COMMISSIONER OF INCOME TAX, vs. M/S CERAMICS INDIA,

ITA 18/2010 BEFORE HON’BLE THE CHIEF JUSTICE MR. A.K. GOEL HON’BLE MRS. JUSTICE ANIMA HAZARIKA This appeal has been preferred by the Revenue under Section 260A of the Income T ax Act, 1961 against order dated 19.03.2010 passed by the Income Tax Appellate T ribunal, Guwahati Bench, Guwahati in ITA No.92(Gau)/2008 for the assessment year 2004-05 raising following substantial question of law:- Whether on the facts and in the circumstances of the case, the Tribunal was jus tified in holding that transport subsidy received by the Respondent is allowable for computation of deduction u/s 80IB of the Income Tax Act, 1961?  The assessee is an industrial undertaking engaged in the business of manufacture and sale of Fire Brick and Fire Clay. In its return for the assessment year in question, the assessee claimed deduction under Section 80IB of the Act with rega rd to the amount received by it towards transport subsidy. The Assessing Officer disallowed the same on the ground that the subsidy received was not income der ived from  the industrial undertaking and was thus not eligible for deduction un der Section 80IB. The said view was upheld by the CIT (A) as an appellate author ity. On further appeal, the Tribunal upheld the plea of the assessee holding that the subsidy received was attributable to  the business of the assessee and had dir ect nexus with its profit or loss. The subsidy received reduced expenses resulti ng in profit and the same could be treated to be income derived from  the busin ess of the assessee in terms of Section 80 IB of the Act. Reference was made to the Industrial Policy Document of 1977 which contained the scheme of the subsidy in question. Reliance was placed on its earlier decision dated 19.03.2010 in IT A No. 46/Gau/09 in CIT vs. M/s. Meghalaya Steels Ltd. Therein, the judgment of t he Hon’ble Supreme Court in Liberty India vs. CIT (2009) 317 ITR 218 was disting uished on the ground that the same was per incuriam having not referred to earli er judgments in Sahney Steel and Press Works Ltd. & Ors. Vs. CIT, 228 ITR 253 (S e appears for the assessee. The assessee is proceeded ex-parte. The view taken by the Tribunal in its earlier decision in M/s Meghalaya Steels L td. was considered by this Court in order dated 16.9.2010 in ITA 6/2010. The vie w taken by the Tribunal was reversed.It was held that there was no conflict in l aw laid down in Liberty India to the effect that the receipt by way of subsidy was not income derived from  the business of the assessee for being eligible u nder Section 80 IB and the view taken in Sahney Steels and Press Works & Ors. Vs . CIT, 228 ITR 253(SC) and CIT vs. Raja Ram Maize Products, 251 ITR 427 (SC) whi ch dealt with the question whether the subsidy was revenue receipt or capital re ceipt. Expression attributable to  was wider and covered source of income beyon d the 1st degree while the expression derived from  was narrower and did not co ourt are reproduced below:- 10. In the case before us, there is no dispute that the subsidies granted ar e revenue receipts and have been granted after setting up of the new industries and after commencement of production. In a sense, therefore, as contended by lea rned counsel for the assessee, the transport subsidy would have the effect of re ducing the inward and outward transport costs for the purposes of determining th e cost of production as well as for sales. However, this does not have any direc t nexus with the profits or gains derived by the assessee from its industrial ac tivity - the benefit to the assessee is only ancillary to its industrial activit y. Since the subsidies are not directly relatable to the industrial activity of the assessee, they do not fall within the first degree contemplated by the Act a nd as explained by the Supreme Court in Liberty India.