Industrial undertaking: Deduction u/s. 80-I: A. Ys. 1993-94 and 1994-95: Profit must be derived from industrial undertaking: Ownership of industrial undertaking is not a condition precedent:

The assessee had an ammonia/urea plant at H. Just next to it and within its premises, the Hazira ammonia extension plant, which manufactured heavy water, had been set up and established by the Heavy Water Board, which was part of the Department of Atomic Energy, Government of India. There was an agreement between the assessee and the Government of India whereby the assessee operated and maintained the heavy water plant. The heavy water plant belonging to the Heavy Water Board and the ammonia/urea plant of the assessee were both integrated with each other. The process of manufacture of the heavy water plant was dependent on the supply of synthesis gas enriched with deuterium which was a by-product of the assessee’s ammonia/ urea plant. The assessee received service charges from the Heavy Water Board and claimed deduction u/s. 80-I in respect of it. The claim was rejected by the Assessing Officer. The Tribunal upheld the order of the Assessing Officer on the ground that the industrial undertaking manufacturing heavy water was not a part of the ammonia/urea plant of the assessee. It held that the service charges received by the assessee from the Heavy Water Board could not be treated as having been derived from an industrial undertaking of the assessee.

On appeal by the assessee, the Delhi High Court reversed the decision of the Tribunal and held as under:

“i) A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally.

ii) A plain reading of section 80-I(1) and (2) of the Income-tax Act, 1961, would indicate that the ownership by the assessee of an industrial undertaking from which assessee derives profits and gains is not a stipulated condition. The only thing that has to be seen is whether the source of the profit or gains is an industrial undertaking.

iii) The service charges received by the assessee were profits and gains derived from an industrial undertaking and were eligible for a deduction u/s. 80-I.”