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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
PER:SAKTIJIT DEY.
Cross appeals for assessment year 2006-07 and appeal by the assessee for assessment 2008-09 are directed against two separate orders of CIT (Appeals), Mumbai.
./2011 Assessee’s Appeal for A.Y. 2006–07
In this appeal assesse has raised two effective grounds. Ground no. 1 is on the issue of availability of deduction of u/s 80 IA on the subsidy received. In ground no. 2 assesse has challenged the nature of subsidy, whether capital or revenue.
3. However, at the outset LD. AR under instruction of his client did not wish to press ground no. 2. Accordingly, ground no. 2 is dismissed as not pressed. 4. As far as ground no. 1 is concerned briefly the fact are, the assesse is an individual. He derives income from various sources including from the business of generation of power by wind mills. In course of 3 Rupinder Singh Arora assessment proceedings the assessing officer while verifying the return of income filed by the assesse noticed that the assesse had claimed deduction u/s 80 IA of the Act against the business income shown. On further verification of claim of deduction u/s 80 IA he noticed that the business profit on which assesse had claimed deduction u/s 80 IA included MEDA subsidy of Rs. 20 lakh and Sales Tax entitlement right of Rs. 14,95,000. The assessing officer after examining the details furnished and submissions made by assessee was of the view that Sales Tax incentive and subsidy by MEDA were for encouraging installation of wind energy generation unit in Maharashtra. Referring to the provisions of Section 80 IA and 80 IB the assessing officer observed that the deduction under the said provisions is allowable on the profits derived from the industrial undertaking and it is not sufficient if a commercial connection is established between the profits earned and the industrial undertaking. According to him profits derived from the business of an industrial undertaking would mean, immediate and effective source of income eligible for deduction must be the industrial undertaking itself and not any other source. In view of the above facts the assessing officer observed that Sales Tax incentive and MEDA subsidy cannot be regarded as profit derived from the undertaking. The assessing officer referring to certain judicial precedents ultimately concluded that assessee is not eligible to claim deduction u/s 80 IA on the income 4 Rupinder Singh Arora received on account of Sales Tax incentive and MEDA subsidy. Being aggrieved of the disallowance made the assessee preferred appeal before the CIT (Appeal). Ld. CIT (Appeal) upheld the disallowance made by the assessing officer more or less on identical reasoning relying upon following decision.
Sterling Foods Vs. CIT 237 ITR 579. (SC) 2. Hindustan Liver Ltd Vs. CIT 239 ITR 297.
CIT Vs. Kiran Enterprises 228 CTR 101. (HP) 5. The Ld. AR submitted, income received by way of Sales Tax incentive and subsidy have a direct nexus to the wind mill project set up by the assesse for generation of power. Therefore, he submitted, such income derived being a profit from the business of the industrial undertaking it will be eligible for deduction u/s 80 IA (4) of the Act. Without prejudice to the aforesaid contention the Ld. AR submitted, that the actual subsidy received from MEDA during the year is Rs. 10 lakhs as 50% of the total subsidy received has to be reimbursed to MESDCL. He submitted, if at all deduction claimed by the assesse on account of subsidy has to be disallowed it is to be restricted to Rs. 10 lakh and not 20 lakh.
The Ld. DR on the other hand relied upon the reasoning of the assessing officer of CIT(Appeals).
5 Rupinder Singh Arora
We have heard the parties and perused the materials on record. Undisputedly, the assesee has set up wind mills for generation of power. As per Section 80 IA (4) (iv) an undertaking set up in any part of India for generation or generation and distribution of power within the specified date will be eligible for deduction as provided in the said provision. In fact, the departmental authorities do not also dispute the eligibility of the assesse to claim deduction u/s 80 IA as far as profit derived from the wind mill. However, the dispute is restricted to the amount received by the assesse towards Sales Tax incentive and subsidy from the MEDA. At this stage we must observe that as far as the nature and character of subsidy and Sales Tax incentive, whether capital or revenue, is not a subject of matter of dispute before us as the assesse has preferred not to press such issue as raised in ground no. 2. Therefore, we have to proceed on the footing that Sales Tax incentive and subsidy from MEDA are revenue in nature. That being the case now we have to decide whether the amounts received towards Sales Tax incentive and subsidy are eligible for deduction u/s 80 IA (4). The departmental authorities have rejected assessee’s claim of deduction on the reasoning that such income is not derived from the wind mill business. In this context the departmental authorities have relied upon certain judicial precedents. However, it is worth mentioning in a recent judgment delivered on 9th March 2016 in case of CIT Vs. M/S Meghalaya
6 Rupinder Singh Arora Steel Ltd. in civil appeal no. 7622 of 2014 the honourable Supreme Court after analyzing a number of decisions of the honourable Supreme Court (including those relied upon by AO and CIT (Appeal) as well as different High Courts has observed, if the subsidies received are towards reimbursement of element of cost relating to manufacture and sale of their product, that can certainly be said to have a direct nexus between profit and gains of the industrial undertaking or business, and reimbursement of such subsidy. While dispelling the argument of the department that immediate source of subsidy is the Government and not the business of assesse, the honourable Supreme Court observed, while considering applicability of the provisions contained u/s 80 IB and 80 IC it is to be seen whether the profits and gains are derived from the business. The honourable Supreme Court observed, so long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the subsidies are only in order to reimburse wholly or partially costs actually incurred by the assesse in the manufacturing and selling of its products. It is pertinent to mention here; in the aforesaid judgment the honorable Supreme Court was considering eligibility of deduction u/s 80 IB in relation to Sales Tax incentive as well as various subsidies. While concluding the honourable Supreme Court in paragraph 28 of the judgement observed as under:-
7 Rupinder Singh Arora
It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head "income from other sources".
The ratio laid down as aforesaid was followed by the honourable Apex Court in case of CIT Vs M/S Sri Balaji Alloys civil appeal no. 10061 of 2011. In our considered opinion the assessee’s claim of deduction u/s 80 IA (4) qua the amounts received towards Sales Tax incentive and subsidy has to be considered in the light of the ratio laid down by the honourable Supreme Court in case of CIT Vs. M/S Meghalaya Steels Ltd. (supra). Since the aforesaid decision of the honourable Apex Court was not available before the AO and the CIT appeal, we deem it appropriate to set aside the impugned order of CIT (appeal) and restore the matter
8 Rupinder Singh Arora back to the file of the assessing officer to consider assessee’s claim of deduction u/s 80 IA (4) in the light of the ratio laid down in the decision of the honourable Supreme Court referred to above. We may further observe, the assessing officer must also consider assessee’s claim on the quantum of subsidy actually received from the MSED. It goes without saying the assessing officer must afford reasonable opportunity of being heard to assessee before deciding the issue.
In the result assesse’s is appeal is allowed for statistical purpose. ./2011 Dempartment’s Appeal for A.Y. 2006–07
The registry has pointed out delay of 60 days in filing the appeal by the department. However, in letter dt. 07-10-2011 of the assessing officer, which is placed on record, it is stated that, the date of communication of appeal order has been inadvertently shown as 06-06- 2011 instead of 08-08-2011 in column no. 9 of form 36. In view of the aforesaid clarification of the assessing officer, ignoring the delay pointed out by the registry we proceed to hear the appeal.
This is an appeal by the department against the relief granted by the CIT (Appeal) with reference to assessee’s claim of deduction u/s 80 IA.
9 Rupinder Singh Arora
The Ld. DR fairly submitted that the tax effect on the amount disputed by the department is below the monetary limit of Rs.10 lakh. The Ld. AR also agreed to the aforesaid submission of the Ld. DR. Having heard the parties and perused the materials on record we have noticed that the quantum of dispute in the present appeal of the department is Rs.22,01,897, thereby indicating that the tax effect of such disputed amount is less than the monetary limit of Rs. 10 lakh fixed by the CBDT circular no. 21/2015 dt. 10.12.2015 as far as it relates to filing ofappeal before the Tribunal. In view of the aforesaid, the appeal filed by the department being not maintainable is hereby dismissed. ./2011 Assessee’s Appeal for A.Y. 2008–09
In this appeal the only issue raised by the assesse is in relation to disallowance of deduction claimed u/s 80 IA (4) on the subsidy received from MEDA.
This issue is identical to the issue raised by the assessee in ground no. 1 of ITA 204/Mum/2011. Following our decision while deciding similar issue in ITA 204/Mum/2011 in the earlier part of the order we restore the issue back to the file of the assessing officer with similar direction.
10 Rupinder Singh Arora This appeal is allowed for statistical purpose.
To sum up assessee appeals are allowed for statistical purposes and department’s appeal is dismissed.
Order pronounced in the open Court on10.02.2017