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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
ORDER
Per Shri A.T.Varkey, JM
This is an appeal filed by the revenue against the order of Ld. CIT(A)-8, Kolkata dated 13.06.2016 for AY 2010-11. The revenue has raised the following ground: “
1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the Transport Subsidy, Power subsidy, Central Interest Subsidy, under the Sales Tax rules as Revenue Receipt without bringing into record how the impugned amounts of Rs.1,05,44,903/-, Rs.3,12,920/- and Rs.2,23,776/-, totaling to Rs.1,10,81,559/- had been exactly the same as had been decided by the Hon’ble Supreme Court in the case of Meghalaya Steel Ltd. (Civil Appeal no. 7622 of 2014 dated 09.03.2014). ”
2. Briefly stated facts of the case are that the assessee filed its return of income through e-filing on 20.09.2010 showing nil income after taking the deduction of Rs.1,51,90,403/- u/s. 80IC(b)(iii) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). Assessment was made by AO u/s. 143(3) of the Act whereby he denied the deduction u/s. 80IC of the Act in respect of the following items:
Sl. No. Item Amount (Rs.) (i) Transport Subsidy 1,05,44,903/- (ii) Power Subsidy 3,12,920/- (iii) Central Interest Subsidy 2,23,776/- Digboi Carbon (P) Ltd., AYs- 2010-11 (iv) VAT receivable 69,44,125/- (v) Excise refund 55,61,071/- Total 2,35,86,795/- On appeal, the Ld. CIT(A) allowed the grounds of appeal of assessee on the issue of deduction u/s. 80IC of the Act in respect of transport subsidy, power subsidy, central interest subsidy as revenue receipt totaling to Rs.1,10,81,559/- as per the decision of Hon’ble Supreme Court in the case of Meghalaya Steel Ltd. (Civil Appeal No. 7622 of 2014 dated 09.03.2014). Aggrieved, revenue is in appeal before us.
3. At the outset Ld. Counsel for the assessee brought to our notice that the sole issue is covered by the Coordinate bench decision in assessee’s own case for AY 2012-13 order dated 08.12.2017 wherein the issue under challenge has been considered and the issues are no longer res integra since the Ld. CIT(A) has rightly relied on the decision of Hon’ble Supreme Court in the case of Meghalaya Steel Ltd. (supra) and gave relief to the assessee. We note that the issues are covered in favour of the assessee in its own case for AY 2012-13 order dated 08.12.2017 wherein the Tribunal has held as under:
“6. At the time of hearing of the appeal it was brought to our notice that the Hon’ble Supreme Court in Civil No.7622 of 2014 Judgment dated 09.03.2016 (since reported in 383 ITR 158(SC) has upheld the order of the Hon’ble Gauhati High Court in the case of Meghalaya Steels Ltd 332 ITR 91 (Gau) wherein the question whether deduction u/s. 80IC(2)(a)(iii) of the Act would be available to various kinds of subsidies like transport subsidy, power subsidy, interest subsidy and subsidy in the form of refund of central excise duty was considered and it was held that such deduction on the aforesaid subsidies should be allowed. It was also brought to our notice that CBDT has issued Circular No.39/2016 dated 29.11.2016 whereby they have after taking cognizance of the decision of the Hon’ble Supreme Court referred to above, instructed the officers of the department that subsidies of transport, power and interest given by the Government to the industrial undertakings are receipts which are reimbursed for cost of production relating to manufacture or sale of the products and therefore have a direct nexus with the profits and gains of the industrial undertakings. The department has accordingly directed the officers in the field to allow deduction u/s 80IC of the Act on such receipts also. The said Circular also mentions that appeals filed by the department on the above issue should not be pressed.
We find that this issue has been elaborately dealt with by the Hon’ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd vide order dated 29.05.2013 wherein their lordships had clearly distinguished the decision of the Hon’ble Apex Court in the case of Liberty India case and it is pertinent to go into the operative portion of the Hon’ble Gauhati High Court’s decision in respect of each category of subsidy which is in dispute before us:- 1.Transport Subsidy “88. In the light of what have been discussed above, there can be no escape from the conclusion that transport subsidy was aimed at reducing the cost of production of the industrial undertakings covered Digboi Carbon (P) Ltd., AYs- 2010-11 by transport subsidy Scheme. Thus, there was a first degree nexus between the transport subsidy, on the one hand, and cost of production, on the other. When cost is reduced, it naturally helps in earning of profit and, at times, higher profits. Such profits and gains ought to have been treated, and has rightly been treated, by the learned Tribunal, to be profits and gains derived from, or derived by, the industrial undertaking concerned.
The Revenue, it has been rightly contended by Mr.Agarwalla, learned Senior counsel, has not even attempted to distinguish the decision, in Jai Bhagwan Oil & Flour Mills case (supra), in any manner whatsoever, when this decision makes it more than abundantly clear that transport subsidy goes on to reduce the cost of production of the industrial undertaking leading to earning of profits and making of gains by the industrial undertaking.
Put shortly, there is an existence of direct nexus between transport subsidy, on the one hand, and the manufacturing/production activities of industrial undertaking, on the other, stands well established. Unless shown otherwise, the industrial undertakings, in the present set of appeals, which have been granted transport subsidy, are entitled to claim deductions in terms of the directions of the learned Tribunal.”
Power Subsidy : “ 105. From a combined reading of the two decisions, rendered in Rajaram Maize Products (supra) and Eastern Electro Chemical Industries case (supra), what becomes transparent is that power subsidy is meant to enable a person meet a certain percentage of expenditure on power and is, therefore, revenue in nature. However, though revenue in nature, the fact remains that it helps in not only growth of the industrial undertaking, but also help an industrial undertaking to earn profits and make gains. Such a subsidy, though revenue in nature and taxable accordingly, is nonetheless covered by the provisions embodied in Section 80IB or 80IC, as the case may be.
Situated thus, the principle, deducible from the cases of Sahney Steel & Press Works Ltd’s . case (supra), Rajaram Maize Products’ case (supra) and Eastern Electro Chemical Industries case (supra), is that when a subsidy, granted by Government, is operational in nature, which helps in generation of profits for any industrial undertaking, such a profit is, indeed, covered by the provisions embodied in Section 80IB or 80IC, as the case may be.
We, now, turn to the case of Pancharatna Cement (P) Ltd. (supra), wherein Amitava Roy, J., (as his Lordship, then, was ), has, upon consideration of the subsidy involved, took the view that the amount of subsidy, given by way of assistance or grants by the Government, serves as stimulus to the willing industrial establishments to cater to the growth of the region and, thus, reinforce the eventual income of the business of the undertaking. Though the case of Pancharatna Cement (P.) Ltd. (supra) is, as right pointed out by the learned ASG, arose out of a writ petition and not an appeal under the Act, the fact remains that the law, laid down therein, is relevant in determining the controversy, which is required to be dealt with in this set of appeals. The relevant observations, appearing at para 32, in Pancharatna Cement (P.) Ltd. (supra), is, therefore, quoted below :
…..It cannot be gainsaid that having regard to the layout of investment and income designed for any commercial or business venture, reimbursement of the expenses incurred to whatever extent, would logically contribute to the profits and gains derived from the related enterprise and thus would augment the overall income. The amounts of subsidies as the facts of the case reveal are by way of Government assistance or grants under the schemes to provide stimulus to the willing industrial establishments to cater to the industrial growth in the region and, therefore, the same (subsidy) are aimed necessarily at neutralizing the expenses incurred and thus reinforce the eventual income of the business undertaking.
We respectfully agree with the above observations, made in Pancharatna Cement (P)Ltd. case (supra), and the law laid down therein.”
Digboi Carbon (P) Ltd., AYs- 2010-11 3.Interest Subsidy : “ 112. The facts are, therefore, not in dispute on this aspect. The dispute is : Whether the interest subsidy is payable on non-operational or operational subsidy? If the object of the relevant Scheme is borne in mind, it clearly shows that interest subsidy, having aimed at reducing the interest payable on working capital by an industrial undertaking, helps directly in reducing the cost of manufacturing or production activities and establish thereby direct and first degree nexus between the industrial activities of the assessee-respondents, on the one hand, and the interest subsidy, on the other, received by the assessee-respondents and, in consequence thereof, since interest subsidy results into profits and gains derived from, or derived by, an industrial undertaking, there is no reason as to why such profits and gains, earned by an industrial undertaking on the strength of such a subsidy, namely, interest subsidy, be not allowed to be deducted from the taxable income of the industrial undertaking concerned.”
The Hon’ble Gauhati High Court had distinguished the decision of the Hon’ble Apex Court in Liberty India case as follows:- “ 124. Logically extended, this would mean that there was no relationship or nexus between the export incentive, on the one hand, and manufacturing/production, on the other. DEPB entitlement was based on the artifice of deemed import content of export product and was not even based on actual import content of the export product; whereas, in the cases at hand, the transport subsidy was made available on the raw material actually consumed in the manufacturing process and finished goods, which were actually produced and taken to the existing market for sale and, similarly, power subsidy, interest subsidy, and insurance subsidy are, as already indicated above, made available on the actual amount of the power bill, interest and insurance premium paid by the assessee-respondents concerned the inference, so drawn, gets reinforced from the fact that DEPB entitlement was freely transferable and saleable resulting in profit or loss.
That the case of Liberty India case (supra) is not applicable to the cases at hand is also evident from the fact that the object behind DEPB was to neutralize the incidence of customs duty payment on the import duty of the export product and, hence, the DEPB scheme was not aimed at neutralizing the cost of production; rather, as observed by the Supreme Court, it was an incentive for export and entitlement arose, when export was made and not otherwise.
Most importantly, pointed out the Supreme Court, in Liberty India case (supra), that the Rules do not envisage a refund of an amount ‘ arithmetically equal’ to exemption duty or central excise duty actually paid by an individual importer/manufacturer. This is the striking difference between subsidies on transportation cost, power, interest and insurance, in the cases at hand, on the one hand, and Duty Drawback Scheme, on the other, inasmuch as the subsidies, so provided to the assesses concerned, are arithmetically equivalent to the cost of raw materials actually used in the manufacturing process and the finished goods, which is actually taken to the existing market for sale within and outside the north- eastern region and, similarly, the assessees concerned have the right to receive power subsidy, arising out of power bills paid, or interest subsidy or insurance subsidy, equivalent to the amount paid on interest and insurance respectively. These aspects of DEPB and Duty Drawback Scheme give rise to the inference that the decision, in Liberty India (supra), was rendered, in the light of its own facts, and not for universal application. This inference gets strengthened from the following observations made in Liberty India case (supra) : “ The next question is – what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the Digboi Carbon (P) Ltd., AYs- 2010-11 circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act “ (Emphasis supplied) 128. In short, thus, the DEPB and Duty Drawback Scheme were not, as already indicated above, related to the business of industrial undertaking per se for its manufacturing or production. Entitlement for DEPB or Duty Drawback Scheme arose, when the undertaking decided to export after manufacturing or production and this incentive was restricted only to the export of goods of a specified class. Consequently, if there was no export, there was no incentive from DEPB or Duty Drawback. This apart, DEPB or Duty Drawback Scheme did not provide refund of exemption from Central Excise Duty actually paid.
Thus, the relationship under the DEPB or Duty Drawback Scheme, on the one hand, and the manufacturing or production, on the other , was not proximate and direct. The entitlement was based on the artifice of average amount of duty paid. In the case of transport subsidy, power subsidy and insurance subsidy, the relation between subsidy received, on the one hand, and the profits earned or the gains made, by an industrial undertaking, stand, as already observed at paragraph 127, well established.
Liberty India case (supra), it may be noted, is, thus, an exposition of law on the schemes of DEPB and Duty Drawback Scheme, which relate to export of goods by an industrial undertaking; whereas the Scheme of transport subsidy, interest subsidy, power subsidy and insurance subsidy, is inextricably and directly connected with the reduction of cost of production and manufacturing of an industrial undertaking entitling thereby the eligible industrial undertakings to claim deduction under Section 80IB or 80IC, as the case may be.
The decision, in Liberty India case (supra), is, therefore, not, in our considered view, relevant to the schemes of subsidies at hand.”
The Hon’ble Supreme Court has also confirmed the aforesaid view of the Hon’ble Gauhati High Court. In view of the decision of the Hon’ble Supreme Court on identical issue on the very same subsidy and taking into consideration all the above aspects, we are of the view that the orders of CIT(A) which is in conformity with the decision of the Hon’ble Supreme Court and CBDT Circular referred to above, does not call for any interference. We therefore do not find any merit in the appeal by the revenue. Accordingly the appeal of the revenue is dismissed.” Since the issue raised are squarely covered in favour of the assessee by the aforesaid decision of Tribunal, and since the order of Ld. CIT(A) is by relying on the the Apex Court decision, does not call for interference from our part, we, therefore, do not find any merit in the appeal filed by the revenue. Accordingly, the appeal of revenue is dismissed.
In the result, appeal of the revenue is dismissed.