ITAT Bangalore: Power Generation Incentive Eligible for 80-IA Deduction-Direct Nexus with Business Established

Sokke Kaliveerappa Shivaraj Vs ACIT (ITAT Bangalore)

ITAT Bangalore: Power Generation Incentive Eligible for 80-IA Deduction-Direct Nexus with Business Established

In the case of Sokke Kaliveerappa Shivaraj, the Bangalore ITAT held that Generation Based Incentive (GBI) received from the Government is eligible for deduction u/s 80-IA, overturning the AO and CIT(A)’s disallowance.

The key issue was whether ₹25.91 lakh incentive, received based on electricity generation under the GBI scheme, qualifies as “profits derived from” the eligible business.

The AO/CIT(A) had denied deduction relying on SC rulings (Liberty India, Pandian Chemicals, Sterling Foods), arguing that:

• The source of income is the Government scheme,
• Hence it lacks first-degree nexus with business operations.

However, the ITAT held (after detailed analysis of scheme mechanics and case laws across pages 7–9):

• The incentive is directly linked to units of electricity generated and supplied,
• It arises only upon carrying out the core activity of power generation,
• Therefore, it has a direct and inextricable nexus with business operations.

The Tribunal clarified:

• Merely because payment flows through a Government scheme, it does not break the nexus,
• The condition of foregoing accelerated depreciation is only regulatory and does not change the nature of income.

Relying on coordinate bench rulings and principles from Meghalaya Steels, the ITAT concluded that:

• The incentive is not incidental or post-business,
• It is part of operational business income.

Accordingly:

• Deduction u/s 80-IA allowed on GBI,
• Disallowance of ₹25.91 lakh deleted,
• Appeal partly allowed.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

The present by the assessee for the A.Y. 2017-18 is directed against the order passed under section of 250 of the Income Tax Act 1961 (hereafter the Act) dated 2nd September 2025 by the learned Commissioner of Income Tax-Appeal (hereafter- learned CIT-A) at National Faceless Appeal Centre-NFAC.

2. The assessee in the appeal memo has raised as many as 12 grounds of appeal. However, the issues raised therein are interconnected and pertain of disallowances of deduction under section 80-IA of the Act on “Power Generation Incentive”.

3. The facts in brief are that the individual assessee is engaged in the business of wind power generation and claimed deduction u/s 80-IA of the Act. During the assessment proceedings, the AO noticed that the assessee had received an amount of Rs. 25,91,626 as “Power Generation Incentive” under the Generation Based Incentive (GBI) scheme of the Central Government, in addition to income from sale of power. The assessee claimed that such incentive formed part of the business income derived from the eligible undertaking and accordingly included the same for deduction u/s 80-IA of the Act.

4. The AO examined the claim of the assessee and observed that the provisions of section 80-IA of the Act allow deduction only in respect of profits and gains directly derived from the eligible undertaking and not for all receipts connected with the business. The AO relied on the distinction between the expressions “derived from” and “attributable to” as laid down by the Hon’ble Supreme Court in the cases of Cambay Electric Supply Co. Ltd. (113 ITR 84), Sterling Foods (237 ITR 53) and Pandian Chemicals Ltd. (262 ITR 278). It was noted that the term “derived from” has a narrow meaning and requires a direct nexus with the business activity, whereas receipts which are only incidental or arise from external sources do not qualify. Applying the above principle, the AO held that the GBI incentive is not an operational profit arising from the activity of power generation. The source of such income is the scheme of the Central Government and not the business of the assessee. The AO further observed that the incentive is granted subject to certain conditions such as foregoing accelerated depreciation and hence, it is only incidental to the scheme and not directly linked to the generation activity. Accordingly, the AO concluded that the incentive income does not have a direct nexus with the eligible business and therefore, the same does not qualify as profits derived from the undertaking. Hence, the AO held that the assessee’s contention that the incentive forms part of business income is not acceptable. On this basis, the AO reduced the eligible profit for deduction u/s 80-IA by Rs. 25,91,626/- and added the same back to the total income under the head “Profits and Gains of Business or Profession”.

5. The aggrieved assessee preferred an appeal before the learned CIT(A).

6. The assessee before the learned CIT(A) submitted that the incentive is directly linked to the business of power generation. It is granted based on the units of electricity generated and supplied to the grid. Therefore, the incentive has a direct nexus with the core business activity and forms part of business income derived from the eligible undertaking.

6.1 It was further submitted that the incentive is not a lump sum subsidy but is proportionate to the actual power generated. The scheme clearly provides that the incentive is calculated per unit of electricity generated and fed into the grid. Hence, it is intrinsically connected with the operational activity of the business.

6.2 The assessee also explained the object of the GBI Scheme issued by the Ministry of New and Renewable Energy. The scheme was introduced to promote power generation, encourage efficiency, and create a level playing field in the wind energy sector. The incentive is thus intended to supplement the revenue from power generation and cannot be treated as an independent or incidental receipt.

6.3 The assessee argued that the AO erred in holding that the incentive is not derived from business. The AO failed to properly appreciate the scheme document and the fact that the incentive arises only when electricity is generated and supplied. Therefore, there exists a clear and direct nexus between the business activity and the incentive income.

6.4 It was further submitted that the condition of foregoing accelerated depreciation under the scheme does not change the character of the receipt. This condition is only to avoid double benefit and does not mean that the incentive is not related to the business. The AO has wrongly interpreted this aspect.

6.5 The assessee also distinguished the judicial precedents relied upon by the AO such as Sterling Foods(supra), Pandian Chemicals (supra) and Cambay Electric(supra). It was submitted that those decisions were rendered in the context of different provisions and on different facts, where the income did not have a direct nexus with business activity. In the present case, the incentive is directly linked to generation of electricity and hence those decisions are not applicable.

Reliance was placed on judicial precedents including the decision of the Hon’ble Supreme Court in CIT vs. Meghalaya Steels Ltd. reported in 383 ITR 217, wherein it was held that subsidies having a direct nexus with business operations are eligible for deduction. It was submitted that the test of “direct nexus” is satisfied in the present case.

6.6 The assessee also pointed out that section 80-IA uses the expression “profits and gains derived from any business of the undertaking”, which is wider than the expression used in some other sections. Therefore, once the income arises from the business activity itself, the deduction should be allowed.

6.7 In view of the above, the assessee submitted that the power generation incentive is part and parcel of the business income derived from the eligible undertaking and the AO was not justified in disallowing deduction u/s 80-IA of the Act to that extent. The assessee prayed that the disallowance made by the AO be deleted. However, the learned CIT(A) dismissed the argument advanced by the assessee and confirmed the disallowances made by the AO by observing as under:

7.1 The Assessing Officer, in the impugned order passed under section 143(3), has disallowed the claim of deduction under section 80-IA(4) to the extent of Rs. 25,91,626/-, being Generation Based Incentive (GBI) received from the Ministry of New and Renewable Energy. The AO noted that the assessee, engaged in the business of wind power generation, was otherwise eligible under section 80-IA(4). However, the GBI was not regarded as “profits and gains derived from” the eligible business. The AO held that the source of the GBI was the Central Government scheme and not the assessee’s operational activity; that the incentive arose upon fulfilling scheme conditions, including foregoing accelerated depreciation; and that it was only “attributable to” the business, falling outside the restricted expression “derived from” in section 80-IA. The AO relied on the Supreme Court decisions in Cambay Electric Supply Co. Ltd. v. CIT (113 ITR 84), Sterling Foods v. CIT (237 ITR 53), Pandian Chemicals Ltd. v. CIT (262 ITR 278) and Liberty India v. CIT (317 ITR 218) to conclude that the incentive lacked first-degree nexus with the undertaking’s operations.

7.2 The assessee, in written submissions, contended that the GBI was computed entirely on units of electricity generated and fed into the grid, which was the assessee’s primary operational activity. It was argued that section 80-IA used the expression “profits and gains derived from any business referred to in sub-section (4)” and not “derived from the industrial undertaking”, making the scope broader than section 80HH considered in some of the judgments relied upon by the AO. The assessee further submitted that the condition of not claiming accelerated depreciation was merely to avoid double benefits and did not alter the fact that the incentive emanated from the core business. Reliance was placed on Delhi High Court in CIT v. Eltek SGS (P) Ltd. (300 ITR 6), Bombay High Court in CIT v. Jagdishprasad M. Joshi (318 ITR 420) and Supreme Court in CIT v. Meghalaya Steels Ltd. (383 ITR 217) to argue that Government subsidies linked directly to manufacturing or production are eligible for deduction under sections 80-IB/80-IC, and by parity of reasoning, under section 80-IA.

7.3 I have considered the rival contentions, the scheme under which the GBI was granted, and the judicial authorities cited. It is undisputed that the assessee received the amount in question under the “Generation Based Incentive Scheme” framed by the Ministry of New and Renewable Energy, which was introduced to encourage investment in wind power projects by providing Rs. 0.50 per unit of electricity fed into the grid for a specified period, subject inter alia to the condition that the assessee foregoes accelerated depreciation. While the quantum is linked to power generated, the immediate and proximate source of the incentive is the Government policy and scheme notification, not the sale of power itself. The entitlement to receive GBI arises independently of the tariff revenue from the State Electricity Board and is contingent upon compliance with policy stipulations. The Supreme Court in Liberty India (317 ITR 218) has categorically held that incentives under Government schemes, even if relatable to the business, are not “profits derived from” the eligible undertaking where the first-degree nexus is absent. The decision in Meghalaya Steels Ltd. is distinguishable as the subsidies there were reimbursements of specific elements of manufacturing cost, directly reducing expenses of production; in the present case, the GBI is an additional revenue stream over and above the tariff price, flowing from a statutory scheme and not as a reimbursement of cost incurred in generation. Likewise, the decisions in Eltek SGS and Jagdishprasad M. Joshi do not override the binding ratio of the Supreme Court where the statutory language “derived from” has been interpreted narrowly. The condition of foregoing accelerated depreciation reinforces that the payment is an incentive for investment structure choices, not an operational profit from the eligible activity itself.

7.4 On these facts and in view of the law laid down by the Supreme Court in Liberty India and other authorities, I hold that the GBI is not profit or gain “derived from” the eligible business under section 80-IA(4) but is at best income “attributable to” such business. The Assessing Officer was therefore justified in excluding the same from the quantum eligible for deduction. The disallowance of Rs. 25,91,626/- is accordingly confirmed, and these grounds fail.

7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

8. The learned AR before us reiterated the argument advanced before the lower authorities and further places reliance on the decision of coordinate bench of the Tribunal in the case of M/s Menzies Aviation Bobba vs. ACIT in ITA No. 854/Bang/2022 wherein identical facts of the case were involved, and the issue was decided in favour of the assessee. On the other hand, the learned DR strongly supported the orders of the lower authorities. It was submitted that the Generation Based Incentive is not an income derived from the business of power generation but is a policy-driven incentive granted by the Government. The learned DR contended that the immediate source of the income is the Government scheme and not the business activity of the assessee. It was further argued that the condition of foregoing accelerated depreciation clearly demonstrates that the incentive is linked to policy choices and not to operational profits. The learned DR relied on the decisions of the Hon’ble Supreme Court in Liberty India, Pandian Chemicals, and Sterling Foods to contend that such incentives fall outside the ambit of “derived from” and are only “attributable to” the business. Therefore, the action of the AO in excluding the same from eligible profits was justified.

9. We have heard the rival contentions of both the parties and perused the materials available on record. The short issue for our consideration is whether the “Generation Based Incentive (GBI)” of Rs. 25,91,626/- received by the assessee is eligible for deduction u/s 80-IA of the Act.

9.1 It is an undisputed fact that the assessee is engaged in the business of power generation and is otherwise eligible for deduction u/s 80-IA of the Act. The only dispute is with regard to the treatment of the incentive received under the GBI scheme. From the facts on record, we note that the incentive is computed on the basis of units of electricity generated and supplied to the grid. Therefore, the receipt is directly linked with the core activity of the assessee, i.e., generation of power. In our considered view, once the income is intrinsically connected with the business activity and arises only upon carrying out such activity, the same cannot be treated as a separate or independent source of income. The Ld. AO as well as the Ld. CIT(A) have proceeded on the footing that the source of the incentive is the Government scheme and therefore it lacks first-degree nexus with the business. However, we are unable to accept this reasoning in the facts of the present case. Merely because the payment flows through a Government scheme does not automatically disentitle the assessee from claiming deduction, if the receipt is inextricably linked with the business operations.

9.2 We also note that the incentive is not in the nature of a windfall or unrelated subsidy. It is granted only when electricity is generated and fed into the grid and is quantified on such generation. Thus, there exists a direct nexus between the business activity and the receipt. The condition of foregoing accelerated depreciation, in our view, is only a regulatory condition and does not change the character of the receipt.

At this stage, we find that the issue on hand is squarely covered by the decision of the coordinate bench of this Tribunal in the case of M/s Menzies Aviation Bobba vs. ACIT in ITA No. 854/Bang/2022, wherein under similar circumstances, it has been held that incentives having direct nexus with business activity are eligible for deduction. Relevant findings of the coordinate bench are reproduced hereunder:

11. We have considered the rival submissions and perused the material on record. According to the provisions of section 80IA where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any eligible business referred to in sub-section (4) shall be allowed a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years in accordance with and subject to the provisions of this section, be allowed.

12. It is not in dispute that the rental income is part of the business income of the assessee. The main issue for our consideration is whether the rental income earned by the assessee is derived from the cargo business and thereby eligible for deduction u/s.80IA. The concept of “income derived from” in contrast to other related concept like “income attributable to” has been a subject matter of discussion in various decision of the Apex Court. Highlights of some of the principles laid down by these judicial pronouncements are –

(i) Receipts which are incidental to the actual conduct of the business of industrial undertaking yet the same may not fall within the expression of ‘derived from’ – Cambay Electrical Supply Co. Ltd. 113 ITR 84

(ii) The nexus between the income and the industrial undertaking was should be direct and not incidental, otherwise it would not fall within the expression ‘profits derived from industrial undertaking’ – Sterling Foods 237 ITR 53 (SC) & Pandian Chemicals Ltd. 262 ITR 278(SC)

(iii) When Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives but what attracts the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). – Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC)

(iv) The words “derived from” are narrower in connotation as compared to the words “attributable to”. – Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC)

(v) By using the expression “derived from”, Parliament intended to cover sources not beyond the first degree from where the profit/income is generated. – Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC) (vi) There should be direct and proximate connection between carrying on business and the income earned – Vellore Electric Corpn. Ltd. v. CIT [1997] 93 Taxman 401/227 ITR 557 (SC)

13. The Hon’ble Supreme Court in the case of CIT(A) vs Meghalaya Steels Ltd [2016] 67 taxmann.com158 (SC) has discussed all these principles while deciding whether the subsidy received by the assessee is eligible for deduction u/s.80IB/80IC. Before proceeding further to consider the merits of assessee’s case it is relevant to reproduce the extracts from the decision of this case where it is held that –

“17. An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Co. Ltd.’s case (supra) this Court held that since an expression of wider import had been used, namely “attributable to” instead of “derived from”, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression “attributable to”. Since we are directly concerned with the expression “derived from”, this judgment is relevant only insofar as it makes a distinction between the expression “derived from”, as being something directly from, as opposed to “attributable to”, which can be said to include something which is indirect as well.

18. The judgment in Sterling Foods case (supra) lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export. On an application of the aforesaid test to the facts of the present case, it can be said that as all the four 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. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80- IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The “profits and gains” spoken of by Sections 80-IB and 80- IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned.

19. Similarly, the judgment in Pandian Chemicals Ltd.’s case (supra) is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee.

20. Liberty India’s case (supra) being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself.

21. The Calcutta High Court in Merinoply & Chemicals Ltd. v. CIT [1994] 209 ITR 508, held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:—

“We do not find any perversity in the Tribunal’s finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee’s business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error.

22. However, in CIT v. Andaman Timber Industries Ltd., [2000] 242 ITR 204/109 Taxman 135 (Cal.), the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in Cement Mfg Co. Ltd.’s case (supra) by a judgment dated 15.1.2015, distinguished the judgment in Andaman Timber Industries Ltd.’s case (supra) and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held:

‘Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in [2000] 242 ITR 204/109 Taxman 135 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking.

Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted.

He also relied on a judgment of the Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking.

We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. But, we are concerned in this case with the transport and interest subsidy which has a direct nexus with the manufacturing activity inasmuch as these subsidies go to reduce the cost of production. Therefore, the judgment in the case of Liberty India v. Commissioner of Income Tax has no manner of application. The Supreme Court in the case of Sahney Steel and Press Works Ltd. & Others versus Commissioner of Income Tax, reported in [1997] 228 ITR at page 257 expressed the following views:—

“. . . . . Similarly, 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. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable.’

23. We are of the view that the judgment in Merinoply & Chemicals Ltd.’s case (supra) and the recent judgment of the Calcutta High Court have correctly appreciated the legal position.

24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan Oil and Flour Mills’ case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under

“The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas.

The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other north-eastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable.” (Paras 14 and 15)

25. The decision in Sahney Steel and Press Works Ltd.’s case (supra) dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee.

26. We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in our judgment based on the said principle.

27. A Delhi High Court judgment was also cited before us being Dharam Pal Prem Chand Ltd.’s case (supra) from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was held that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under Section 80-IB of the Act.

28. ***

29. For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods (supra) and Liberty India’s cases (supra) to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove.

30. All the aforesaid appeals are, therefore, dismissed with no order as to costs.”

14. From the plain reading of the above judicial pronouncement of Hon’ble Supreme Court, it can be said that so long as profits and gains emanate directly from the business itself and that income earned is inseparably connected with the business carried on by the assessee the assessee would be eligible to get a deduction u/s.80IA.

15. The assessee has entered into a Service Providers Right Holders Agreement (SPRH) with Bangalore International Airport Limited whereby the assessee is required to provide seamless cargo handling services on a 365 * 7 *24 basis without any material interruptions during the term of the agreement. Schedule A of the agreement provides description of the cargo services as extracted below –

********

16. From the above it is clear that providing cargo service as agreed between the assessee and BIAL includes cargo handling services, mailing services, post office mail services etc. We notice from the perusal of records that the assessee has entered into License Agreement for using of the space in the Cargo Terminal operated by the assessee with Cargo Handling Agents, Airlines, Banks, Post Office etc. The list of licensee from whom the assessee has received the rental income is given page 120 to 123 of paper book. In our view therefore the service commitment by the assessee to BIAL is directly related to the services provided by the licensees who have taken the space in the cargo terminal. We also see merit in the argument that in order to meet the requirement of cargo services 365* 7*24, it is essential for the licensees’ to operate within the cargo terminal so that the assessee can provide uninterrupted cargo service as committed to BIAL. From the perusal of the various terms of the sample agreements entered by the assessee with the licensees (page 124 to 156 of paper book) it is noticed that the licensees’ cannot use the facility for any purpose other than for supporting the cargo services. Renting of the space is an integral part of the cargo business of the assessee since the licensees are using the space to render services which are committed by the assessee to BIAL as part of Cargo services. In view of these discussions, we are of the considered view that the rental income is inseparably connected with the business carried on by the assessee and emanate directly from the business of the undertaking. Accordingly we hold that the rental income derived by the assessee from Cargo Agents, Airlines, Banks etc., is derived from the cargo business and eligible for deduction u/s. 80IA. The addition is deleted.

9.3 Respectfully following the above decision of the coordinate bench, we hold that the incentive received by the assessee, being directly linked with the business activity, partakes the character of business income derived from the eligible undertaking.

9.4 The reliance placed by the lower authorities on the decisions of the Hon’ble Supreme Court in the cases of Liberty India, Pandian Chemicals and Sterling Foods, in our view, is distinguishable on facts. In those cases, the receipts were not directly arising from the core business activity. However, in the present case, the incentive is directly linked to the generation of electricity and therefore satisfies the test of nexus. Accordingly, we hold that the assessee is eligible for deduction u/s 80-IA of the Act on the amount of GBI incentive. The disallowance made by the AO and confirmed by the Ld. CIT(A) is hereby deleted.

9.5 As we have decided the main substantive ground and deleted the addition made by the Revenue, we are not inclined to deal with the other issues being alternative grounds, general grounds, consequential in natures. As such, other grounds of appeal are dismissed as infructuous.

10. In the result, the appeal of the assessee is partly allowed.

Order pronounced in court on 16^th day of April, 2026