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Section 80-IA left no one in doubt when it granted tax holiday of 30 per cent that the profits should emanate from manufacturing activity.
In the event if the assessee derived profits from trading of raw materials, such profits have to be kept away for the purposes of computation of profits eligible for tax holiday entitlement held the Supreme Court in the Arisudana Spinning Mills Ltd. vs Commissioner of Income Tax, Ludhiana case.
In the absence of separate accounts for computation of trading profits and manufacturing profits, the assessing officer was justified in preparing the two sets of accounts from the information made available to him.
The company had computed a Gross Total Income of Rs 51.82 lakh, and on this the tax holiday of 30 per cent worked out to Rs 15.54 lakh.
The exercise done by the assessing officer eliminating the profits arising out of sale of raw wool waste, textile and knitting cloth was upheld by the Tribunal and by the High Court on appeal.
The Supreme Court said it saw no reasons why this finding should be disturbed.
(The author is a New Delhi-based Chartered Accountant.)
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