PATKAI COAL PRODUCTS PVT. LTD. V. COMMISSIONER OF INCOME TAXES, DIBRUGARH

ITA/27/2011

AI Insights

The case revolves around the appellant company, which engaged in the manufacture of Coke, and claimed a transport subsidy as a deduction under Section 80IA of the Income Tax Act, 1961, for the assessment year 2003-2004. Initially, the Assessing Officer allowed this deduction, but the Revisional Authority later reversed this decision, leading to an appeal to the Income Tax Appellate Tribunal, which upheld the Revisional Authority's decision. The appellant contested this in the present appeal, arguing that the transport subsidy directly reduced the cost of production and thus should be considered as profits derived from the industrial undertaking, making it eligible for deduction under Section 80IA. The court referenced a similar case, Meghalaya Steels Ltd., which supported the appellant's position.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 748213 (HC-ASSAM)
• Appeal Type: Others
• Pronouncement Date: 28-01-2011
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. Meghalaya Steels Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S SHARMA
• Assessee Lawyers: G N SAHEWALLA
• Keywords: Assessment Order; Deduction; Income Tax; Revisional Authority; Transport Subsidy
• Section: 263; 115JB; 80IA; 260A

Judgement Text

"ITA 27/2011 BEFORE HON’BLE MR. JUSTICE I. A. ANSARI HON’BLE DR. (MRS.) JUSTICE INDIRA SHAH JUDGMENT & ORDER (ORAL) (Ansari, J.) This is an appeal under Section 260A of the Income Tax Act, 1961 (hereinafter re ferred to as ’the Act’), against the order, dated 28.01.2011, passed by the lear ned Income Tax Appellate Tribunal, Guwahati Bench, (hereinafter referred to as t he ’learned Tribunal’), in Income Tax Appeal (in short, ’ITA’) No. 130(Gau)/2008 for the assessment year 2003-2004. 2. The appeal has been admitted on the following substantial questions of l aw for determination and decision: Whether, in the facts and in the circumstances of the case, the learned Tribuna l was justified in confirming the order, dated 21.02.2008 of the learned Commiss ioner, Income Tax, Dibrugarh, in exercise of his powers under Section 263 of the Income Tax Act, 1960? 3. We have heard Mr. G.N. Sahewalla, learned Senior counsel, for the assess ee-appellant, and Mr. S. Sharma, learned counsel, for the respondent. 4. The material facts, giving rise to this appeal, may, in brief, be set ou t as under: (i) The appellant is a company incorporated under the Companies Act, 1956, a nd is engaged in manufacture of Coke, etc, in its industrial establishment, whic h has started operating with effect from 11.09.2000. For the assessment year 200 3-2004, the appellant Company submitted its return of income, on 01.12.2003, sho wing its total income as NIL and computed book profit of a sum of Rs. 83,01,890/ - in terms of the provisions of Section 115JB of the Act and deposited a sum of Rs.6,88,470/- as tax payable thereon. In the return, so filed, the appellant Com pany had sought for deduction of its claim of transport subsidy of a sum of Rs.1 ,40,28,313/- . (ii). By order, dated 08.02.2006, the Assessing Officer made his assessment or der agreeing with the return of income and taxable liability as had been indicat ed in the appellant Company’s return by allowing deduction, under Section 80IA, in respect of the amount, which had been, admittedly, received by the appellant Company as transport subsidy. (iii). The assessment order, dated 08.02.2006, was interfered with, on 25.01.20 08, by the Revisional Authority by invoking its power under Section 263 of the A ct and, having examined the case of the appellant Company as well as the assessm ent order, the Revisional Authority directed the Assessing Officer to make asses sment order afresh on the ground that the transport subsidy, which had been rece ived by the industrial undertaking of the appellant Company, was not permissible to be deducted by taking recourse to Section 80IA of the Act. As against the or der, dated 25.01.2008, passed by the Revisional Authority, the appellant Company preferred an appeal, which gave rise to ITA No. 133(Gau)2008. (iv) In course of time, by its order, dated 28.01.2011, the learned T ribunal upheld the revisional order by taking the view that the amount, received by the appellant Company, as transport subsidy, was not deductible under Sectio n 80IA. Aggrieved by the decision of the learned Tribunal, so reached, this appe al has been preferred. 5. While considering the present appeal, it needs to be noted that a Divisi on Bench of this Court, in a recent decision, reached on 29.05.2013, in ITA No.7 /2010 (Commissioner of Income Tax Vs. Meghalaya Steels Ltd.) and other connected appeals, has taken the view that transport subsidy is aimed at reducing the cos t of production of the industrial undertakings covered by transport subsidy Sche me and, thus, there is a first degree nexus between the transport subsidy, on th e one hand, and cost of production, on the other and when cost is reduced, it na turally helps in earning of profit and, at times, higher profits and such profit s and gains ought to be treated to be profits and gains derived from, or derived by, the industrial undertaking concerned. The relevant observations, appearing in this regard, in Meghalaya Steels Ltd. (supra), read as under: 78. From the definition of raw materials and finished goods, embodied in the Transport Subsidy Scheme, 1971, and the details of the Scheme as contained, par ticularly, in Sub-Clause (iv) of Clause 6 of the Scheme shows that in the case o f North-Eastern Region, the Scheme promised that the transport subsidy would be given on the transport costs, between Siliguri and the location of the industria l unit concerned, on the raw materials actually required and used by the qualifi ed industrial unit in its manufacturing programme as may have been approved by t he Government concerned. The Transport Subsidy Scheme, 1971, also promised to ma ke available transport subsidy on finished goods, actually produced by the indus trial unit in accordance with the manufacturing programme approved by the Govern ment concerned. 79. What logically follows from the above discussion is that subsidy, on tra nsportation 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 af fect the cost of production inasmuch as transportation subsidy, on the raw mater ials, was not meant to cover all the raw materials, but only that part or portio n of the raw materials, which was actually required and used by an industrial u nit in its manufacturing programme approved by the Government concerned and, sim ilarly, transport subsidy, on the finished goods, too, help in reduction of the cost of manufacturing of the industrial unit concerned inasmuch as subsidy on tr ansportation of finished goods was promised to be given on the finished goods ac tually produced by the industrial unit in accordance with the manufacturing prog ramme approved by the Government concerned. 80. When the transport subsidy, so received, both, on the transportation of the raw materials as well as transportation of the finished goods, does go to re duce the cost of production of an industrial undertaking, the resultant effect o f such a reduction, on the cost of production, would, obviously, help generate profits and, at times, higher profits. *** *** *** *** *** *** 94. Put shortly, there is an existence of direct nexus between transport su bsidy, on the one hand, and the manufacturing/production activities of industria l undertaking, on the other, stands well established. Unless shown otherwise, t he industrial undertakings, in the present set of appeals, which have been grant ed transport subsidy, are entitled to claim deductions in terms of the direction s of the learned Tribunal. *** *** *** *** *** *** 138. What crystallizes from the above discussion is that the assessee’s incom e, with the cost of production being reduced, because of the subsidies received, would obviously rise and, in consequence thereof, the profits earned, and the g ains made, by the industrial undertaking concerned would also increase. The prof its, so increased, would be part of the gross total income of the assessee as de fined under Section 80B of the Act subject to deductions, as provided under Chap ter VIA of the Act, which includes deductions under Section 80B as well as 80C. If an assessee becomes eligible for deduction under Section 80IB or 80IC, he wil l not be liable to pay income tax on the increased profit. Conversely put, the s ubsidies serve no purpose if he has to pay increased tax on the profits, which h e has made, because of the operational subsidies received by him. 139. Situated thus, there can be no escape from the conclusion that the subsi dies, in question, being operational in nature, help the assessee concerned earn profits and the profits, so earned, because of the subsidies, in question, are deductible in terms of the provisions of Section 80IB of the Act. 6. In view of the decision, so arrived at by this Court, in Meghalaya Steel s Ltd. (supra), there can be no escape from the conclusion that the Revisional A uthority had seriously erred in law in interfering with the assessment order, da ted 08.02.2006, on the ground that the transport subsidy, received by the indust rial undertaking of the appellant Company, could not have been deducted by resor ting to Section 80IA. By its impugned order, dated 28.01.2011, the learned Tribu nal perpetuated the error by agreeing with the views expressed by the Revisional Authority that transport subsidy was not entitled to be deducted in terms of th e provisions of Section 80IA. 7. In the light of the decision, reached in Meghalaya Steels Ltd. (supra), it is clear, if we may reiterate, that the appellant Company was entitled to cla im deduction under Section 80IA of the amount, which had been received by it in the form of transport subsidy and the act of not allowing deduction by the Revis ional Authority and the learned Tribunal constitute grave error warranting inter ference by this Court. 8. In the result and for the reasons discussed above, this appeal succeeds. The impugned order, passed by the learned Tribunal, on 28.01.2011, as well as t he order, dated 25.01.2008, passed by the Revisional Authority, are hereby set a side and the assessment order, dated 08.02.2006, passed by the Assessing Officer , is hereby upheld. 9. With the above observations and directions, this appeal shall stand disp osed of. 10. No order as to costs. "