The main legal point established in the judgment is the interpretation of the term 'profits and gains' under section 10B of the Income-tax Act, 1961 to determine the admissibility of exemption for the interest income derived by the assessee.

1. These two appeals filed by the Revenue involve a common question of law, and are, therefore, being decided by this common order. Both the appeals have been admitted by different orders dated July 30, 2007, and April 19, 2006, but by framing the same substantial question of law. It is a different story, that the question as framed in Appeal No. 45/2006, as such, does not arise in Appeal No. 111/2007, inasmuch as Appeal No. 45/2006 arises out of the appeal of the assessee filed before the Tribunal, against invoking of the powers under section 263 of the Income-tax Act, 1961, while Appeal No.111/2007 arises out of the regular appeal, filed by the assessee, with respect to the different year. But then the central question, about the entitlement of the assessee, to claim exemption under section 10B, on the interest income, earned from M/s. Wolkem India Ltd. is involved in both the appeals, and, therefore, these two appeals are involving common question of law.

2. Bereft of unnecessary details, the necessary facts of Appeal No. 45/2006 are, that the assessee and Wolkem India Ltd. admittedly are sister concerns. The assessee purchased goods from Wolkem India Ltd., and for such purchase, amount is paid in advance to the seller, and that advance amount yields interest income to the assessee. It is with respect to this income of interest, that the assessee claimed exemption under section 10B, which was allowed by the Assessing Officer, holding that this income is attributable to the business of the undertaking, and was thus exempt under section 10B. Against that order, powers under section 263, being revisional powers were invoked, and, vide order dated February 12, 1996, the order of the Assessing Officer was set aside, and the matter was restored back to the Assessing Officer, for holding enquiries, and passing a fresh order. The revisional authority found that there is nothing on record to show that Wolkem India Ltd. had desired to deposit of any specific amount of advance prior to its agreeing to supply raw material to its own sister concern, nor is there anything to indicate that the Assessing Officer examined the case from this angle, before allowing exemption under section 10B. Likewise, it was also considered, that even if there is a business practise, where the suppliers of certain goods do require advance for future purchase, the transactions of the assessee with its own sister concern is to be considered on a different footing. Thus, it was found, that the Assessing Officer could not be said to be right in taking the view, that interest received by the assessee, from Wolkem India Ltd. was materially different in nature, from the interest in respect of other parties, without due enquiries. Reliance was placed on the judgment of this court in Murli Investment Co. v. CIT (1987) 167 ITR 368 , wherein the income derived from surplus fund was not considered to be business income. With these findings, it was concluded, that while considering the total taxability in respect of the different items, erroneous view was taken, without due enquiry regarding income of Wolkem India Ltd., and it is prejudicial to the interests of the Revenue.

3. This order was challenged by the assessee before the learned Tribunal, on the ground, that the provisions of section 263 could not be invoked. The learned Tribunal found that the Assessing Officer has applied his mind to the facts of the case, and treated the income received from Wolkem India Ltd. as business income. Therefore, the Tribunal did not agree with the view of the Commissioner of Income-tax that the Assessing Officer had not made due enquiries and had not applied his mind to the facts of the case. Reference was also again made to the judgment of this court in Murli Investment's case (1987) 167 ITR 368 (Raj), and it was held that since the assessee is having regular business dealings of purchase from M/s. Wolkem India Ltd. which takes advance from the assessee against the sales ma