M/S S.M.LIME INDUSTRIES V. COMMISSIONER OF INCOME TAX,

ITA/13/2011

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. The appellant, engaged in the manufacture of lime, claimed deductions on profits that included transport subsidies and bank interest. The CIT (Appeals) and the Tribunal both upheld the disallowance of these deductions, viewing the transport subsidy as incidental to the business and not directly derived from it. However, the High Court, referencing a previous judgment, found that there is a direct nexus between the subsidies and the profits of the industrial undertaking, thus allowing the appeal.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 761772 (HC-GAUHATI)
• Appeal Type: Others
• Pronouncement Date: 28-01-2011
• 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
• Keywords: Bank interest; Deduction claim; Industrial Undertaking; Manufacturing business; Transport Subsidy
• Section: 147; 148; 143(3); 80IB

Judgement Text

"ITA 13/2011 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.164/Gau/2008. 2. By its order, dated 28.01.2011, 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 28.01.2011, 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, ’ the Act’), the appellant is an industrial undertaking engaged in the business of manufacture of Lime. (ii) The appellant submitted, 28.10.2002, its return of income for the assess ment year 2002-03 on disclosing income as NIL after claiming deduction U/s.80IB of the Act on the profits and gains of Rs.25,12,992/-. The aforesaid amount inc luded Transport subsidy of Rs.11,68,342/- and Bank interest and interest on unse cured loan of Rs.3,50,114/-. (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 28.03.2006. Th e assessment was completed, on 28.11.2007, under Sections 143(3)/147 of the Act on a total income of Rs.15,18,460/-. (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.11,68,342/- Bank interest and interest on unsecured loans Rs. 3,50,114/- Rs.15,18,456/- (v) The Assessing Officer, in his assessment order, dated 28-11-2007, held t hat the said amounts were not a part of profits and gains derived from industria l undertaking. The Assessing Officer accordingly disallowed the appellant’s cla im of deduction under Section 80 IB of the Act in respect of the aforesaid amoun t of Rs.15,18,456/-. (vi) Against the said assessment order, the appellant preferred appeal bef ore the Commissioner of the Income Tax (Appeals), Guwahati, (briefly ’the CIT (A )’, who vide his order, dated 17-03-2008, dismissed the said appeal of the appel lant taking the view that profits and gains, in order to be eligible for deducti on under sub-section (4) of section 80-IB of the Act, have to be derived from in dustrial undertaking. The CIT(A) was of the view that there was no direct nexus between the transport subsidy and the manufacturing business of the undertaking. According to the CIT(A), the source of transport subsidy was Industrial Promoti onal Scheme of the Govt. and therefore, it was only incidental to the business. The CIT(A), therefore, held that the transport subsidy could not be termed as pr ofits and gains derived from manufacturing business of the undertaking eligible under section 80-IB (4) of the Act. The CIT(A) also held that Bank interest was not directly derived from business of industrial undertaking carried on by the a ppellant and could not be held to be eligible for deduction under sub-section (4 ) of section 80-IB of the Act. (vii) 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.164 (Gau) / 2008. The tribunal vide its order dated 28-01-2011 dismissed the appeal of the appellant by holding that deduction was rightly denied under section 80-IB of t he Act taking the view that that transport subsidy was not derived from the busi ness of industrial undertaking and it was only incidental to the business of man ufacturing 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 Tr ibunal, therefore, upheld the order of the CIT(A) and dismissed the said appeal preferred by the appellant. 3. Against the order of the Tribunal the assessee is, in appeal, before us. SUBSTANTIAL QUESTION 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 and bank interest wou ld go on to reduce the expenses incurred under that particular head and the resu ltant profits and gains of the business of Industrial Undertaking would be eligi ble 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 and bank interest inter linked, inter-laced and havi ng a direct nexus with the manufacturing activities of the assessee, which are i nseparable from the expenditure incurred by the assessee on account of transport ation of purchase as well as sales of the business of the assessee are allowable for deduction under 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. Moreover, since the issue of bank interest was not there, it needs to be omitted. 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 f ramed 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 a ppeal preferred by the assessee. 4. 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 . 5. 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 28.01.2011, passed by the learned Tribunal, Guwahati, in ITA No.162/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. 6. No order as to costs. "