Liberty India (supra) was a case of non-operational subsidy inasmuch as the subsidy, provided in Liberty India (supra), did not relate to production; whereas the subsidies, in the present set of cases, are operational in nature inasmuch as the subsidies are related to the production of the industrial undertaking concerned.
What crystallizes from the above discussion is that the assessee’s income, with the cost of production being reduced, because of the subsidies received, would obviously rise and, in consequence thereof, the profits earned, and the gains made, by the industrial undertaking concerned would also increase. The profits, so increased, would be part of the gross total income of the assessee as defined under Section 80B of the Act subject to deductions, as provided under Chapter VIA of the Act, which includes deductions under Section 80B as well as 80C. If an assessee becomes eligible for deduction under Section 80IB or 80IC, he will not be liable to pay income tax on the increased profit. Conversely put, the subsidies serve no purpose if he has to pay increased tax on the profits, which he has made, because of the operational subsidies received by him.
Situated thus, there can be no escape from the conclusion that the subsidies, in question, being operational in nature, help the assessee concerned earn profits and the profits, so earned, because of the subsidies, in question, are deductible in terms of the provisions of Section 80IB of the Act.
