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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]
Date of hearing: 31.08.2015 Date of pronouncement: 17.09.2015 For the Appellant: Shri B. Mukhopadhyay, JCIT, Sr. DR For the Respondent: Shri S. Jhajharia, FCA ORDER
Per Shri Mahavir Singh, JM:
This appeals by revenue is arising out order of CIT(A), Shillong in appeal No. Shill-80/2007-08 dated 01.11.2011. Assessment was framed by ACIT, Circle-Shilong u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2005-06 vide its order dated 31.12.2007.
The first common issue in this appeal of revenue and the cross objection of assessee is as regards to the order of CIT(A) in allowing the deduction u/s. 80IC of the Act in respect to insurance claim of Rs.9.52 lacs and receipts from sale of salvages from fire of Rs.3,25,988/- and disallowing the claim of deduction u/s. 80IC of the Act on transport subsidy of Rs.95,55,289/- and interest subsidy of Rs.37,715/- on the issue of, whether these incomes are derived from Industrial Undertaking or not. For this, revenue has raised following ground no. 1 and assessee has raised following ground no. 1: Revenue’s ground:
1. That on the facts and in the circumstances in the case, the Ld. CIT(A) has erred in law in allowing deduction u/s. 80IC of the I T Act in respect of Insurance Claim of Rs.9,52,000/- and receipts from sale of salvages from fire of Rs.3,25,988/- by holding that these are income derived from industrial undertakings, without appreciating that these receipts had no nexus or direct link with the industrial activity of the appellant CO 04/K/2013 Meghalaya Sova Ispat Alloys (P) Ltd. AY 2005-06 company and as such, the same did not qualify for deduction under the provisions of section 80IC of the I. T. Act.” Assessee’s ground: “1. For that in view of the facts and circumstances of the case the Ld. CIT(A) erred in not allowing deduction u/s. 80IC on transport subsidy of Rs.95,50,289/- and interest subsidy of Rs.3,77,156/- and in view of the facts and in the circumstances the appellant is fully eligible for deduction u/s. 80IC on the aforesaid sums and in view of the facts and in the circumstances it may kindly be held accordingly.”
Briefly stated facts are that the assessee is engaged in the business of manufacturing of iron and steel products. The assessee Meghalaya Sova Ispat Alloys (P) Ltd. is a Public Limited Co. having its registered office and factory at EPIP, Byrnihat gate No. 6 in Ri-bhoi district, Meghalaya. That the Ministry of Industry, Department of Industrial Policy and promotion, Government of India, declared a special package for North East Region for industrial growth in the industrial backward region on 24th December, 1997, allowing fiscal incentives i.e. Income tax exemption, Central Excise exemption, transport and other subsidies to those new industrial undertakings, where those commencing their commercial production on or after 24th December, 1997 for a period of 10 years. That on the basis of the N. E. Industrial policy, 1997 assessee is registered and incorporated on 10.04.2001 under the Companies Act, 1956 in the State of Meghalaya. That the assessee set up manufacturing units for manufacturing Ferro Silicon and commenced its commercial production on 05.04.2003 as per the assurance given by the Ministry of Industries, Govt. of India and Govt. of Meghalaya duly issued Single Window Agency clearance bearing No. M/Dind/Genl.70/99/130 Dt. 21.03.2001. That the assessee is eligible under the N.E. Industrial Policy 1997 declared by the Govt. of India, Ministry of Industries, New Delhi dated 24th December, 1997 as well as under the Meghalaya Industrial Policy, 1997 and eligible for various fiscal incentives declared under the said Industrial Policies such as Income Tax exemption, Central Excise exemption for a period not exceeding 10 years from the date of commencement of commercial production. Transport subsidy and other state subsidies such as power subsidy, interest subsidy, employment subsidy, Sales Tax exemption and other subsidies allowed by the State Govt. and an Eligibility Certificate under Meghalaya Industrial Policy, 1997 is issued by the Govt. of Meghalaya through Meghalaya Industrial Development Corporation Ltd. Shillong through Eligibility Certificate bearing Ref. No. MIDC (Gen) 368/2001/Pt/III/Registration/3058 Dt.
CO 04/K/2013 Meghalaya Sova Ispat Alloys (P) Ltd. AY 2005-06 04/11/2004. In view of the above, the assessee claimed deduction u/s. 80IC of the Act on the following items: “(i) Transport subsidy Rs. 95,50,289/- (ii) Interest subsidy Rs. 3,77,156/- (iii) Insurance claim Rs. 9,52,000/- (iv) Receipt from sale of salvages from fire Rs. 3,25,988/-“ 4. But the AO has not allowed the claim of deduction and added the same to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of deduction in respect to insurance claim and receipt from sale of salvages from fire at Rs.9.52 lacs and Rs.3,25,988/- by observing in para 6.4 and 6.7 as under: “6.4. I have considered assessee’s submissions. It is seen that the insurance premia have been deducted by the assessee arrived at the profit of the Industrial Undertaking consistently and department has also accepted this treatment in the past. This would mean that the expenses towards insurance premia are relatable to the industrial unit. Therefore, it is only logical that any insurance claim received by the assessee is also treated as income relatable to the industrial unit. Therefore, in my view, the compensation received from the insurance should be treated as income derived from the industrial undertaking and deduction u/s. 80IC should be allowed in respect of the same. 6.7. I have considered the submissions of the A/R. There is no dispute that the miscellaneous income was derived from sale of a by-product generated in the manufacturing process carried on in the industrial unit. Therefore, this income is inextricably linked to the industrial unit. The Assessing Officer’s observation that the product is no longer usable in the production process has no relevance in deciding this issue. Therefore, in my view, the income received from the sale of by-product should be treated as income derived from the industrial undertaking and deduction u/s. 80IC should be allowed in respect of the same.”
But, he disallowed the claim of deduction u/s. 80IC of the Act, on transport subsidy and interest subsidy. Aggrieved against the allowance of deduction, revenue came in appeal and against the disallowance of deduction assessee came in appeal before Tribunal.
We have heard rival submissions and gone through facts and circumstances of the case. We find that this issue is now squarely covered in favour of assessee and against the revenue by the decision of Hon’ble Guwahati High in the case of CIT Vs. Meghalaya Steels Ltd. & Pride Coke Pvt. Ltd. (2013) 356 ITR 235 (Gau), wherein it has been held as under (from Head notes): “Held, that there was clear finding of the Tribunal that there was a direct nexus between the subsidies, on the one hand, and the profits and gains derived by, or derived from, the industrial undertakings concerned. This finding was not purely a finding of fact inasmuch as the finding had been reached on the interpretation of the schemes of CO 04/K/2013 Meghalaya Sova Ispat Alloys (P) Ltd. AY 2005-06 subsidies. The assessee was entitled to claim deduction either under section 80-IB or under section 80-1C on the transport subsidy, interest subsidy, power subsidy and insurance subsidy because: (a) the subsidy on transportation of raw materials as well as finished goods, was promised to be made available to the industrial units concerned in a manner which would directly affect the cost of production inasmuch as the transportation subsidy, on the raw materials, was not meant to cover all the raw materials but only that part or portion of the raw materials, which was actually required and used by an industrial unit in its manufacturing programme approved by the Government concerned and similarly, the transport subsidy, on the finished goods, too, help in reduction of the cost of manufacturing of the industrial unit concerned inasmuch as subsidy on transportation of the finished goods was promised to be given on the finished goods actually produced by the industrial unit in accordance with the manufacturing programme approved by the Government concerned. Thus, it was transparent that there was a direct nexus between the transport subsidy, on the one hand, and the profits earned and gains made, by the industrial undertakings, on the other. Such a direct nexus could not be termed as the first degree nexus between the two, namely, the transport subsidy, on the one hand, and the resultant profits and gains on the other. (b) The Industrial Policy, 1997, as extended by the Industrial Policy of Assam, 2003, provided for power subsidy to be given to eligible industrial units for a period of 5 years from the date of commercial production, the power subsidy being available in the form of reimbursement of fully paid power bills with certain ceiling. When the cost of production is reduced by granting subsidy on electricity charges, it necessarily helps the industry to run more profitably. Here again, a direct nexus between the power subsidy, on the one hand, and the cost of production, on the other stood well established. Consequently, the profits earned and the gains made from the industrial undertakings concerned will amount to profits and gains derived from, or derived by, the industrial undertakings concerned entitling the assessees to claim deduction under section 80-IB or section 80-IC, as the case may be. (c) The scheme of the interest subsidy clearly showed that it reduced the interest payable on working capital advanced to an industrial undertaking by a scheduled bank or Central/State financial institutions. The interest subsidy aimed at reducing the interest payable on working capital by an industrial undertaking helped directly in reducing the cost of manufacturing or production activities and establish thereby direct and the first degree nexus between the industrial activities of the assessee, on the one hand, and the interest subsidy on the other, received by the assessee and, in consequence thereof, since the 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. (d) So far as the insurance subsidy was concerned, it was under the Central Comprehensive Insurance Scheme, 1997. Under the scheme, the insurance premium paid by the eligible industrial units, set up in the North Eastern Region were reimbursed by the nodal insurance company. The insurance subsidy helped in reducing the running cost of the industrial unit concerned establishing thereby direct and first degree nexus between the industrial activities of the assessee concerned, on the one hand, and the subsidy in the form of insurance subsidy, on the other, received by the assessee. The resultant profits and gains, derived from, or derived by, an industrial undertaking, because of the insurance subsidy, had to CO 04/K/2013 Meghalaya Sova Ispat Alloys (P) Ltd. AY 2005-06 be treated as deductible in terms of the provisions of section 80-IB or section 80- IC, as the case may be.”