TaxTMI 
TaxTMI 
2010 (6) TMI 378
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....industrial undertaking though it may be 'attributable' to the industrial undertaking?" It would not be out of place to mention that after the amendment made in Section 80-1A by the Finance Act, 1999 w.e.f. 1.4.2000, Section 80-1A was split into two parts and now Section 80-1A applies to undertakings and enterprises engaged in infrastructure development and Section 80-1B applies to other eligible business. The provisions of Section 80-1B are paramateria with Section 80-1A as they previously existed. In the State of Himachal Pradesh there is scarcity of rail net work. A scheme has been framed by the Central Government whereby freight/transport subsidy is provided to the industries set-up in remote areas where rail facilities are not available and some percentage of the transport expenses incurred by the industrial undertakings to transport raw material to the factory and to transport finished goods from their industries is subsidized by the Central Government. The question which arises is whether this freight subsidy is income derived from the business of the industrial undertaking and can be included in the profits eligible for deduction under Section 80-1A. Learned counsel for t....
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....Calcutta High Court was whether transport subsidies were inseparably connected with the business carried on by the assessee or not. In that case 50% of the transportation cost of raw material and finished goods was paid to the new Units set up in the backward areas. The Court held as follows: "All in all, the payment of transport subsidies are meant to augment the profit and make the industry viable economically. 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....
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.... which arose was whether the receipts from the sale of import entitlements were eligible for relief under Section 80HH. The assessee was engaged in the business of processing prawns and other sea food which it exported. Due to export of items of its products it earned some import entitlements granted by the Central Government under the Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. The assessee sold the import entitlements. The question before the Apex court was whether the amount received for sale of import entitlement was income derived from business. The Apex Court held as follows: "We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government where under the export entitlements become available. There must be, for the application of the words "derived from," a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial ....
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....by the Government under the Scheme. Though it is incidental to the activities of the assessee, the source is the Government. Any aid or assistance by the Government to a particular type of industry cannot be treated as profit derived from the industrial undertaking." It would however be pertinent to mention that the Calcutta High court has not noted its earlier Division Bench decision in Merinoply's case. The Punjab and Haryana High Court in two cases, Liberty India vs. Commissioner of Income-tax, (2007) 293 ITR 520 & Commissioner of Income-tax vs. Five Star Rugs, (1007) 293 ITR 553, was dealing with the question as to whether duty drawbacks received by an assessee could be said to be derived from the profits and gains of the industrial undertaking. Following the judgment of the Apex Court in Sterling Foods case , the Punjab and Haryana High Court held that the income of the assessee from duty draw back cannot be said to be income derived from specified business. It also held that there was no difference between the income derived from duty draw back and the income derived from sale or of import entitlements. However, the Gujarat High Court has taken a different view in Commissi....
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....r se will not attract Section 80-IB(6). It is the profits arising from the business of a ship which attracts sub-section (6). In other words, deduction under sub-section (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentives and investment linked tax incentives. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-sections (3) to (11A) [as they stood at the relevant time]. One more aspect needs to be highlighted. Each of the eligible business in subsections (3) to (11A) constitutes a stand-alone item in the matter of computation of profits. That is the reason why the concept of "Segment Reporting" stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). 14. Analysing Chapter VI-A, we find that Sections 80-IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for "computation of profits of the eligible business". It is evide....