Gauhati High Court Judgments — 2012

The High Court sustained the plea raised on behalf of the respondent-assessee and dismissed the appeal. The Court found that the Revenue could not controvert the correctness of the ITAT's finding regarding the eligibility of the assessee for deduction under Section 80 IC (2)(b)(iii). No relevant legal provision or court decision was cited by the Revenue to construe the interest amount as not derived from the assessee's business. The Court relied on the Supreme Court's decision in Commissioner of Income Tax, Orissa Vs. Govinda Choudhury & Ors., which held that interest awarded for delayed payments under a contract is to be treated as business income and not income from other sources. The Court noted that various High Courts have also held a similar view. Therefore, the interest income was held to be derived from the assessee's undertaking and eligible for deduction under Section 80 IC. The appeal was dismissed as lacking merit.

The Tribunal held that the AO was not justified in computing the book profit under Section 115JB of the Income Tax Act by disregarding the net loss reflected in the audited profit and loss account. The Tribunal relied on Supreme Court judgments in Apollo Tyres Ltd. vs. Commissioner of Income Tax and Malayala Manorama Co. Ltd. vs. Commissioner of Income Tax, and its own High Court decision in Amines and Plasticizers Ltd. vs. Deputy Commissioner of Income Tax. These judgments establish that the AO has limited power to examine audited accounts prepared in accordance with the Companies Act, and cannot go behind the net profit shown therein, except to the extent permitted by the explanation to Section 115JB. The Tribunal noted that the departmental authorities did not establish that the assessee's profit and loss account was not prepared in accordance with Part-II & III of Schedule VI of the Companies Act, 1956. Therefore, the AO's action of ignoring the audited net loss and the corrected return was unjustified. The assessment of MAT was quashed.

The High Court allowed the appeal in favour of the Revenue. It held that the expression 'derived from' in Section 80IB is narrower than 'attributable to'. The Court noted that while the subsidies were revenue receipts and reduced transport costs, they did not have a direct nexus with the profits or gains derived by the assessee from its industrial activity. The benefit was considered ancillary. The Court distinguished the case of CIT vs. Raja Ram Maize Products, stating it dealt with whether the subsidy was a revenue or capital receipt, not the 'derived from' test. The Court followed its own earlier judgment in CIT vs. M/s Meghalaya Steels Limited, which had reversed the ITAT's view and held that transport subsidy and interest subsidy cannot be said to be 'derived from' the industrial undertaking. The Court concluded that the transport subsidy was at best ancillary to the profits and gains relatable to or attributable to the business, but not in the category of profit and gains derived from its industrial activity. The question raised was answered in favour of the Revenue.