1. The Court: The appeal is directed against a judgement and order dated 2 April, 2014 by which the learned Income Tax Appellate Tribunal following its earlier judgement in the case of ACIT, Circle Shillong v. Cement Manufacturing Co. Ltd. held that the assessee was entitled to deduction under Section 80IC treating the transport and interest subsidy as part of the business profit.
2. Aggrieved by the order, the Revenue has come up in appeal.
3. Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgement is contrary to a judgement of this Court in the case of Commissioner Of Income-Tax, West Bengal-Vi v. Ashok Timber Industries. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhyopadhyay submitted that it is not a profit derived from the undertaking. The benefit under Section 80IC could not therefore have been granted.
4. He also relied on a judgement 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.
5. We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgement 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 production. Therefore, the judgement in the case of Liberty India v. Commissioner Of Income Tax has no manner of application. The Supreme Court in the case of Sahney Steel And Press Works Ltd. v. Commissioner of Income Tax, reported in [1997] 228 ITR at page 257 expressed the following views:
“………..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.
In the case before us, payments were made only after the industries have been set up. Payments are not being made for the purpose of setting up of the industries. But the package of incentives were given to the industries to run more profitably for a period of five years from the date of the commencement of production. In other words, a helping hand was being provided to the industries during the early days to enable them to come to a competitive level with other established industries”. (emphasis1 provided)
6. The judgment of this Court in the case of Andaman Timber Industries Ltd. (supra) did not make distinction between operational subsidy and capital subsidy which was laid down by the Apex Court in the Sahney's case. The point was thoroughly considered by the Guwahati High Court in the case of Commissioner Of Income-Tax… v. Meghalaya Steels Ltd.…., reported in [2013] 356 ITR 235 (Gauhati). It was rightly pointed out by the Gauhati High Court that the issue as to whether transport subsidy would have the effect of reducing the cost of transportation was not at all considered by this Court in the case of Andaman Timber Industries Ltd. (supra). Neither the judgment in the case of Andaman Timber Industries Ltd. (supra) nor in the case of Liberty India (supra) has any application to the facts and circumstances of the case in hand. The point raised before the learned Tribunal is really covered by the judgment of the Guwahati High Court in the case of Commissioner Of Income-Tax… v. Meghalaya Steels Ltd.…. (supra) wherein it was held, that where 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 the assessee was entitled to claim deduction either under Section 80-IB or under Section 80-IC on the transport subsidy, interest subsidy, power subsidy and insurance subsidy.
7. We are in full agreement with the views expressed by the Guwahati High Court and of the opinion that the judgment of the learned Tribunal is unexceptionable.
8. The appeal, as such, is dismissed.