M/S SUN CALCINATES V. COMMISSIONER OF INCOME TAX,

ITA/12/2011

AI Insights

The case revolves around the denial of a deduction claim under Section 80IB of the Income Tax Act, 1961, by the CIT (Appeals) and the Tribunal, concerning transport subsidies received by the appellant, an industrial undertaking engaged in the manufacture of lime. The primary legal contention was whether the transport subsidy received by the appellant could be considered as profits and gains derived from the industrial undertaking, thus eligible for deduction under Section 80IB. The Tribunal had previously upheld the CIT (Appeals)'s decision, which viewed the transport subsidy as incidental to the business and not directly derived from it. However, the High Court found a direct nexus between the subsidies and the profits of the industrial undertaking, leading to the allowance of the appeal.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 748228 (HC-GUWAHATI)
• Appeal Type: Others
• Pronouncement Date: 13-01-2011
• Assessment Year: misc
• Other Referred Cases: CIT v Meghalaya Steels Limited, reported in 332 ITR 91
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: NOT SPECIFIED IN THE DOCUMENT
• Assessee Lawyers: NOT SPECIFIED IN THE DOCUMENT
• Keywords: Deduction claim; Income tax appeal; Industrial Undertaking; Manufacturing business; Transport Subsidy
• Section: 147; 148; 143(3); 80IB

Judgement Text

"ITA 12/2011 BEFORE THE HON’BLE MR.JUSTICE I.A. ANSARI THE HON’BLE MR. JUSTICE P.K. MUSAHARY Against the order, passed, by the CIT (Appeals), dated 17.03.2008, holding the a ssessee-appellant not entitled to claim, under Section 80IB of the Income Tax Ac t, 1961, (in short, the Act), deduction, on profits and gains of the assessee ma de as a result of transport subsidy received by the assessee, the assessee had preferred an appeal, which had given rise to ITA No.163/Gau/2008. 2. By its order, dated 13.01.2011, the learned Income Tax (Appellate) Tribu nal, Gauhati Bench, dismissed the said appeal by upholding the order, dated 17.0 3.2008, passed by the CIT(A). It is against the order, dated 13.01.2011, passed by the learned Tribunal that this appeal, under Section 260A of the Act, has bee n preferred by the assessee. FACTS OF THE CASE (i) The appellant is an assessee under the Income Tax Act, 1961 (in short, t he Act), the appellant being an industrial undertaking engaged in the business o f manufacture of Lime. (ii) The appellant submitted, on 30.10.2012, its return of income for the ass essment year 2002-03 disclosing income as NIL after claiming deduction under Sec tion 80IB of the Act, on the profits and gains of Rs.1,49,24,426/-. The aforesai d amount included transport subsidy of Rs.75,44,219/- and Bank interest of Rs.20 ,489/-. (iii) The appellant’s case for the said year was re-opened under Section 147 o f the Act and a notice, under section 148 thereof, was issued, on 19-03-2007. Th e assessment was completed, on 03.12.2007, under Sections 143(3)/147 of the Act on a total income of Rs.7564710/- . (iv) During the previous year, relevant to the assessment year under consider ation, the appellant received the following amounts, on account of transport sub sidy and interest:- Transport Subsidy: Rs. 75,44,219/- Bank Interest Rs. 20,489/- Total: Rs. 75,64,708/- (v) The Assessing Officer, in his assessment order, dated 03-12-2007, held t hat the amount, received by the assessee as subsidies, were not a part of profit s and gains derived from industrial undertaking. The Assessing Officer accordin gly disallowed the appellant’s claim of deduction under Section 80 IB of the Act in respect of the aforesaid amount of Rs.75,64,708/-. (vi) Against the said assessment order, the appellant preferred appeal bef ore the Commissioner of the Income Tax (Appeals), Guwahati, (in short, ’the CIT (A)’), who vide his order, dated 17-03-2008, passed for the assessment year 2000 -01 and 2002-03, dismissed the said appeal of the appellant taking the view that profits and gains, in order to be eligible for deduction under sub-section (4) of Section 80-IB of the Act, have to be derived from industrial undertaking. The CIT(A) was of the view that there was no direct nexus between the transport sub sidy and the manufacturing business of the undertaking. According to the CIT(A), the source of transport subsidy was Industrial Promotional Scheme of the Govt. and therefore, it was only incidental to the business. The CIT(A), therefore, he ld that the transport subsidy could not be termed as profits and gains derived f rom manufacturing business of the undertaking eligible under section 80-IB (4) o f the Act. The CIT(A) also held that bank interest was not directly derived from business of industrial undertaking carried on by the appellant and could not be held to be eligible for deduction under sub-section (4) of Section 80-IB of the Act. 3. Aggrieved by the aforesaid order of the CIT(A), the appellant preferred appeal before the Income Tax Appellate Tribunal, Gauhati Bench, Guwahati (briefl y ’the Tribunal’ hereafter). The said appeal was registered as ITA No.163 (Gau) / 2008. The tribunal vide its common order dated 13-01-2011 passed for the asses sment year2001-2002 as well as for the assessment year 2002-2003 dismissed the appeal of the appellant by holding that deduction was rightly denied under secti on 80-IB of the Act taking the view that that transport subsidy was not derived from the business of industrial undertaking and it was only incidental to the bu siness of manufacturing carried on by the appellant. The Tribunal also followed the decision of this Court, in CIT v Meghalaya Steels Limited, reported in 332 ITR 91. The Tribunal, therefore, upheld the order of the CIT(A) and dismissed th e said appeal preferred by the appellant. 4. Against the order of the Tribunal the assessee is, in appeal, before us. SUBSTANTIAL QUESTIONS OF LAW SUBSTANTIAL QUESTION OF LAW FRAMED VIDE ORDER DATED 22.07.2011 1. Whether on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in holding that deduction was rightly denied u nder section 80-IB of the Income Tax Act, 1961 by taking the view that transport subsidy was not derived from the business of industrial undertaking and it was only incidental to the business of manufacturing carried on by the appellant? II. ADDITIONAL SUBSTANTIAL QUESTIONS OF LAW FRAMED VIDE ORDER DATED 10.04.20 13 1. Whether on the facts and circumstances of the case, the learned Tribunal was right in holding that the amount of transport subsidy would go on to reduce the expenses incurred under that particular head and the resultant profits and gains of the business of Industrial Undertaking would be eligible for deduction under Section 80 IB of the Income Tax Act, 1961? 2. If the answer to question No. 1 is in the negative, whether on the facts and in the circumstances of the case, the learned Tribunal was right in holding that the transport subsidy is inter linked, inter-laced and having a direct nex us with the manufacturing activities of the assessee, which is inseparable from the expenditure incurred by the assessee on account of transportation of purchas e as well as sales of the business of the assessee is allowable for deduction un der Section 80 IB? III. 1. Out of two substantial questions of law framed vide order dated 10.04.2013, the question no. 1 needs a slight correction in view of the fact tha t this appeal has been preferred by the assessee. For the convenience of the Hon ’ble Court, the corrected question no. 1 shall be as follows: - Whether on the facts and circumstances of the case, the learned Tribunal was ri ght in holding that the amount of transport subsidy would not go on to reduce th e expenses incurred under that particular head and the resultant profits and gai ns of the business of Industrial Undertaking would be eligible for deduction und er Section 80-IB of the Income Tax Act, 1961? 2. The question no. 2 has been inadvertently included in this appeal as it was framed alongwith questions in the batch of appeals preferred by the Revenue. The question no. 2, therefore, requires to be excluded as it does not arise in the appeal preferred by the assessee. 5. Since we have already held, by judgment and order, dated 29.05.2013, pas sed, in ITA No.7/2010 and 16/2011, that the learned Tribunal was right in arrivi ng at the finding to the effect that there is proximate and direct nexus between the subsidies, in question, on the one hand, and the profits and gains derived by, or derived from, the industrial undertakings concerned, on the other, and th at profits and gains derived from, or derived by, the industrial undertakings co ncerned are, therefore, deductible in terms of the provisions of Section 80 IB o r 80 IC, as the case may be, it logically follows that the learned Tribunal’s de cision, impugned in the present appeal, which runs contrary to what we have held , as indicated above, cannot, but must be treated as illegal and not sustainable . 6. In the result and for the foregoing reasons, this appeal needs to be all owed and we accordingly allow this appeal. The impugned order, dated 13.01.2011, passed by the learned Tribunal, Guwahati, in ITA No.163/Gau/2008, is hereby set aside, the appeal of the assessee-appellant is hereby allowed, the order, dated 17.03.2008, passed by the CIT (Appeals) is hereby set aside and the claim for d eduction, made by the assessee-appellant, under Section 80IB of the Act, for the assessment year 2002-2003, is hereby allowed. 7. No order as to costs. "