meant for exemption of income from the total income of the Assessee, whereas section 80-IB of the Act grants deduction to the assessee from the profits and gains derived from its industrial undertaking and that also from the business of the industrial undertaking that had directly yielded that profit;

++ there is no quarrel over the proposition and in case the assessee is selling moulds manufactured by it and spare parts of moulds also sold for doing repairs and maintenance, qua sale of moulds and spare parts of moulds assessee is entitled for deduction u/s. 80-IB of the Act. But in respect to repair of moulds, it charges two types of receipts i.e. receipt on account of sale of spare parts as well as repairs and maintenance charges, in case of sale of spare parts assessee is entitled for deduction u/s. 80-IB of the Act but in respect to repairs and maintenance charges it is not entitled for deduction in view of clear provisions of section 80-IB of the Act, because that receipt has no immediate or direct nexus with the industrial undertaking and that is not the source of profit of industrial undertaking. Since there was a major fire broke out and as such entire record of the assessee was destroyed and it would not be possible to furnish books of account and other documents to AO instead of restoring the matter to AO and with a view to finally decide the issue it will be reasonable to consider 50% of the receipt as job work charges on which assessee will be entitled to get deduction u/s. 80-IB of the Act and the balance 50% is the receipt on account of repair and maintenance charges on which the assessee will not be entitled to get deduction u/s. 80-IB of the act.

ITR Volume 336 : Part 3 Issue dated 22-8-2011

INCOME TAX REPORTS (ITR)

Volume 336 : Part 3 (Issue dated 22-8-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Appeal to High Court --CBDT instruction prohibiting appeals where tax effect is below Rs. 4 lakhs--CBDT instruction that notional tax effect could be taken in loss cases--Does not apply to appeals filed prior thereto--Appeal not maintainable--CBDT Instruction No. 5, dated 24-10-2005 and O. M. dated 15-5-2008--Income-tax Act, 1961, s. 260A-- CIT v. Continental Construction Ltd. (Delhi) . . . 394

Association of persons --Member--Exemption--Exclusion of company, co-operative society or registered society--Refers to association of persons not member--Private company member of association of person entitled to exemption--Income-tax Act, 1961, ss. 40(ba), 67A, 86-- CIT v. Ideal Entertainment P. Ltd. (Mad) . . . 357

Best judgment assessment --Assessment should be on rational basis--Profit margin disclosed by assessee cannot be rejected arbitrarily--Income-tax Act, 1961-- CIT v. Aero Club (Delhi) . . . 400

Business expenditure --Accounting--Company following completed contract method of accounting--Method accepted by Assessing Officer--Provision for anticipated losses--Deductible --Income-tax Act, 1961-- CIT v. Triveni Engineering and Industries Ltd. (Delhi) . . . 374

----Assessee writing off 80 per cent. of cost of dies and tools--Finding that tools and dies once used had no resale value--Writing off regularly done by assessee--Amount written off deductible--Design and consultancy charges on tools and dies--Deductible--Income-tax Act, 1961-- CIT v. Metalman Auto P. Ltd. (P&H) . . . 434

----Deduction only on actual payment--Sales tax--State Government allowing deferred payment--Effect of Circular No. 674 dated 29-12-1993--Amount cannot be disallowed--Income-tax Act, 1961, s. 43B--CBDT Circular No. 674, dated 29-12-1993-- CIT v. Bihar Foundry and Castings Ltd. (Jharkhand) . . . 387

----Disallowance--Entertainment expenditure--Exclusion from disallowance--Expenditure on food or beverages provided to employees in office or other place of work--Meaning of other place of work--Amount spent on sales dealers conference, press conference and hotel--Part of amount spent on employees--Deductible--Income-tax Act, 1961, s. 37-- CIT v. Indian Rayon and Industries Ltd. (Bom) . . . 479

----Roll over charges for repayment of principal amount of foreign exchange loans for capital investment--Not deductible--Expenditure on gift and presentation articles--Expenditure on school for children of staff and workers--Pro rata/proportionate premium on redemption of non-convertible debentures issued during assessment year 1988-89--Deductible--Income-tax Act, 1961, s. 37-- CIT v. Indian Rayon and Industries Ltd .(Bom) . . . 479

Charitable purposes --Charitable trust--Registration of trust--Commissioner has power to cancel registration--Notice of cancellation must give reasons--Search operations against assessee--No assessment based on search--Order cancelling registration set aside by Tribunal--Notice again for cancellation of registration--Not valid--Income-tax Act, 1961, s. 12AA-- Kalinga Institute of Industrial Technology v. CIT (Orissa) . . . 389

Collection of tax at source --Liquor trade--State Government--Immunity from Union taxation--State Government doing wholesale business in liquor--State Government bound to collect tax at source from retailers--Failure to collect tax--Recovery proceedings against State Government justified--Not a case of taxation of State but of collection of tax in respect of income of retailers--Recovery not barred by article 289--Income-tax Act, 1961, ss. 44AC, 206C, 226--Constitution of India, art. 289-- State of Bihar v. CBDT (Patna) . . . 506

Co-operative society --Special deduction--Interest received on advances provided to member co-operative societies--Special deduction allowable after deducting expenditure incurred in earning the income--Income-tax Act, 1961, ss. 14A, 80P(2)(d)-- Punjab State Co-operative Milk Producers Federation Ltd . v. CIT (No. 1 ) (P&H) . . . 495

----Special deduction under section 80P--Apex co-operative society--Member societies engaged in marketing milk and milk products--Credit facilities provided by assessee for working capital of members--Interest not entitled to special deduction under section 80P--Income-tax Act, 1961, s. 80P-- Punjab State Co-operative Milk Producers Federation Ltd. v. CIT (No. 2 ) (P&H) . . . 501

Deduction of tax at source --Commission--Agreement for distribution of products manufactured by assessee--Distributor purchasing products at pre-determined price for sale within specified area--Assessee and distributor collecting and paying sales tax separately--Payment of incentive to distributor--Not commission--Tax not deductible at source on such payment--Income-tax Act, 1961, s. 194H-- CIT v. Jai Drinks P. Ltd. (Delhi) . . . 383

Depreciation --Air-conditioner purchased in name of managing director and his wife but used for purposes of business--Entitled to depreciation--Depreciation allowable on electrical installations--Income-tax Act, 1961, s. 32-- CIT v. Metalman Auto P. Ltd .(P&H) . . . 434

Exemption --Dividend--Omission to claim exemption for dividend--Not relevant--Assessee entitled to exemption--Disallowance under section 14A--Disallowance cannot be made on basis of presumption--No evidence that expenditure incurred in earning dividend--No disallowance permissible under section 14A--Income-tax Act, 1961, ss. 10(33), 14A-- CIT v. Metalman Auto P. Ltd . (P&H) . . . 434

Income --Assessability--Assessee shareholder in company having right to use particular trade mark--One-time payment for affirmative vote in resolution for transfer of trade mark--Not a revenue receipt--Income-tax Act, 1961, s. 2(24)-- CIT v. David Lopes Menezes (Late) (Bom) . . . 337

----Unclaimed credit balance unilaterally written back and credited in profit and loss account--Not assessable--Income-tax Act, 1961-- CIT v. Indian Rayon and Industries Ltd. (Bom) . . . 479

Income from house property --Annual letting value--Interest-free security deposit taken by assessee hugely disproportionate to monthly rent charged--Device to circumvent liability to income-tax--Notional interest on security deposit to be treated as income from house property--Income-tax Act, 1961, s. 23-- CIT v. K. Streetlite Electric Corporation (P&H) . . . 348

Industrial company --Concessional rate of tax--Assessee receiving income from shares in an industrial company--Assessee cannot be considered an industrial company--Finance Act, 1984, s. 2(8)(c)--Income-tax Act, 1961-- CIT v. Bhagyoday Investment (P) Ltd. (P&H) . . . 490

Industrial undertaking --Special deduction--Manufacturer of steel forging--Scrap sale charges and job works/labour charges--Finding that job works/labour charges derived from industrial undertakings--Receipts of sale of scrap part and parcel of activity--Assessee entitled to deduction--Income-tax Act, 1961, s. 80-IB-- CIT v. Sadhu Forging Ltd. (Delhi) . . . 444

----Special deduction under section 80-IB--Assessee doing job work qualifying as eligible business under section 80-IB--Entitled to special deduction under section 80-IB--Miscellaneous receipts incidental to profits from eligible business--Entitled to special deduction under section 80-IB--Income-tax Act, 1961, s. 80-IB-- CIT v. Metalman Auto P. Ltd. (P&H) . . . 434

Investment allowance --Computer system installed in assessment year 1990-91 but put to use in assessment year 1991-92--Entitled to investment allowance--Income-tax Act, 1961, s. 32A-- CIT v. Indian Rayon and Industries Ltd. (Bom) . . . 479

Reassessment --Notice--Limitation--Income-tax Act, 1961, s. 148-- GVK Gautami Power Ltd . v. Asst. CIT (OSD) (AP) . . . 451

----Notice--Validity--Educational institution granted exemption under section 11--Deposit in chit fund not disclosed--Subsequent decision by Tribunal in another case that deposit in chit fund contravenes section 11(5)--Notice of reassessment--Valid--Income-tax Act, 1961, s. 148-- Little Angels Educational Society v. ITO (AP) . . . 413

----Notice after four years--No failure to disclose material facts necessary for assessment--Notice not valid--Income-tax Act, 1961, s. 148--S ayaji Industries Ltd. v. Joint CIT (Asstt.) (Guj) . . . 360

----Writ--Notices of reassessment on sixty seven companies based on confession following scam--Fifty-eight writ petitions against reassessment dismissed--Notices on remaining nine companies dismissed on ground of availability of effective alternative remedy--Income-tax Act, 1961, ss. 147, 148-- GVK Gautami Power Ltd. v. Asst. CIT (OSD) (AP) . . . 451

----Writ--Writ will issue only if there is no prima facie reason for notice--Income-tax Act, 1961, s. 148--Constitution of India, art. 226-- Little Angels Educational Society v. ITO (AP) . . . 413

Revision --Powers of Commissioner--Law applicable--Amendment of section 263 w.e.f. 1-10-1984--Amendment not retrospective--Order passed by IAC in 1982--Order of revision in February 1984--Not valid--Income-tax Act, 1961, s. 263-- CIT v. Triveni Engineering Works Ltd. (Delhi) . . . 366

Transfer of case --Notice on ground that principal business of assessee at New Delhi--Objection that principal business at Kolkata--Order stating transfer for co-ordinated investigation and meaningful assessment--Not proper--Order set aside--Income-tax Act, 1961, s. 127-- Dhoot Developers P. Ltd. v. CIT (Cal) . . . 487

Voluntary disclosure --Secrecy of declaration, scope of--Declaration filed for other years can be referred to to make best judgment assessment--Finance Act, 1997, s. 72-- CIT v. Aero Club (Delhi) . . . 400

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :

Art. 226 --Reassessment--Writ--Writ will issue only if there is no prima facie reason for notice-- Little Angels Educational Society v. ITO (AP) . . . 413

Art. 289 --Collection of tax at source--Liquor trade--State Government--Immunity from Union taxation--State Government doing wholesale business in liquor--State Government bound to collect tax at source from retailers--Failure to collect tax--Recovery proceedings against State Government justified--Not a case of taxation of State but of collection of tax in respect of income of retailers--Recovery not barred by article 289-- State of Bihar v. CBDT (Patna) . . . 506

Finance Act, 1984 :

S. 2(8)(c) -- Industrial company--Concessional rate of tax--Assessee receiving income from shares in an industrial company--Assessee cannot be considered an industrial company-- CIT v. Bhagyoday Investment (P) Ltd . (P&H) . . . 490

Finance Act, 1997 :

S. 72 --Voluntary disclosure--Secrecy of declaration, scope of--Declaration filed for other years can be referred to to make best judgment assessment-- CIT v. Aero Club (Delhi) . . . 400

Income-tax Act, 1961 :

S. 2(24) --Income--Assessability--Assessee shareholder in company having right to use particular trade mark--One-time payment for affirmative vote in resolution for transfer of trade mark--Not a revenue receipt-- CIT v. David Lopes Menezes (Late)  (Bom) . . . 337

S. 10(33) --Exemption--Dividend--Omission to claim exemption for dividend--Not relevant--Assessee entitled to exemption--Disallowance under section 14A--Disallowance cannot be made on basis of presumption--No evidence that expenditure incurred in earning dividend--No disallowance permissible under section 14A-- CIT v. Metalman Auto P. Ltd . (P&H) . . . 434

S. 12AA --Charitable purposes--Charitable trust--Registration of trust--Commissioner has power to cancel registration--Notice of cancellation must give reasons--Search operations against assessee--No assessment based on search--Order cancelling registration set aside by Tribunal--Notice again for cancellation of registration--Not valid-- Kalinga Institute of Industrial Technology v. CIT (Orissa) . . . 389

S. 14A --Co-operative society--Special deduction--Interest received on advances provided to member co-operative societies--Special deduction allowable after deducting expenditure incurred in earning the income-- Punjab State Co-operative Milk Producers Federation Ltd . v. CIT (No. 1 ) (P&H) . . . 495

----Exemption--Dividend--Omission to claim exemption for dividend--Not relevant--Assessee entitled to exemption--Disallowance under section 14A--Disallowance cannot be made on basis of presumption--No evidence that expenditure incurred in earning dividend--No disallowance permissible under section 14A-- CIT v. Metalman Auto P. Ltd . (P&H) . . . 434

S. 23 --Income from house property--Annual letting value--Interest-free security deposit taken by assessee hugely disproportionate to monthly rent charged--Device to circumvent liability to income-tax--Notional interest on security deposit to be treated as income from house property-- CIT v. K. Streetlite Electric Corporation (P&H) . . . 348

S. 32 --Depreciation--Air-conditioner purchased in name of managing director and his wife but used for purposes of business--Entitled to depreciation--Depreciation allowable on electrical installations-- CIT v. Metalman Auto P. Ltd .  (P&H) . . . 434

S. 32A --Investment allowance--Computer system installed in assessment year 1990-91 but put to use in assessment year 1991-92--Entitled to investment allowance-- CIT v. Indian Rayon and Industries Ltd. (Bom) . . . 479

S. 37 --Business expenditure--Disallowance--Entertainment expenditure--Exclusion from disallowance--Expenditure on food or beverages provided to employees in office or other place of work--Meaning of other place of work--Amount spent on sales dealers conference, press conference and hotel--Part of amount spent on employees--Deductible-- CIT v. Indian Rayon and Industries Ltd. (Bom) . . . 479

----Business expenditure--Roll over charges for repayment of principal amount of foreign exchange loans for capital investment--Not deductible--Expenditure on gift and presentation articles--Expenditure on school for children of staff and workers--Pro rata/proportionate premium on redemption of non-convertible debentures issued during assessment year 1988-89--Deductible-- CIT v. Indian Rayon and Industries Ltd .  (Bom) . . . 479

S. 40(ba) --Association of persons--Member--Exemption--Exclusion of company, co-operative society or registered society--Refers to association of persons not member--Private company member of association of person entitled to exemption-- CIT v. Ideal Entertainment P. Ltd. (Mad) . . . 357

S. 43B --Business expenditure--Deduction only on actual payment--Sales tax--State Government allowing deferred payment--Effect of Circular No. 674 dated 29-12-1993--Amount cannot be disallowed--CBDT Circular No. 674, dated 29-12-1993-- CIT v. Bihar Foundry and Castings Ltd. (Jharkhand) . . . 387

S. 44AC --Collection of tax at source--Liquor trade--State Government--Immunity from Union taxation--State Government doing wholesale business in liquor--State Government bound to collect tax at source from retailers--Failure to collect tax--Recovery proceedings against State Government justified--Not a case of taxation of State but of collection of tax in respect of income of retailers--Recovery not barred by article 289-- State of Bihar v. CBDT (Patna) . . . 506

S. 67A --Association of persons--Member--Exemption--Exclusion of company, co-operative society or registered society--Refers to association of persons not member--Private company member of association of person entitled to exemption-- CIT v. Ideal Entertainment P. Ltd. (Mad) . . . 357

S. 80-IB --Industrial undertaking--Special deduction--Manufacturer of steel forging--Scrap sale charges and job works/labour charges--Finding that job works/labour charges derived from industrial undertakings--Receipts of sale of scrap part and parcel of activity--Assessee entitled to deduction-- CIT v. Sadhu Forging Ltd.  (Delhi) . . . 444

----Industrial undertaking--Special deduction under section 80-IB--Assessee doing job work qualifying as eligible business under section 80-IB--Entitled to special deduction under section 80-IB--Miscellaneous receipts incidental to profits from eligible business--Entitled to special deduction under section 80-IB-- CIT v. Metalman Auto P. Ltd. (P&H) . . . 434

S. 80P --Co-operative society--Special deduction under section 80P--Apex co-operative society--Member societies engaged in marketing milk and milk products--Credit facilities provided by assessee for working capital of members--Interest not entitled to special deduction under section 80P-- Punjab State Co-operative Milk Producers Federation Ltd. v. CIT (No. 2 ) (P&H) . . . 501

S. 80P(2)(d) --Co-operative society--Special deduction--Interest received on advances provided to member co-operative societies--Special deduction allowable after deducting expenditure incurred in earning the income-- Punjab State Co-operative Milk Producers Federation Ltd . v. CIT (No. 1 ) (P&H) . . . 495

S. 86 --Association of persons--Member--Exemption--Exclusion of company, co-operative society or registered society--Refers to association of persons not member--Private company member of association of person entitled to exemption-- CIT v. Ideal Entertainment P. Ltd. (Mad) . . . 357

S. 127 --Transfer of case--Notice on ground that principal business of assessee at New Delhi--Objection that principal business at Kolkata--Order stating transfer for co-ordinated investigation and meaningful assessment--Not proper--Order set aside-- Dhoot Developers P. Ltd. v. CIT (Cal) . . . 487

S. 147 --Reassessment--Writ--Notices of reassessment on sixty seven companies based on confession following scam--Fifty-eight writ petitions against reassessment dismissed--Notices on remaining nine companies dismissed on ground of availability of effective alternative remedy-- GVK Gautami Power Ltd. v. Asst. CIT (OSD)  (AP) . . . 451

S. 148 --Reassessment--Notice--Limitation-- GVK Gautami Power Ltd . v. Asst. CIT (OSD) (AP) . . . 451

----Reassessment--Notice--Validity--Educational institution granted exemption under section 11--Deposit in chit fund not disclosed--Subsequent decision by Tribunal in another case that deposit in chit fund contravenes section 11(5)--Notice of reassessment--Valid-- Little Angels Educational Society v. ITO (AP) . . . 413

----Reassessment--Notice after four years--No failure to disclose material facts necessary for assessment--Notice not valid--S ayaji Industries Ltd. v. Joint CIT (Asstt.)  (Guj) . . . 360

----Reassessment--Writ--Notices of reassessment on sixty seven companies based on confession following scam--Fifty-eight writ petitions against reassessment dismissed--Notices on remaining nine companies dismissed on ground of availability of effective alternative remedy-- GVK Gautami Power Ltd. v. Asst. CIT (OSD)  (AP) . . . 451

----Reassessment--Writ--Writ will issue only if there is no prima facie reason for notice-- Little Angels Educational Society v. ITO (AP) . . . 413

S. 194H --Deduction of tax at source--Commission--Agreement for distribution of products manufactured by assessee--Distributor purchasing products at pre-determined price for sale within specified area--Assessee and distributor collecting and paying sales tax separately--Payment of incentive to distributor--Not commission--Tax not deductible at source on such payment-- CIT v. Jai Drinks P. Ltd. (Delhi) . . . 383

S. 206C --Collection of tax at source--Liquor trade--State Government--Immunity from Union taxation--State Government doing wholesale business in liquor--State Government bound to collect tax at source from retailers--Failure to collect tax--Recovery proceedings against State Government justified--Not a case of taxation of State but of collection of tax in respect of income of retailers--Recovery not barred by article 289-- State of Bihar v. CBDT (Patna) . . . 506

S. 226 --Collection of tax at source--Liquor trade--State Government--Immunity from Union taxation--State Government doing wholesale business in liquor--State Government bound to collect tax at source from retailers--Failure to collect tax--Recovery proceedings against State Government justified--Not a case of taxation of State but of collection of tax in respect of income of retailers--Recovery not barred by article 289-- State of Bihar v. CBDT (Patna) . . . 506

S. 260A --Appeal to High Court--CBDT instruction prohibiting appeals where tax effect is below Rs. 4 lakhs--CBDT instruction that notional tax effect could be taken in loss cases--Does not apply to appeals filed prior thereto--Appeal not maintainable--CBDT Instruction No. 5, dated 24-10-2005 and O. M. dated 15-5-2008-- CIT v. Continental Construction Ltd. (Delhi) . . . 394

S. 263 --Revision--Powers of Commissioner--Law applicable--Amendment of section 263 w.e.f. 1-10-1984--Amendment not retrospective--Order passed by IAC in 1982--Order of revision in February 1984--Not valid-- CIT v. Triveni Engineering Works Ltd. (Delhi) . . . 366.......

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Dear Friends : The emails are schedule to be posted in the blog (itronline.blogspot.com)and will sent to the group on various dates and time fixed. Instead of sending it on one day.

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~Whether Sec 94 is attracted and penalty is justified when assessee sets o

Whether Sec 94 is attracted and penalty is justified when assessee sets off loss on sale of mutual fund units against profit on short-term investments but does not claim loss as deduction - YES, rules ITAT

MUMBAI, JUNE 13, 2011: THE issue before the Tribunal is - Whether section 94 is attracted and penalty is justified when assessee sets off the loss on sale of its mutual fund units against profit on short term investments but does not claim the loss as a deduction. YES is the Tribunal's answer.

Facts of the case

The assessee company revised its return of income declaring a slightly higher total income. However, the AO made certain additions and disallowances and completed the assessment under section 143(3). The CIT(A) confirmed the AO's order. Following disposal of the assessee's appeal by the Tribunal, the AO levied 100 per cent penalty on income sought to be evaded by the assessee, including short term capital loss incurred on sale of mutual fund units that were disallowed under section 94(7); SAP expenses incurred by the assessee; expenses relatable to investments under section 14A and deduction under section 80G and 80HHC, which was recomputed.

On appeal before the Tribunal, the assessee submitted that section 94 provisions were not attracted as the investment in units was made not with a view to incur loss and avoid tax. The assessee had set off the loss on sale of its units against profit on short term investments and not claimed the loss as a deduction. Therefore, what was offered to tax was only net short term capital gain whereby no penalty could be levied.

The assessee had also implemented the SAP project and claimed consultancy fees, professional charges and other incidental costs as deductible expenses. According to the assessee, it had been carrying on business for number of years and it had acquired and implemented various hardware and software systems from time to time, which required continuous upgradation and modification. Also, it had only claimed the net expenses, being revenue in nature, and which were not recovered from its various overseas branches, whereby penalty was not justified.

Deduction under 80G claimed on donation made by the assessee was disallowed in the absence of receipts and penalty levied on this amount. The CIT(A) confirmed the levy of penalty as the onus was on the assessee to prove the claim for deduction. According to the assessee, disallowance of deduction on account of non-production of receipts could not be considered as concealment of income or furnishing of inaccurate particulars of income.

DEPB benefits were excluded from business profits for computing deduction under section 80HHC, while excise duty and sales tax were added to the total turnover for computing the deduction. The CIT(A) had partly allowed the assessee's appeal but confirmed the levy of penalty on the excess deductions claimed under section 80HHC, including on indirect cost related to trading goods and interest received on income tax refund. Objecting to the penalty, the assessee submitted that the indirect cost of trading export had been computed on estimate basis and available data.

Having heard the parties, the Tribunal held that,

++ the CIT(A) had held that the assessee had adjusted the loss against profit on sale of short term capital gains which was illegal. Having furnished inaccurate particulars of income, the levy of penalty under section 271(1)(c) was justified. The order of the CIT(A) was confirmed as the assessee had wrongly claimed the loss when provisions of section 94 were clearly applicable to such transactions;

++ regarding penalty on SAP expenses, the CIT(A) had dismissed the appeal. However, in the quantum appeal as the issue had been set aside, along with issue of expenses on 14A investments, the penalty levied was also set aside;

++ regarding deduction under 80G, there was no infirmity in the CIT(A) order as the receipt had not been made available before more than one authority, in clear violation of the section. Penalty on this issue was confirmed;

++ computation of relief under section 80HHC was controversial as this section had undergone numerous amendments. The assessee had furnished all particulars of the individual components in computing the 80HHC relief. The particulars were accurate and supported by a certificate by the Chartered Accountant. Following the apex court decision, holding that as long as the assessee had not given any information in the return which were incorrect, making an incorrect claim in law was not tantamount to furnishing inaccurate particulars and penalty under section 271(1)(c) was not attracted, as well as the decision of the Delhi High Court, the penalty levied in respect of the disallowance under section 80HHC was deleted.

~TDS ON INTEREST ON REFUND FOR MNCs – DELHI TRIBUNAL SPECIAL BENCH DECIDES IN CLO

TDS ON INTEREST ON REFUND FOR MNCs – DELHI TRIBUNAL SPECIAL BENCH DECIDES IN CLOUGH ENGINEERING

The issue of TDS on interest on refund under section 244A/195 of the Income-tax Act, 1961 assumes significance for a MNC having a permanent establishment [PE] in India under the Double Taxation Avoidance Agreement [DTAA] and receiving tax refund from assessments completed under the Income-tax Act. The TDS rate on such refund can be as high as 42.23 per cent [as business profits] against say 15 per cent [as interest], thereby diluting the benefits from already tedious process to claim the tax refunds.

Recently, the Special Bench of Delhi Tribunal in the case of Asstt. CIT v. Clough Engineering Ltd. [2011] 130 ITD 137/11 Taxman 70 (Delhi)(SB) affirmed the gross basis taxation for such interest under the article dealing with taxation of 'interest' in the tax treaties, thereby settling the controversy set by divergent decisions on the subject.

This article attempts to discuss the rate of withholding tax applicable of the Act on interest on refund issued to an MNC [a tax resident of USA].

LEGISLATIVE PROVISIONS

Section 195 requires person responsible for paying to a non-resident any sum chargeable to tax in India to withhold taxes at the 'rates in force'.

Further as per section 2(37A)(iii), 'rates in force' means, for purposes of deduction of tax under section 195, the rate specified in the Finance Act or rate specified under an agreement under section 90, whichever is applicable as per the provisions of section 90.

Section 90(2) provides that in relation to the assessee to whom the agreement under section 90 applies, the provisions of the Income-tax Act shall to the extent they are more beneficial to the assessee.

As per Article 7(1) of the DTAA between India-USA,

"The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to:

(a) that permanent establishment; and"

However, Article 7(6) of the DTAA provides as follows,

"Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article."

As per Article 11 of the DTAA,

"(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

(2) However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed ...a) …..b) 15 per cent of the gross amount of the interest in all other cases.

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(4) The term 'interest' as used in this Convention means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities, and income from bonds or debentures, including premiums or prizes attaching to such securities, bonds, or debentures. Penalty charges for late payment shall not be regarded as interest for the purposes of the Convention. However, the term 'interest' does not include income dealt with in Article 10 (Dividends).

(5) The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the interest is attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be, shall apply."

Suppose that MNC has a permanent establishment [PE] in India under the DTAA and tax refund arises to the MNC from assessments completed under the Income-tax Act.

There are two views on whether the interest on refund can be said to be effectively connected to the PE of MNC in India or not [which impacts the withholding tax rate], which are discussed below:

VIEW 1:

TAXABILITY OF INTEREST AS 'BUSINESS PROFITS' UNDER ARTICLE 7 OF DTAA [IF HELD TO BE EFFECTIVELY CONNECTED TO THE PE IN INDIA]

The Delhi Tribunal in BJ Services Co. Middle East Ltd. v. Asstt. CIT [2009] 29 SOT 312 has held that the income tax refund was connected to the permanent establishment and it was PE's business income assessable under article 7 and not interest income under article 12 of the India – UK Tax Treaty. The relevant extract from the order is reproduced as follows:

"7. Since there is no dispute to the fact that the appellant though being a resident of UK is carrying on business in India through a PE situated in India and, the interest is effectively connected with such PE in India, therefore, in terms of para 6 of art. 12, such interest can be taxed as business profits under art. 7."

Accordingly, the income tax on the same would be applicable at the rate of 40 per cent plus surcharge and education cess (effective withholding tax rate being 42.23 per cent1).

Given that taxability under article 7 is on net basis i.e. brought forward losses, if any, would be available be set off against the refund to determine the income attributable to the PE. However, while withholding tax, the benefit of brought forward losses is not likely to be allowed by the tax officer though MNC can claim the taxes withheld on interest on refund while filing the corporate income-tax return for year in which refund is received. This claim may be allowed by the tax authorities, upon completion of revenue audit of the tax return so filed.

This is a practical problem being faced by MNCs and resulting into cash flow issues resulting from time lag in issuance of refund [with consequent TDS on interest] and refund of TDS [in view of brought forward losses, on completion of assessment few years later].

VIEW 2:

TAXABILITY OF INTEREST UNDER ARTICLE 11 of DTAA [IF HELD NOT TO BE EFFECTIVELY CONNECTED TO THE PE IN INDIA]

The Delhi Tribunal in Asstt. CIT v. Pride Foramer France SAS [2008] 22 SOT 204 has held that interest on income-tax refund is taxable under the head 'Income from other sources' since it cannot be said to be derived or attributable to the business activity of the assessee. Hence the same was taxable under article 12 of the India-France DTAA [dealing with taxation of interest on gross basis].

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Further, reference in this regard is made to the decision in ABC, In re [1999] 236 ITR 637/102 Taxman 574 (AAR) wherein interest on income-tax has been held by the AAR to be not connected with the activity of permanent establishment in India. It was held that the right to interest arose because of the delay in making refund of the excessive collection of the tax and it was a case falling under article 12 of the India – UK DTAA [dealing with taxation of interest on gross basis]. The relevant extract of the ruling is as under:

"The interest amount in dispute has not arisen out of any business operation in India. It is statutory interest granted on delayed refund under the provisions of section 244/243 of the Income-tax Act. There cannot be any dispute that the interest has been paid on delayed refund. Refund due and payable to the assessee is debt owing and payable. For delayed payment of this debt, interest will have to be paid by virtue of the provisions of section 243/244 of the Income-tax Act The debt claim is not connected in any way with any activity of a permanent establishment or base in India. The right to get interest arose because of the delay in making refund of excessive collection of the tax. This is clearly a case falling under paragraph 2 of article 12 of the DTAA."

It is worth noting that the provisions of article 12(5) of the India France DTAA and article 12(6) of the India UK DTAA are pari materia to the provisions of article 11(5) of the India-USA DTAA.

In view of the above, an alternate view existed that the interest on refund is taxable in the hands of MNC under article 11 of the DTAA at the rate of 15 percent on gross basis. Since taxation is on gross basis, no set-off of brought forward losses shall be allowed to MNC.

Recent judgment of the jurisdictional Delhi Tribunal in the case of Clough Engineering Ltd. (supra).

(I) Facts of the case

The facts of the case were that Clough Engineering Ltd.'s case (supra) ('the assessee') had entered into a contract with ONGC Ltd., Cairn Energy India (P.) Ltd. and Niko Resources Ltd. The contract was composite and turnkey in nature. The assessee while filing the return of income declared the proceeds of the contract, interest on income tax refund and bank interest.

No dispute was raised regarding the taxability of bank interest under article VII read with paragraph (4) of article XI of the DTAA between India and Australia. However, with regard to interest on income tax refund, the contention of the assessee was that it is taxable at the rate of 15 per cent on gross basis in view of the provisions contained in paragraph (2) of article XI of the DTAA. The tax officer assessed the same under article VII read with paragraph (4) of article XI of the DTAA as the interest has been paid on the refund of tax deducted at source, made from business receipts and thus, it is directly connected with the business receipt.

The Commissioner (Appeals) also concurred with the finding of the tax officer. Against the same, the assessee filed appeal before the Income Tax Appellate Tribunal, Delhi ("ITAT"). In the course of hearing before the ITAT, it was observed that apparently there is a conflict in the decisions taken by the ITAT in the case of Pride Foramer France SAS (supra) and BJ Services Co. Middle East Ltd.'s case (supra). Therefore, a recommendation was made to the President, ITAT for constitution of Special Bench which after constitution framed the following question:

"Whether, on the facts and in the circumstances of the case, interest on income-tax refund and fixed deposits with the bank is liable to tax with reference to Article 7 read with paragraph no. 4 of Article 11 or paragraph no. 2 of Article 11 of the Indo-Australia Double Taxation Avoidance Agreement?"

The following arguments were placed by the assessee and the Indian Revenue Authorities before the ITAT:

(II) Arguments of the assessee

The assessee placed the following arguments before the ITAT in support of its position that interest on income tax refund is taxable under article XI of the DTAA at the rate of 15 per cent on gross basis:

l In various judicial precedents, it has been held that interest is normally taxable under the head 'Income from other sources' unless the source of the interest is the business of the assessee.

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l The income producing activity should be closely connected in terms of relationship besides being economically connected with the PE.

(III) Arguments of the Indian Revenue Authorities

The arguments of the Indian Revenue Authorities in support of the position adopted by the tax officer that interest on income tax refund is taxable under the provisions of article VII of the DTAA are as follows:

l Although the interest has not arisen out of the business transactions, but it is also a fact that tax was deducted from the monies receivable in the course of business of the PE and, therefore, there is a direct nexus of the indebtedness with the assets of the business.

l Expression used in the DTAA is to the effect that indebtedness is 'effectively connected with the PE' and not that the interest income is effectively connected with the PE. As the debt arose because of tax deduction at source from the business receipts of the PE, if the FAR analysis is carried out, the asset will have to be allocated to the PE. Further, since the tax was deducted from the business receipts of the assessee, even the activity test stands satisfied because it was in the course of the business transactions of the assessee that the debt arose. Therefore, both the asset use test and business activity test are satisfied.

l The OECD Commentary contemplates the economic ownership of the debt claim for taxability of interest under article VII. In the present case, if FAR analysis is made, the deduction from monies receivable as tax, would fall under the economic ownership of the PE.

(IV) Judgment of the ITAT Special Bench

After hearing the above arguments placed by the assessee and the Indian Revenue Authorities, the ITAT observed as followed:

l The real test to be examined for determining the taxability of interest under article XI or Article VII of the DTAA, is to examine whether the 'test of effective connection' is satisfied in this case or not.

l The judgment of the Delhi ITAT in the case of Pride Foramer France's2 case (supra) does not lay down the law in entirety as it misses the point of examination i.e. whether interest on indebtedness is effectively connected with the PE;

l The judgment of the Delhi ITAT in the case of BJ Services Co. Middle East Ltd.3 (supra) also does not help in deciding the said issue as in that case, there was no dispute that – (i) the assessee is a non-resident having a PE in India; (ii) the assessee is carrying on business in India through a PE situated in India; and (iii) the interest is effectively connected with such PE in India.

On the basis of the above observations, the ITAT Special Bench held as follows:

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l It is for the company to pay the tax from any source available with it. It so happened in this case that the tax got automatically deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the appropriation of profits of the assessee company.

l The bank interest in this case is an example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income tax refund. Such interest is not effectively connected with the PE either on the basis of asset test or activity test.

Accordingly, it was held that interest on income tax refund is taxable under paragraph (2) of article XI of the DTAA between India and Australia at the rate of 15 per cent on gross basis.

1. Tax is charged on net basis i.e. after deduction of expenses incurred to collect the interest of refund which shall be minimal.

2. The ITAT has held that interest on income-tax refund is taxable under the head 'Income from other sources' since it cannot be said to be derived or attributable to the business activity of the assessee.

3. The ITAT held that the interest on income tax refund is effectively connected with the PE and therefore taxable under article 7 of the DTAA.

Happy

Independence

Day.

Section 115BBD of the I.T. Act - Disguised Amnesty

Section 115BBD of the I.T. Act - Disguised Amnesty

T.N. PANDEY
EX-CHAIRMAN, CBDT

In this article, the author has examined the nuisances of newly introduced section 115BBD in the I.T. Act, 1961 by the Finance Act, 2011 for an year only and has demonstrated that this section is in the nature of disguised tax amnesty for short period for getting foreign funds taxed in India at 15% rate, making the country lose the balance tax @15% without mentioning any ostensible justification for doing so. Such an amnesty is against the assurance given on behalf of the Govt. to the Supreme Court of India and the Government's doing so is apparently unfair and morally unjustified.

A new section 115BBD titled 'Tax on certain dividends received from foreign companies' has been inserted in the Income Tax Act, 1961 (Act) by the Finance Act, 2011. The reason for such a provision has been explained in para 146 of the budget speech of the FM as under:-

"It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary. I do hope these funds will now flow to India".

In the Explanatory Memorandum to the Finance Bill, 2011, the rationale for this provision has been elucidated saying that the provision is being enacted to give relief in respect of dividends received from foreign companies, which are presently taxable in the hands of the Indian taxpayers at the rates applicable in their cases. The provision is applicable only for one year. There is no corresponding section in the Direct Taxes Code, 2010.

The new section relates to taxation of dividends received from foreign companies. Under the existing provisions of the Act, dividend received from foreign companies is taxable in the hands of the recipient at applicable marginal rate of tax. Therefore, in case of companies, who receive foreign dividend, such dividend is taxable at the rate of 30% plus applicable surcharge and cess.

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The new section raises the issue as to why this provision for taxation of foreign dividends at reduced rate for one year has been considered necessary. The provision is seemingly in the nature of tax amnesty for facilitating transfer of tax evaded incomes from abroad at concessional rate of tax without any liability for penalty or prosecution.

The word 'amnesty' properly belongs to international law, and is applied to treaties of peace following a state of war, and signifies there the burial in oblivion of the particular cause of the strife, so that shall not be again a cause for war between the parties. And so amnesty is applied to rebellions, which by their magnitude are brought within the rules of international law, and in which multitudes of men are the subjects of the clemency of the government [Knote v. US, 95 US 149, 24, L.Ed. 442]. Broadly, it implies general pardon [see Deputy Inspector General of Police v. D. Rajaram, AIR 1960 AP 259, 262 [Constitution of India, Art. 72].

Tax amnesty implies an opportunity offered by a government to tax evaders to declare their past concealment of income, wealth, etc., without fear of being prosecuted. Tax amnesty (or impunity) is granted only for the past in order to secure better compliance and higher tax yield in the present and future.

Taxing dividends from foreign subsidiary company @15% rate only, without mentioning any cogent necessity for the same for the first time, gives an indication that at a time when there is so much stress for repatriation of tax evaded incomes slashed in foreign companies, the Govt. has quietly decided to lessen its quantum by giving incentive in the nature of an amnesty, when persons stocking such money abroad should be penalized.

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The last amnesty scheme under the Act was announced by the Finance Act, 1997 by Shri P. Chidambaram, the then Finance Minister titled "Voluntary Disclosure Scheme, 1997". The concept of this scheme has been explained in the Memorandum of the Ministry of Finance, explaining the Finance Bill, 1997, in the following words:-

"In order to mobilize resources and to channelise funds into priority sectors of the economy, and to offer an opportunity to persons, who have evaded tax in the past, to declare their undisclosed income, pay a reasonable tax and in future adopt the path of rectitude and civic responsibility, a voluntary disclosure of income and wealth is proposed to be introduced".

The validity of the scheme was challenged before the Bombay HC in the case of All India Federation of Tax Practitioners v. UOI. The HC upheld the constitutional validity of the VDIS, 1997. The matter was then taken to the Supreme Court, where an assurance was given by the Attorney General (AG) of India, inter alia, that amnesty schemes would not be introduced in future. On the basis of assurances by the AG, the SLP against the Bombay HC's decision was dismissed. Introducing section115BBD in the Act, when there is demand for transparency apparently flouts the assurance given to the Apex Court and is unfair and regrettable.

The FM needs to answer the following queries:-

(i) Why such scheme was not thought of earlier?

(ii) Why it has been brought in for one year only?

(iii) If the reply to the query at (ii) above is that the life left for the I.T. Act, 1961 is only one year then, why there is no such provision in the DTC, 2010?