M.N. CHANDURKAR C.J.


The assessee is a public limited company and for the assessment year 1970-71, the company claimed relief under section 80-1 of the Income-tax Act, 1961



"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on deposits of Rs. 92556 and profit on sale of assets amounting to Rs. 1, 09, 492 are not to be included in the profits for computing the deduction under section 80-I of the Income-tax Act, 1961 ?" *


Learned counsel appearing on behalf of the Revenue has fairly not disputed that in so far as the profit on sale of assets is concerned, the matter would be covered by the decision of the Supreme Court in Cambay Electric supply, Industrial Co. Ltd. v. CIT1988 (113) ITR 84, 1978 AIR(SC) 1099, 1978 (113) ITR 84, 1978 (2) SCC 644, 1978 (3) SCR 660, 1978 UJ 412, 1978 TaxLR 753, 1978 CTR(SC) 50, 1978 CTR(SO) 50, 1978 SCC(Tax) 119. In that decision, the Supreme Court was dealing with a deduction under section 80E of the Act which is also worded similar to the provisions of section 80-1. Under section 80E, deductions are made permissible from

"profits and gains attributable to the business of generation or distribution of electricity..." *


Under section 80-1, deduction is made permissible in respect of profits and gains attributable to any priority industry. The language of section 80E and section 80-I is identical. The question which fell for consideration before the Supreme Court was whether the balancing charge under section 41(2) could be taken into account before computing the deduction at 8 per cent. and the Supreme Court held that such balancing charge would have to be taken into account before computing the deduction of 8 per cent. contemplated by section 80E. In our view, the same would be the position in a case where deduction is claimed under section 80-1. Accordingly, the Tribunal was not right in excluding a sum of Rs. 1, 09, 492 for the purpose of computing the deduction at 8 per cent. under section 80-IIn so far as the amount of interest on deposits amounting to Rs. 92, 556 is concerned, learned counsel appearing on behalf of the assessee has contended that this interest was received from suppliers of raw materials, the State Electricity Board, banks as well as on security deposits with other agencies and these interests must also, therefore, be attributable to "priority industry". Learned counsel appearing on behalf of the Revenue has, however, contended that in so far as interest from banks is concerned, the receipt will be of a general nature and cannot be specifically attributable to "priority industry". With regard to the other items of interest, learned counsel contended that no details have been given as to the nature of the deposits which yielded interest


In so far as the interest received from banks is concerned, the question appears to be settled by this court in CIT v. Universal Radiators P. Ltd. 1981 (128) ITR 531, 1980 (3) TAXMAN 485, in which this court has held that where a fixed deposit is kept with the bank as security for borrowing and moneys are borrowed for business, interest from fixed deposit cannot be said to be attributable to the priority industry and the industry is not entitled to relief by way of deduction of 8 per cent. on this interest. The same principle, in our view, will apply where interest is earned on deposits kept even in the normal course by the industry. Such income cannot be said to be attributable to the industry itself. In so far as the other deposits are concerned, it is obvious that the deposits were in the nature of security deposits for the purpose of contracts by the assessee-company and in case of interest received from supply of raw materials, the same was received because the raw materials were not supplied at all and the advance receipts were returned with interest. It has to be noted that section 80-1 uses the expression "attributable to" which is much wider in import than the expression "derived from" as pointed out by the Supreme Court in Cambay Electric Supply Industrial Company's case 1988 (113) ITR 84, 1978 AIR(SC) 1099, 1978 (113) ITR 84, 1978 (2) SCC 644, 1978 (3) SCR 660, 1978 UJ 412, 1978 TaxLR 753, 1978 CTR(SC) 50, 1978 CTR(SO) 50, 1978 SCC(Tax) 119. When the company has to keep security deposits, such deposits are necessary for the purpose of its business and any interest obtained from such deposits would be clearly attributable to priority industry. Similarly, if there were contracts for supply of raw materials with suppliers and the suppliers have failed to abide by the contract and return the advance given by the company with interest, such interest will also have a direct nexus with the business of the priority industry. We are, therefore,

of the view that except interest received from bank deposits from the banks, the other amounts which form a part of Rs. 92, 556 will be permissible for the purpose of deduction at 8 per cent. under section 80-1. In the view which we have taken, the question referred is answered by holding that the profit on sale of assets amounting to Rs. 1, 09, 492 and interest received by the assessee excluding interest received on bank deposits will be included in the profits for computing the deduction under section 80-1 of the Income-tax Act, 1961.