The first new provision deals with industrial undertakings and enterprises engaged in development of infrastructure or in providing telecommunication services or developing a notified industrial part or an industrial undertaking set up for generation, distribution or transmission of power.

The second provision, section 80-1B, deals with other industrial undertakings like those set up in backward districts or hotels or companies carrying on scientific research or those undertakings which develop housing projects.

Different amounts are eligible for tax exemption depending on the nature of the business. The tax holiday period also varies on the basis of the nature of the business and the status of the assessee.

The issuewhich is discussed in this article pertains to the nature of income which can be said to be "derived from" the business referred to in sections 80-1A and 80-1B. An interesting question is whether investment income which generally arises from parking of funds for short-term periods can be construed as profits derived from business so as to be eligible for the tax holiday exemption.

On April 1, 1999, the Supreme Court of India has ruled on the scope and ambit of the expression "derived from" in Orissa State Warehousing Corporation vs CIT ((1999) 103 Taxman 623). The court considered the meaning of this expression which is used in section 10(29) of the act.

This provision exempts from tax income derived by a statutory authority from the letting of godowns or warehouses which are meant for storage, processing or facilitating the marketing of commodities. The facts in this case were that the assessee earned interest on fixed deposits placed with banks. The assessing officer held that such interest was notexempt under section 10(29). The Orissa High Court upheld the assessment order.

On behalf of the assessee it was argued before the Supreme Court that all monies coming to the corporation has statutorily been deposited in a bank account and, therefore, the income necessarily had to be treated as being part of the functioning of the unit. Hence, exemption under section 10(29) could not be denied. It was also contended that interest on fixed deposit was incidental to the business income and when the business income itself was not taxable, it would be incorrect to tax the interest income.

On the other hand, it was argued on behalf of the Department that interest on bank deposits did not entitle the assessee to claim exemption, irrespective of the fact of there being a statutory obligation to do so, unless such claim for exemption fell squarely and evenly within the four corners of the statutory provision.

The Supreme Court, after considering the rival submissions, referred to its earlier decision in thecase of CIT vs South Arcot District Co-operative Marketing Society Ltd (176 ITR 117) and held that this decision did not apply because it was based mainly on an agreement and it was only by reason of the substance of such agreement that the court came to the conclusion that the assessee was entitled to exemption claimed by it.

The decision of the court in the aforesaid case did express an independent view apart from reliance on the decision of the Gujarat High Court in CIT vs Ahmedabad Maskati Cloth Dealers Co-operative Warehouses Society Ltd (162 ITR 142).

Turning to the facts in the case of Orissa State Warehousing Corporation, the Supreme Court referred to the decision of the Madhya Pradesh High Court in MP Warehousing Corporation vs CIT (133 ITR 158). In this case, the high court observed as follows:
"It is significant to note that the words `any income' occurring in section 10(29) of the act are qualified by the words `derived from the letting of godowns or warehouses for storage, processing orfacilitating the marketing of commodities.'

"In our opinion, it would not be permissible to introduce words in the provisions of clause (29). To do so will be to read in the aforesaid clause words which do not occur there. Moreover, all the activities of a body constituted for the marketing of commodities are such which ultimately may be found to facilitate the marketing of commodities. If income derived from every activity of an authority constituted for the marketing of commodities was meant to be exempted under clause (29) of section 10 of the act.

Therefore, to claim exemption, it must be proved that the income derived by an authority constituted for the marketing of commodities is income which is derived from the letting of the godowns or warehouses for the purposes specified in section 10(29), which are storage, processing or facilitating the marketing of commodities. If the letting of godowns or warehouses is for any other purpose, or if income is derived from any other source, then such incomeis not exempt under the clause..."

The Supreme Court in Orissa State Warehousing Corporation. held that the Madhya Pradesh High Court had correctly applied the provision of law. Having due regard to the language used, the question of exemption would arise pertaining to that part of the income only which arises or is derived from the letting of godowns or the warehouses and for the purposes specified in section 10(29).

The statute has been rather categorical and restrictive in the matter of grant of exemption: storage, processing or facilitating the marketing of the commodities are definitely regarded as three different forms of activities which are entitled to exemption in the event of there being any income therefrom.The Supreme Court concurred with the view expressed by the Madhya Pradesh High Court and held that in the event the letting of godowns or warehouses is for any other purpose or if income is derived from any other source, then such income cannot possibly come within the ambit of section10(29) and is, thus, not exempt from tax.

A fiscal statute should be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent considered so as to ascertain the proper meaning and intent of the legislation.

The court is to ascribe natural and ordinary meaning to the words used by the Legislature and the court should not, under any circumstances, substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions.

As pointed out at the beginning of this article, the words "derived from" have also been used in sections 80-1A and 80-1B. In both these provisions, sub-section (1) applies to profits and gains derived from the business referred to in those provisions. It can, therefore, be argued that the word "business" has a very wide connotation and would include the activity of parkingfunds temporarily.

Hence, any interest earned would be eligible for the tax holiday provision. However, if funds are retained as investments, such income would clearly not be exempt.In order to avoid any litigation in case of enterprises involved in infrastructure development, it is necessary for the law to be amended to clearly state that income by way of interest would qualify for the tax exemption, unless the interest earned is from an investment activity which is independent of the business of the enterprise.

The author is a Supreme Court advocate