Graphite India Limited Vs CIT (Calcutta High Court)
The Calcutta High Court considered two substantial questions of law arising in connected appeals.
The first question was whether deduction allowed under Section 80IA of the Income-tax Act should be reduced while computing profits of the business eligible for deduction under Section 80HHC. The appellant submitted that the issue was already covered by the Supreme Court’s decision in Shital Fibers Ltd. v. Commissioner of Income Tax. The Revenue agreed with this submission. Relying on the Supreme Court judgment, the High Court answered the first substantial question of law in the negative and in favour of the assessee.
The second question concerned whether incentive/subsidy received by the assessee in the form of remission of sales tax under the West Bengal Incentive Scheme, 1993 was capital or revenue in nature. The Court noted that the scheme was intended to encourage expansion and modernization of industrial units located in backward areas and that the incentive was directly linked to investment in fixed capital.
The Court applied the “purpose test” laid down by the Supreme Court in CIT v. Ponni Sugars and Chemicals Ltd. and reiterated in CIT v. Shree Balaji Alloys. It also referred to its own decision in PCIT v. Ankit Metal & Power Ltd., which held that subsidies linked to capital investment for industrial development are capital receipts.
