SHREENATH SPEDIATERS PRIVATE LIMITED,JAMNAGAR vs. ACIT CENTAL CIRCLE - 1, JAMNAGAR

The relevant material facts, as culled out from the material on record, are as follows. The assessee is a company and filed return of income on 02.02.2021 declaring, nil income, after claiming deduction under Chapter VI-A of Rs. 53,20,555/-. Vide reply dated 14.07.2021, and 26.11.2021, the assessee stated that the company is engaged in the business of operation of cold chain facility for agriculture produce since 2016, which includes sorting, storing and transportation. The business was incorporated on 27.05.2016. The assessee further submitted that as per section 80- IB of the Act, the amount of deduction in a case of (an undertaking deriving profit from the business of processing, preservation and packing of fruits or vegetables or (meat and meat products or poultry or marine or dairy products or) from the integrated business of handling, storage and transportation of food grains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty five percent (or thirty percent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001. Vide assessee’s reply dated 26.11.2022 and 07.02.2022, the assessee has filed details of business activity, certificate of incorporation, list of plant and machinery and financial statements. Further vide reply dated 05.09.2022, the assessee has furnished details regarding the capacity of the cold storage, reason for variation in receipts as per Form No.26AS and the gross receipts from services shown, reason for substantial increase in Net profit and clarification regarding subsidy receivable at Rs. 2,00,00,000, ledger of interest income. The assessee is running a cold storage plant of 5002 MT capacity. As per Form 10CCB filed, the date of commencement of operation has been shown, as 01.05.2017 and 2018-19, as the initial assessment year from when deduction u/s 80IB(11) is being claimed. During the year under consideration, the assessee has shown gross revenue from sale of services at Rs. 1,42,71,233/- and interest income at Rs 22,85,832/-. On perusal of the Profit & Loss account, it was observed that the assessee has received the following "Other Income" during the year:

In response, to the notice of the assessing officer, the assessee submitted its reply before assessing officer, which is reproduced below: “1. Interest on Fixed Deposit of Rs. 22,36,757/- With regards above we would like to clarify that the fixed deposit was not done as part of investment or savings, but it was mandatory in relation to the government, bank, and RBI norms for availing subsidy, subsidy received from government was not directly credited to loan account but was transferred to fixed deposit account. The charging section 56 for income from other sources reads as under, “56(2)(id) income by way of interest on securities, if the income is not chargeable to income tax under head "profits and gains of business or profession". In our case fixed deposit relates to subsidy and thus interest on it shall be considered as income chargeable under the head profits and gains of business or profession and not under the head income from other sources. If the subsidy was directly credited to loan account it would have reduced the burden of interest on the assesee-company, which not being the case the company earned interest which was shown as income and as expense the whole loan interest was debited to profit and loss account. On the basis of above it can be concluded that it is income chargeable under the head income from profits and gains of business or profession. Section 80-IB of the income tax act reads as where the gross total income of an assesee includes any profits and gains derived from any business referred to in subsection (3) to (11), (11A) & (11B). The assessee- company has availed deduction under 80-IB (11A). Recently the Bombay high court in the case of TEMA Exchangers Manufactures (P) Ltd has rightly drawn the difference between the section 80-IA and 80HH stating that in the erstwhile section 80HH the word any was not used and has drawn an inference that deduction under section 80-IA of the Act was to be extended to the income earned by the tax payer on the fixed deposit from bank, the high court in this case relied on the decision on Delhi High court in the case of Eltek SGS (P) Ltd. Similarly, the Gujarat high court in the case of Empire Pumps (P) Ltd held that when assessee was compelled to park a part of its fund in fixed deposit under the insistence of the financial institutions, the income received there upon cannot be termed as income from other sources. In our case the interest burden on assessee- company would have reduced if subsidy was directly credited to prove this we are attaching herewith bank statement and ledger of interest received and interest paid.

However, the assessing officer, rejected the contention of the assessee and noted that as per the provisions of section 80IB(11) of the Act, the income derived from the business of setting up and operating a cold chain facility is eligible for deduction and as held in the various judicial pronouncements, the expression "derived from" in section 801B(11) envisages a direct or first degree connection of the income eligible for deduction with the corresponding business of the assessee of setting up and operating a cold chain facility. This well settled test is applicable in the present case and the interest of Rs.22,42,842/- earned by the assessee during the year under consideration on Bank deposits, IT refund etc, which cannot be held to be eligible for deduction under section 80IB(11) of the Act. Therefore, assessing officer denied the deduction under section 801B(11) of the Act.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the assessing officer, therefore, assessee is in further appeal before this Tribunal.

At the outset itself, the ld. Counsel for the assessee argued that Assessing Officer, did not apply his mind in a right perspective. The assessing officer made an addition of Rs. 22,36,757/-, treating the same, as income from other sources and disallowed the deduction u/s 80-IB of the Act, without considering the fact that the said fixed deposits were mandatorily created in compliance with the conditions laid down by the Ministry of Horticulture for availing subsidy towards development of the specified business activity. Hence, interest received on fixed deposit made as per the conditions of the Ministry of Horticulture, should be allowed as deduction under section 80-IB of the Act.

On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee submitted before the Bench, the sanction letter of the subsidy, wherein the conditions are mentioned that the subsidy should be parked in the fixed deposit. The said sanction letter of the subsidy is reproduced below:

It is vivid from the above sanction letter of the subsidy that the fixed deposit was not done as part of investment or savings, but it was mandatory in relation to the government, bank, and RBI norms for availing subsidy. The subsidy received from government was not directly credited to loan account but was transferred to fixed deposit account. At this juncture, it is appropriate to refer the charging section 56 of the Act, for income from other sources, which reads as under: “56(2)(id) income by way of interest on securities, if the income is not chargeable to income tax under head "profits and gains of business or profession". Therefore, I note that the said fixed deposit relates to subsidy and thus interest on it shall be considered as income chargeable under the head “profits and gains of business or profession” and not under the head “income from other sources”. If the subsidy was directly credited to loan account it would have reduced the burden of interest on the assessee- company, which not being the case the company earned interest which was shown as income and as expense the whole loan interest was debited to profit and loss account. Therefore, it is income chargeable under the head income from profits and gains of business or profession. Section 80-IB of the income tax Act reads as where the gross total income of an assessee includes any profits and gains derived from any business referred to in subsection (3) to (11), (11A) & (11B) of the Act. The Bombay high court in the case of TEMA Exchangers Manufactures (P) Ltd has rightly drawn the difference between the section 80-IA and 80HH stating that in the erstwhile section 80HH, the word any was not used and has drawn an inference that deduction under section 80-IA of the Act was to be extended to the income earned by the tax payer on the fixed deposit from bank, the high court in this case relied on the decision on Delhi High court in the case of Eltek SGS (P) Ltd, [2008] 169 Taxman 283 (Delhi).Similarly, the Hon’ble Gujarat high court in the case of Empire Pumps (P) Ltd, 54 taxmann.com 317 (Gujarat),held that when assessee was compelled to park a part of its fund in fixed deposit under the insistence of the financial institutions, the income received there upon cannot be termed as income from other sources. In assessee’s case, the interest burden on assessee company would have reduced if subsidy was directly credited to loan account and to prove this fact the assessee submitted bank statement and ledger of interest received and interest paid, before the Bench. 11. Therefore, I note that the assessee has received capital subsidy from the Government and said subsidy was through Banking Channel, and credited in the loan account as per terms and conditions of the sanction letter of the subsidy.Accordingly, the subsidy was, by way of fixed deposit, parked in the bank account, as per terms and conditions of the sanction letter of the subsidy, therefore, such fixed deposit of subsidy amount is not part of investment and saving plan of the assessee. Besides, I note that interest on saving bank account Rs. 3790/- was wrongly added by the assessing officer, as the assessee company, does not have saving bank account in its name. Therefore, I delete the same. Apart from this assessee has not claimed deduction on account of refund of interest on income tax refund Rs. 2295/-, hence, I delete the same. Hence, the interest received on the fixed deposit, is the business income and eligible for deduction u/s. 80IB(11) of the Act. Based on these facts and circumstances, I direct the assessing officer, to allow the deduction under section 80IB(11) of the Act, to the tune of Rs.22,36,757/-.

In the result, the appeal of the assessee is allowed.