Law:

Section:

Section 80-I of the income-tax act, 1961 [as it stood prior to 1-4-1973]-Deductions-Profits and gains from priority industries-Assessee-company running a priority industry entered into distributorship agreement with another company-Distributor-company was allowed certain discount but bills were to be settled within specified period-In case of delay, assessee-company was entitled to charge interest-Whether amount of interest so received by assessee-company constituted profits and gains attributable to priority industry within meaning of section 80-I-Held, on facts, yes. Facts The assessee-company, running a priority industry, granted sole distributorship of its products to another company in terms of the agreement under which the distributor was allowed a certain discount on net sales but the bills were to be settled within a specified period. In the event of delay, the assessee-company was entitled to charge interest from the distributor. In the assessment year 1972-73, a certain amount accrued as interest to the assessee-company from the distributor-company. The ITO held that this amount was not the assessee's business income but was income from other sources and disallowed relief on it under section 80-I. The AAC as well as the Tribunal upheld the assessee's claim for relief. On reference : Held According to the agreement, interest was payable for delayed payment of bills. If the bills were paid within the specified period, no amount was payable as interest. The interest was, thus, chargeable for facilitating payment of bills. The agreement showed that the assessee-company was entitled to charge interest at the prevailing rate of interest chargeable on its overdraft account by its bankers. It was also provided that under certain conditions the payment of interest may be relaxed by mutual consent. These provisions in the agreement clearly indicated that the amount of interest was relatable directly to the earning of profits and gains by the assessee-company. It was, hence, attributable to the earning of profits and gains of the business of the assessee-company. Therefore, the Tribunal's order was correct in law. Case review CIT v. Universal Radiators (P.) Ltd.…

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