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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRASHANT MAHARISHI, AM ITA No. 2439/Mum/2011 (Assessment Year 2003-04) Dy. Commissioner of Income Tata Chemicals Limited Tax 2(3), Bombay House Aayakar Bhavan, Fort, Vs. M.K. Road, Mumbai-400 001 Mumbai-400 020 (Respondent) (Appellant) PAN No. AAACT4059M Appellant by : Shri Nitesh Joshi, AR Respondent by : Shri Milind Chavan, DR Date of hearing: 20.12.2021 Date of pronouncement : 16.02.2022
O R D E R PER PRASHANT MAHARISHI, AM:
This appeal is recalled by order of the coordinate bench in Miscellaneous Application number 136/M/2021 in ITA number 2439/M/2011 for assessment year 2003 – 04 passed on 17/9/2021 wherein as per paragraph number 12 it has been held that additional ground raised by the assessee number 3 with respect to the taxability of sales tax incentive whether is an income chargeable to tax and, if yes, whether same is eligible for deduction u/s 80 IB of the income tax act as well as part of ground number 5 whether the fertilizer subsidy provided by the government as per price concession was an
Therefore now the grounds remain to be adjudicated are as Under:-
The learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of deduction under section 80(IB) of ₹25,31,96,667/-, in respect of the fertilizer unit of Haldia:
a. Without going through the detailed submissions made,
b. Holding that the Sales Tax Incentive Scheme does not have a direct nexus with the activities of the industrial unit;
c. Holding that the Fertilizer subsidy provided by the government as price concession was not income from the industrial undertaking and therefore not eligible for deduction u/s 80(IB).‖
The additional ground number 3 raised originally is as Under:-
―3. That the sales tax incentive money of ₹ 33,061,201/– being the amount retained by the
Facts shows that for the impugned assessment year, Hindustan Lever chemicals Ltd was amalgamated with the assessee i.e. Tata chemicals Ltd. The effective date of amalgamation was 1 June 2004 and the appointed date was 1 April 2002. Based on this the assessee filed revised return of income wherein the claim u/s 80 IB, was not made but , disclosure was made that the same will be claimed at the time of assessment. During the course of assessment proceedings letter dated 30 November 2005 was submitted claiming deduction u/s 80 IB of ₹ 75,959,000 at the rate of 30% of the profit. This was the fourth year of tax holiday period. Audit report in form number 10 CCB was also filed. Ld AO denied the deduction.
The learned CIT – A as per the history of assessment year 2002 – 03 in case of Hindustan Lever chemicals Ltd noted that the Sales tax remission and price concession (subsidy) forming part of 80 IB claim were rejected by the assessing Officer in that year and therefore for the year sales tax remission of ₹ 3.31 crores and price concession subsidy of Rs 105.40 crores which have been included in the computation of claim u/s 80 IB of the act were rejected. Accordingly the 80 IB profit as
Based on the above facts the assessee is aggrieved that the Sales tax remission of ₹ 3.31 crores and fertilizer price concession from government of Rs 105.40 crores should be included as an eligible income for deduction u/s 80 IB of the act.
The coordinate bench Per its order dated 19/2/2021 dealt with the [5] ground of appeal as per para number 16 wherein assessee challenged the exclusion of fertilizer subsidy provided by the government is a price concession held to be not an eligible income from the industrial undertaking and also as per ground number (b) the sales tax incentive holding that it does not have a direct nexus with the activities of the industrial unit.
Assessee also raised additional ground with respect to the taxability of sales tax incentive money of ₹ 33,061,201/–
Coordinate bench decided ground no [5] and additional ground of sales tax remission not an income as under :-
―16. The 5th ground of appeal
The Ld. CIT(A) erred in upholding the disallowance of deduction u/s 80(IB) of ₹ 25,31,96,667/-, in respect of the fertilizer unit of Haldia:
a. without going through the detailed submissions made,
c. holding that the Fertilizer Subsidy provided by the government as price concession was not income from the industrial undertaking and therefore not eligible for deduction u/s 80 (IB).
The assessee has also filed and additional ground, which reads as under:
―That the Sales Tax Incentive money of ₹ 3,30,61,201/- being the amount retained by the company in accordance with section 41 of the West Bengal Sales Tax Act, 1944 (read with The West Bengal Incentive Scheme, 1999), was a capital receipt not chargeable to tax under the Income Tax Act.‖
As the above additional ground does not require investigation of additional facts and as it goes to the root of the matter, we admit it for adjudication by following the decision of the Hon‘ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra).
The AO noted that for the impugned assessment year, Hind Lever Chemicals Ltd. (HLCL) (since amalgamated with the assessee) filed its return of income on 28.11.2003, claiming a refund of ₹ 2.87 crores. In the
The AO having gone through the assessment records of AY 2002-03 of HLCL (earlier assessment year) noted that sales tax remission and price concession (subsidy) forming part of section 80IB claimed were rejected by the AO in that year. Observing that during year under consideration, both the items i.e. sales tax remission of ₹ 3.31 crores and price concession (subsidy) of ₹ 105.40 crores have been included in the computation of claim u/s 80IB of the Act, the AO disallowed the above sums by following the order of his predecessor for the earlier assessment year.
In appeal, the Ld. CIT (A) held that sales tax remission/subsidy has been received on account of the scheme of the Government for setting up the industrial unit in the ‗backward district‘; this finding is supported by the fact that the old unit was not in receipt of any such incentive; it is not the industrial unit from which this benefit was derived by the appellant but the Government scheme allowing such benefit depending upon the location of industry. Therefore, he held that there is merit in the finding of the AO that the remission/reimbursement is not ‗derived from the business of‘ the industrial undertaking. The Ld. CIT(A) in agreement with the AO relied on the decision of the Hon‘ble Supreme Court in Andaman
In respect of fertilizer subsidy, the Ld. CIT(A) agreed with the findings of the AO that the selling price of the fertilizer in AY 2002-03 was much less than the MRP and that in case of DAP, while the MRP fixed by the Government was ₹ 9,350/- per metric ton, the selling price of the assessee was only ₹ 8,458/- per metric ton; the assessee was not able to sell the product at MRP fixed by the Government; also as noted by the AO as against pre-1994 when the price concessions were computed separately for individual units, now said concessions were being given uniformly to all the units in respect of similar variety of fertilizer and this also reflected that the concession by the Government was merely an aid to the assessee.
Further dismissing the contentions of the assessee that the fertilizer concessions being related to the sale of fertilizer products flew directly from the operations of the industrial undertaking, the Ld. CIT(A) observed that the concessions being received from the Government is a
Further dismissing the contentions of the assessee that the terms ‗profits and gains derived from any business‘ is wide enough to cover profits having indirect nexus with the industrial undertaking, the Ld. CIT(A) observed that the income from fertilizer concession is clearly relatable only to the Government scheme and not to the industrial undertaking per se; the contentions that the incentive provisions should be construed liberally would not mean that the incentives be allowed in respect of ineligible units.
Referring to the order of the AO, wherein the case of M/s Hind Lever chemicals Ltd. (AY 2002-03) is brought out to show how the assessee is not eligible for section 80IB deduction in respect of fertilizer concession/subsidy, the Ld. CIT (A) affirmed the order of the AO disallowing the claim of the assessee of deduction u/s 80IB of the Act.
Before us, the Ld. counsel reiterating the statement of facts filed before the Ld. CIT(A), submits that for the year
Regarding the disallowance made by the AO of Sales Tax remission of ₹ 3.31 crores and price concession (subsidy) of ₹ 105.40 crores, included in the computation of section 80IB claim, the Ld. counsel submits that the sales tax collected is a part of trading receipt as held by the Hon‘ble Supreme Court in the case of Sinclair Murray & Co. Pvt. Ltd. v. CIT 97 ITR 615 (SC) and cannot be excluded from the income of the unit. Further, it is submitted that the fertilizer concession received by the assessee is nothing but part of the sale proceeds, which cannot be excluded while working out profit u/s 80IB of the Act.
On the other hand, the Ld. DR submits that the sales tax remission/subsidy has been received on account of the Scheme of the Government for setting up the industrial unit in ‗backward district‘, hence, it is not the industrial unit from which this benefit was derived by the assessee but the Government‘s Scheme allowing such benefit, depending upon the location of the industry. Thus, it is stated that the Ld. CIT (A) has rightly confirmed the order of the AO.
Regarding the fertilizer subsidy, the Ld. DR submits that the concession by the Government was merely an aid to the assessee and there is no merit in the contentions of
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below.
As mentioned earlier, it is the contentions of the Ld. counsel that for the year under reference, HLCL (since amalgamated with the assessee) filed its return of income on 28.11.2003 claiming a refund of ₹ 2.87 crores ; in the said return of income, section 80IB claim of ₹ 7.59 crores was made in respect of its 3 new industrial undertakings located in category ―B‖ industrially backward district i.e. in Midnapore, West Bengal; the effective date of
Regarding fertilizer price concession from the Government of ₹ 105.40 crores, it is the contentions of the assessee that to support industries, certain portion of price is reimbursed by Central Government in the name of fertilizer concession ; while selling the fertilizer, the assessee-company recovers part cost from farmers and part cost through Government by way of concession; the subsidy is related to the business activity of the assessee as the subsidy claim arises only upon sale of the fertilizer to the farmers ; the subsidy is nothing but a difference between cost of sales and MRP indicated by the Government; it is the subsidy amount which alone permits the manufacturer, like the present assessee to recover is uncovered cost of production including distribution cost and minimal margin allowed; it is only
In respect of sales tax remission of ₹ 3.31 crores, it is the contentions of the assessee that it sold its products at notified prices and charged sales tax in the invoices ; in the books of accounts, sales tax collected was shown as sales tax incentive and not deposited the Government as per the Industrial Development Policy of the State; sales tax remission/subsidy is arising only on account of sales from fertilizers to the farmers, which clearly indicates that the sales tax remission has direct nexus with the activities of the industrial undertaking
Having examined the materials available on record, we find that the AO has not examined in proper perspective the above contentions of the assessee. As the above contentions have a direct bearing on the above ground of appeal, we set aside the order of the Ld. CIT(A) on the above issue and restore the matter to the file of the AO to pass an order afresh on the above 5th ground along with the additional ground raised for the first time before us, after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO. As the matter has
On careful reading of the order of the coordinate bench as above, it is apparent that, as per paragraph number 16 the coordinate bench reproduced ground number 5 and admitted the additional ground as per page number 15 – 16 of the order. In paragraph number 17 the coordinate bench also considered the order of the learned CIT – A wherein it has been categorically held by him that since tax remission and subsidy received on account of the scheme of the government for setting up the industrial unit in the backward district is not derived from the business of the industrial undertaking relying upon the decision of the honourable Supreme Court in case of Andaman timber chemicals Ltd 244 ITR 204 and CIT versus sterling foods 237 ITR 579. Thus, the learned CIT – A held that the Sales tax incentive and the subsidy has its genesis in the scheme of the government and not in the profits derived from the industrial undertaking per se. vide paragraph number 18 the arguments of the learned authorised representative and vide paragraph number 19 the arguments of the learned departmental representative were considered. Thereafter in paragraph number 20, the coordinate bench reached its decision giving the detailed reasons.
The coordinate bench on miscellaneous application filed by the assessee recalled the above order vide paragraph number 12 as under:-
―12. We noted that the facts relating to the issue whether the Sales tax incentive or fertilizer subsidy is capital receipt or a revenue receipt, the adjudication by the tribunal is not there. Hence, without commenting on the facts, we recall the order of the tribunal on this issue and the direct the registry to fix this appeal.‘
The learned authorised representative on the basis of the above order passed by the coordinate bench stated that two issues are required to be decided. The first one with the respect to the sales Tax subsidy, whether the same is income of the assessee or not. The second issue was with respect to the fertilizer subsidy whether, it is derived from eligible business of industrial undertaking, or not and therefore, whether it is eligible for deduction u/s 80 IB of the act or not. It is further claimed that if the Sales tax subsidy is held to be an income, and not capital receipt, then whether such sales tax subsidy is also eligible for deduction u/s 80 IB of the act or
The learned authorised representative referred to the West Bengal incentive scheme 1999 effective for five years from 1/4/1999 – 31/3/2004. He submitted that the above benefits are available to the assessee as the unit of assessee is setup in Midnapore district. He said that according to the scheme the assessee is eligible for sales tax deferment/remission on sale of finished goods for a period of nine years. He submitted the copy of the scheme, which is placed at item number 11 of the paper book. He also submitted that the purpose of the scheme will decide whether the sum is taxable or not. He submitted that once the above sum is held to be not chargeable to income tax, the question of its deduction is eligible and income u/s 80 IB of the income tax act does not arise. To support case of the assessee, he relied on decision of the coordinate bench in case of Bushan steel Ltd 63 taxmann.com 96 (2015), Chaphalkar Bros (2018) 400 ITR 279 (SC), Kirloskar oil engines Ltd (2014) 364 ITR 88 (Bom) and Mapco industries Ltd (2009) 319 ITR 208 (SC).
The learned departmental representative stated that the above issue was not before the learned assessing officer or the learned CIT – Al and therefore it should go back to the learned assessing officer for examination of the claim of the assessee with respect to the exemption/non-chargeability of tax on sales tax remission. He submitted that the purpose and intent
In rejoinder the learned authorised representative submitted that the scheme was available with the CIT – A and therefore now it cannot be set-aside back to the file of the learned lower authorities as the issue may be decided by the coordinate bench.
In the additional ground number 3 by the assessee it is challenged that the sales tax remission benefit derived by the assessee is not chargeable to income tax as it is a capital receipt. We have carefully perused the West Bengal incentive scheme 1999, which is notified on 22 /6/1999 to extend incentive for promotion of industries in the state. The assessee has setup unit in Midnapore district and therefore according to clause number [7] this area was covered under the scheme> According to scheme, assessee has option either to defer the payment of the Sales tax or remission of the Sales tax on sale of finished goods. It is apparent that assessee has opted for the remission of sales tax due for payment by the unit for nine years which is subject to ceiling of 100 % of the gross value of the fixed capital asset of the approved project. On reading of the scheme, it is apparent that it is formulated to extend incentive for promotion of industries in the state.
Accordingly additional ground 3 raised by the assessee is allowed.
With respect to the fertilizer subsidy, whether it is income derived from the industrial undertaking or not, the learned authorised representative submitted that issue is squarely covered in favour of the assessee by the decision of honourable Supreme Court in case of Meghalaya steel Ltd 383 ITR 279 (SC). He also referred to paragraph number 14.4 of the order of the learned CIT – A to show that the fertilizer subsidy is eligible for deduction u/s 80 IB of the income tax act. It was submitted selling price of the fertilizer was much
The learned departmental representative vehemently supported the order of the learned assessing officer and stated that in the earlier years the issue has been decided against the assessee and therefore now the issue has been correctly set- aside by the coordinate bench to the file of the learned assessing officer for verification whether the income from fertilizer subsidy is eligible for deduction u/s 80 IB of the income tax act or not.
We have carefully considered the rival contention and perused orders of the lower authorities. The fact shows fertilizers produced by the appellant are under the retention-pricing scheme. Accordingly, the government decides the maximum retail price and the difference between costs less maximum retail price is paid to the appellant by the way of product subsidy. These are in fact part of the cost recovered from the government and it is directly related to the sale of fertilizer to the farmers. For example, the cost of fertilizer production and its distribution to the manufacturer is ₹ 300 and if it is sold to the farmers at the maximum retail price of ₹ 200 and the balance price of Rs 100/- is recovered from the government by way of the above subsidy. Thus, the manufacturers are paid the above subsidy to enable them to sell the fertilizers at or below the indicated maximum retail price to the farmers. The issue is whether that Rs 100/- received from
We find that now the issue squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of Meghalaya steel (supra) wherein it has been held as Under:-
“9. We have heard learned counsel for the parties. Before embarking on a discussion of the relevant case law, we think it is necessary to set out Sections 80-IB and 80-IC insofar as they are relevant for the determination of the present case.
"80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings
(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub- sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:—
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not
(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing
Explanation 2- Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. (4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking:
Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the
Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years.
Provided also that no deduction under this sub- section shall be allowed for the assessment year beginning on the 1st day of April, 2004 or any subsequent year to any undertaking or enterprise referred to in sub-section (2) of section 80-IC.
Provided also that in the case of an industrial undertaking in the State of Jammu and Kashmir, the provisions of the first proviso shall have effect as if for the figures, letters and words 31st day of March, 2004, the figures, letters and words 31st day of March, 2012 had been substituted:
Provided also that no deduction under this sub- section shall be allowed to an industrial undertaking
"80-IC Special provisions in respect of certain undertakings or enterprises in certain special category States
(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3)."
There is no dispute between the parties that the businesses referred to in Section 80-IB are businesses which are eligible businesses under both the aforesaid Sections. The parties have only locked horns on the meaning of the expression "any profits and gains derived from any business".
The aforesaid provisions were inserted by the Finance Act, 1999 with effect from 1.4.2000. The Finance Minister in his budget speech for the year
"Mr. Speaker, Sir, I am conscious of the fact that, despite all our announcements, the industrial development in North Eastern Region has not come up to our expectations. To give industrialisation a fillip in this area of the country, I propose a 10 year tax holiday for all industries set up in Growth Centres, Industrial Infrastructure Development Corporations, and for other specified industries, in the North Eastern Region. I would urge the industrial entrepreneurs from this part of the country to seize the opportunity and set up modern, high value added manufacturing units in the region."
The reference to the 10 year tax holiday for the industries set up in the North Eastern Region is an obvious reference to the second proviso to sub- section (4) of Section 80-IB set out hereinabove. The speech of a Minister is relevant insofar it gives the background for the introduction of a particular provision in the Income Tax Act. It is not determinative of the construction of the said provision, but gives the reader an idea as to what
"As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of
In CIT v. Sterling Foods [1999] 104 Taxman 204, this Court had to decide whether income derived by the assessee by sale of import entitlements on export being made, was profit and gain derived from the respondent's industrial undertaking under Section 80HH of the Indian Income Tax Act. This Court referred to the judgment in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) and emphasized the difference between the wider expression "attributable to" as contrasted with "derived from". In the course of the judgment, this Court stated that the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Having said this, this Court finally held:—
Similarly, in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) , this Court dealt with the claim for a deduction under Section 80HH of the Act. The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of electricity to the appellant's industrial undertaking should be treated as income derived from the industrial undertaking under Section 80HH.
The sheet anchor of Shri Radhakrishnan's submissions is the judgment of this Court in Liberty India's case (supra). This was a case referring directly to Section 80-IB in which the question was whether DEPB credit or Duty drawback receipt could be said to be in respect of profits and gains derived from an eligible business. This Court first made the distinction between "attributable to" and "derived from" stating that the latter expression is narrower in connotation as compared to the former. This court further went on to state that by using the expression "derived from" Parliament intended to cover sources not beyond the first degree. This Court went on to hold:—
'34. On an analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on
DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports.
An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) this Court held that since an expression of wider import had been used, namely "attributable to" instead of "derived from", the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "attributable to". Since we are directly concerned with the expression "derived from", this judgment is relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well.
20.Liberty India's case (supra) being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed.
The Calcutta High Court in Merinoply & Chemicals Ltd. v. CIT [1994] 209 ITR 508, held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:—
"We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area.
However, in CIT v. Andaman Timber Industries Ltd., [2000] 242 ITR 204/109 Taxman 135 (Cal.), the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in Cement Mfg Co. Ltd.'s case (supra) by a judgment dated 15.1.2015, distinguished the judgment in Andaman Timber Industries Ltd.'s case (supra) and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held:
'Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in [2000] 242 ITR 204/109 Taxman 135 wherein this Court held that transport subsidy is
He also relied on a judgment of the Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking.
We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. But, we are concerned in this case with the transport and interest subsidy which has a direct nexus with the manufacturing activity inasmuch as these subsidies go to reduce the cost of
". . . . . Similarly, subsidy on power was confined to 'power consumed for production'. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable.'
We are of the view that the judgment in Merinoply & Chemicals Ltd.'s case (supra) and the recent judgment of the Calcutta High Court have correctly appreciated the legal position.
"The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas.
The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other north-
The decision in Sahney Steel and Press Works Ltd.'s case (supra) dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee.
We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in our judgment based on the said principle.
A Delhi High Court judgment was also cited before us being Dharam Pal Prem Chand Ltd.'s case (supra) from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was
For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods (supra) and Liberty India's cases (supra) to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove.‖
Hon Supreme court has considered whether various types of subsidies received by the assessee manufacturer are eligible for deduction u/s 80 IB / IC of the act or not. It held hat these subsidies are income derived from business of eligible industrial undertaking . The above decision of the honourable Supreme Court has already considered the other decisions of the honourable Supreme Court which are relied upon by the learned CIT – A. Therefore, based on the ratio laid down by the honourable Supreme Court, assessee is eligible for
In the result additional ground raised by the assessee vide additional ground number 3 and ground number 5 of the appeal is allowed.
In the result, appeal filed by the assessee to the extent recalled is allowed.
Order pronounced in the open court on 16.02.2022.
Sd/- Sd/- ( VIKAS AWASTHY) ( PRASHANT MAHARISHI) (न्याययक सदस्य / JUDICIAL MEMBER) (लेखा सदस्य / ACCOUNTANT MEMBER) Mumbai, Dated: 16.02.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A) 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. BY ORDER, True Copy//
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai