Case Law Details
Brief of the Case
The Supreme Court held In the case of CIT vs. M/s Meghalaya Steels Ltd. that the Calcutta High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994], held that transport subsidies were inseparably connected with the business carried on by the assessee. Further Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, judgment dated 15.1.2015 held that the Supreme Court in the case of Sahney Steel and Press Works Ltd. & Others versus Commissioner of Income Tax, reported in [1997] 228 ITR held that 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. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the particular State by making the business of production and sale of goods in the state more profitable. The above judgments have correctly appreciated the legal position. Hence, all subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies and accordingly entitled for deduction u/s 80IB.
Facts of the Case
The respondent is engaged in the business of manufacture of Steel and Ferro Silicon. On 9.10.2014, the Respondent submitted its return of income for the year 2004 2005 disclosing an income of Rs.2, 06,970/- after claiming deduction under Section 80-IB on the profits and gains of business of the respondent’s industrial undertaking. The respondent had received the following amounts on account of subsidies: Transport subsidy – Rs.2, 64, 94,817, Interest subsidy – Rs.2, 14,569 and Power subsidy – Rs.7, 00,000.
The Assessing Officer, in the assessment order, held that the amounts received by the assessee as subsidies were revenue receipts and did not qualify for deduction under Section 80-IB(4) and, accordingly, the respondent’s claim for deduction of an amount of Rs.2,74,09,386/- on account of the three subsidies aforementioned were disallowed.
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