TaxTMI 
TaxTMI 
2013 (7) TMI 175
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....indicated above, the learned Tribunal took the view that the assessee-respondents are entitled to claim deduction either under Section 80IB or under Section 80IC of the Act, though the Revenue contends that the assessee-respondents are not entitled to receive, and could not have been legally given, the benefit of deduction either under Section 80IB or under Section 80IC. 2. Whereas, by the impugned order, dated 19.03.2010, the learned Tribunal has dismissed the appeal No. ITA 52/Gau/2009, preferred by the Revenue, by taking the view that the subsidies, namely, transport subsidy, power subsidy, interest subsidy and insurance subsidy, received by the assessee-respondents, would go on to reduce the corresponding expenses incurred and the resultant profit would be the profits and gains of the business of the industrial undertaking, that all these subsidies are inter-linked, inter-laced and having a direct nexus with the manufacturing activities of the assessee which are inseparable from the expenditure incurred by the assessee on account of transportation of purchase as well as sales, power, interest, insurance cover of the business of the assessee and, therefore, there is a direct ....
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....es, received by the assessee concerned, without specifically determining if the deductions were allowable under Section 80IB or under Section 80IC. 5. The substantial questions of law, which have been framed for hearing of the IT Appeal No. 7/2010, are as under:- Substantial Question of law as framed in pursuant to Order dated 08.12.2010 Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that transport subsidy, power subsidy and interest subsidy, received by the respondent, are allowable for computation of deduction under Section 80IB of the Income Tax Act, 1961? Additional Substantial Question of law as framed in pursuant to Order dated 10.04.2013 (1) Whether, on the facts and circumstances of the case, the learned Tribunal was right in holding that the amount of transport subsidy, interest subsidy and power subsidy would go on to reduce the expenses incurred under that particular head and the resultant profits and gains of the business of Industrial Undertaking would be eligible for deduction under Section 80IB of the Income Tax Act, 1961? (2) If the answer to question no.1 is in the negative, whether, on the facts a....
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...., the deductions claimed, in ITA No. 16/2011, were under Section 80IC of the Act. Therefore, as we shall proceed further, it would become transparent that the substantial questions of law, which have been framed in these two appeals, are, in effect, akin to each other. 8. Before entering into the discussion of the merit of the questions, which have been framed, for determination in the present two appeals, it is apposite that the material facts, giving rise to the present two appeals, be taken note of. With this end in view, the material facts, leading to each of these two appeals, are, in brief, set out as under: FACTS OF THE CASE IN ITA No. 7/2010:- (i) The respondent is an assessee under the Act, the respondent being an industrial undertaking engaged in the business of manufacture of Steel and Ferro Silicon. (ii) The respondent submitted, on 19.10.2004, its return of income for the assessment year 2004-2005 disclosing income at Rs. 2,06,970/- after claiming deduction, under Section 80IB of the Act, on the profits and gains of business of the respondent's industrial undertaking. The assessment of the respondent was completed, on 07.12.2006, under Section 143(3) of the....
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....ent year 2006-2007, decided on 19.03.2010. The learned Tribunal held that the subsidies, received by the respondent's industrial undertaking, would go on to reduce the corresponding expenses incurred under those particular heads and the resultant profit would be the profits and gains of the business of the industrial undertaking eligible for deduction under Section 80-IB of the Act. The learned Tribunal further held that all the subsidies were inter-linked, inter-laced and have direct nexus with the manufacturing activities of the assessee-respondent's industrial undertaking. (viii) Against the order, dated 19.03.2010, so passed by the learned Tribunal, the Revenue is, now, in appeal before us. FACTS OF THE CASE IN ITA No. 16/2011 (i) The respondent is an assessee under the Act, the respondent being an industrial undertaking engaged in the business of manufacture of coke products. (ii) The respondent submitted, on 17.11.2006, its return of income for the assessment year 2006-07 disclosing income at Rs. NIL. The assessment of the respondent was completed, on 31.12.2008, under Section 143(3) of the Act, on a total income of Rs. 87,93,230/-. (iii) During the previous ye....
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....icular heads and the resultant profit would be the profits and gains of the business of the industrial undertaking eligible for deduction under Section 80-IC of the Act. The learned Tribunal further held that all the subsidies were inter-linked, inter-laced and have a direct nexus with the manufacturing activities of the respondent's industrial undertaking. (viii) Against the order, dated 19.03.2010, passed by the learned Tribunal, the Revenue is, now, in appeal before us. 9. We have heard Mr. K. P. Pathak, learned Additional Solicitor General, appearing for the appellants. We have also heard Mr. R. P. Agarwalla, learned Senior counsel, for the assessee-respondents. SUBMISSIONS MADE BY THE APPELLANTS: 10. Presenting the case of the appellant, Mr. K.P. Pathak, learned ASG, submits that the crux of the matter, which falls for determination in the present appeals, is: Whether the assessee-respondents herein were entitled to deductions, either under Section 80IB or under Section 80IC of the Act, in the light of the Schemes of the various subsidies formulated by the Government. 11. The object of granting of the subsidies, in the present cases, was, submits the learned ASG....
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....rement, according to Mr. Pathak, learned ASG, is that the profits and gains have to be 'derived from' the industrial undertaking, the profits and gains have to be 'derived by' the industrial undertaking if one has to claim deduction under Section 80IC. Nevertheless, in either case, submits the learned ASG, in order to become entitled to claim deduction of the amount of subsidy, received by an industrial undertaking, the assessee must be able to show a direct nexus between the subsidy received, on the one hand, and the profits and gains of the industrial undertaking concerned, on the other, inasmuch as there is no material distinction, contends the learned ASG, between the phrase, 'derived from' and the phrase, 'derived by' and any attempt to distinguish the meaning of the said two expressions would be an academic exercise with no substantial gain and it is for this reason that the two phrases, namely, 'derived from' and 'derived by', are used interchangeably. 16. What is, however, according to the learned ASG, imperative to show by an assessee, in order to claim deduction, be it under Section 80IB or under Section 80IC, is that the profits and gains have been, as the case may be....
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....R 167, Commissioner of Income Tax Karnal v. Accent for living [2010], reported in 191 Taxman 88, and Pine Packaging (P) Ltd v. CIT, reported in 250 CTR 45, on the controversy if any distinction, between the meaning of the expressions, 'derived from' and 'derived by' really exists. 20. From the decisions referred to above, further submits the learned ASG, it can be safely said that a number of superior judicial authorities have chosen to ignore the word 'from' or 'by', appearing after the word 'derived', while considering the subject-matter involving and/or using the said two expressions. 21. According to the learned ASG, since there is no existing authority or decided case, which establishes any intelligible distinction between the two expressions, namely, 'derived from' and 'derived by, what has to be considered by this Court, in the present appeals, is whether the profits and gains of the industrial undertakings, in question, were 'derived from' or 'derived by' the industrial undertakings concerned and whether the profits and gains, so derived, have a first degree nexus with the subsidies, which were received by the industrial undertakings. In consequence thereof, one can a....
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....TAXMAN 49 (Mag.), Eastman Exports Global Clothing (P) Ltd v. ACIT, reported in [2011] 331 ITR 232, Karnal v. Accent of Living [2010], reported in 191 TAXMAN 88, and M.M. Forgings Ltd v. Addl. CIT [2010], reported in 349 ITR 643, the learned ASG submits that in these cases, the Courts have taken the view that the Duty Drawback is not a profit or gain derived from industrial activity and, hence, Duty Drawback would not be eligible for deduction under Section 80IB. 26. The learned ASG has further pointed out that, in the case of Supriya Gill v. Commissioner of Income Tax [2010], reported in 193 TAXMAN 12, the Himachal Pradesh High Court has held that that freight subsidy, received from the government by the assessee, will not be eligible for deduction, under Section 80-IA of the Act, on the ground that the source of freight subsidy was not the business of the assessee, but a scheme of the Central Government and, therefore, the same could not be treated as a profit 'derived from' business. 27. Pointing out to the case of Sri Umesh M. Joshi, Mumbai v. ITO [ITA No. 4287/Mum/2010, dated 23.12.2011], the learned ASG submits that in this case, the learned Income Tax Appellate Tribunal....
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....duction, neither under Section 80IB nor under Section 80IC, would be available to the assessee concerned. 32. Heavily relying upon the case of Liberty India v. CIT, reported in [2009] 317 ITR 218: (2009) 9 SCC 328, the learned ASG submits that the 'profits and gains' derived from, or derived by, the industrial undertakings of the assessee-respondents, are, in effect, the subsidies provided by the Government and, although the profits and gains of the industrial undertakings concerned may be attributable to the subsidies received by the industrial undertakings concerned, the fact of the matter remains that the subsidies are revenue receipts and are liable to be taxed. 33. The issue, in these appeals, if a subsidy is or is not entitled for deduction under Section 80IB or 80IC has, submits the learned ASG, no longer remained res integra inasmuch as the issue is fully covered by the decision in Liberty India (supra). By referring to the case of Liberty India (supra), the learned ASG submits that, in this case, the issue, which fell for consideration, was: Whether the profit from Duty Entitlement Passbook Scheme and Duty Drawback Scheme could be said to be profit derived from the b....
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....ent cases. It cannot be disputed, according to the learned ASG, that the various kinds of subsidies may flow from Governmental schemes and, therefore, the subject-matter, which was dealt with by the Supreme Court, in Liberty India's case (supra), cannot be distinguished from the cases at hand and that the Liberty India's case (supra) is squarely applicable to the cases at hand inasmuch as the subsidies, in the present cases, cannot but be regarded as non-operational profits, having no direct nexus with the activities of the undertakings of the assessee-respondents. Any argument to the contrary, further submits Mr. Pathak, would be perverse and in breach of Article 141 of the Constitution of India. 37. Assailing the contention of the assessee-respondents, that the subsidies, received by the assessee-respondents, in the present cases, go to reduce the expenditure actually incurred by the industrial unit of the assessee-respondents and, hence, the same ought to be regarded as operational profits, Mr. Pathak submits that this contention of the assessee-respondents cannot hold water on the ground that the classification of a particular receipt, by an industrial unit, is required to b....
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....n 'derived by' would arise only when this Court finds that the nexus, between the subsidies, in question, on the one hand, the manufacturing process/production of the industrial undertaking, on the other, is not direct, or else, the question of distinguishing the expression 'derived by' from the expression 'derived from' would be, contends Mr. Agarwalla, irrelevant. 43. While resisting the appeal, Mr. R.P. Agarwalla, learned Senior counsel, makes it also clear that it is not material, as far as the assessee-respondents are concerned, whether deduction is required to be allowed under Section 80IB or 80IC of the Act for the subsidies, which the assessee-respondents' industrial undertakings have received during the relevant year inasmuch as the assessee-respondents, in either case, according to Mr. Agarwalla, would be entitled to deductions if the assessee-respondents can show that the subsidies, given in the form of transport subsidy, or interest subsidy, or power subsidy, or insurance subsidy, are aimed at reducing the cost of production of the assessee-respondents' industrial undertakings and thereby directly affect the profits and gains made by the industrial undertakings conce....
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....l within the expression 'profits derived from industrial undertaking' appearing in Section 80IB; whereas the present cases are the ones, wherein the subsidies directly affect the cost of production of the industrial undertakings concerned and are inextricably linked to the assessee-respondents' manufacturing activities. 49. Liberty India (supra) is, thus, according to Mr. Agarwalla, an authority for the proposition, which governs the statutory schemes or provisions of DEPB and Duty Drawback inasmuch as the said scheme relate to the export of an industrial undertaking and is not at all an answer to the question of deduction arising in each and every incentive embodied scheme, more particularly, a scheme, which is directly connected with reduction of cost of production/manufacture of an industrial undertaking. By no means, therefore, contends Mr. Agarwalla, learned Senior counsel, Liberty India (supra) can be said to be a decision applicable to the facts of the present case. 50. Referring to the case of Liberty India (supra), Mr. Agarwalla submits that though the Revenue has heavily relied on the decision, in Liberty India (supra), the fact of the matter remains that the chief ....
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....tion of the law on a question when the question did not even fall to be answered in that judgment." 52. The question, points out Mr. Agarwalla, which was raised in Liberty India (supra), was: Whether profit from the Duty Entitlement Passbook Scheme (DEPB) and Duty Drawback Scheme could be said to be profit derived from the business of the industrial undertaking eligible for deduction under section 80-IB of the Income Tax Act, 1961 (1961 Act) ? 53. Thus, the question, in Liberty India (supra), as can be clearly gathered, was, submits Mr. Agarwalla, learned Senior counsel, whether the profits, which were received from Duty Entitlement Passbook Scheme and Duty Drawback Scheme, could be regarded as profits derived from the business of the industrial undertaking and, if so, whether the profits, so derived, were permissible to be deducted under Section 80IB. 54. The Supreme Court, while answering the above question in the negative, pointed out, submits Mr. Agarwalla, that DEPB is an incentive and it is given under Duty Exemption Remission Scheme and that DEPB is not related to the business of industrial undertaking per se for its 'manufacturing or production' inasmuch as DEPB's ....
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.... 228 ITR 253 (SC), this court has observed that the production incentive scheme is different from the scheme giving subsidy for setting up industries in backward areas. In the circumstances, the present case is an example of change of opinion. Therefore, the Department has erred in invoking section 154 of the Act." (Emphasis is added) 57. In the light of the decision, in Mepco Industries Ltd (supra), one can have no escape from the conclusion, submits Mr. Agarwalla, that the nature of subsidy has to be examined by the Court, in each case, in order to determine if an assessee's undertaking is entitled to deduction under Section 80IB or 80IC of the Act. 58. The exact nature and character of transport subsidy, points out Mr. Agarwalla, were examined and considered by the Supreme Court, in Jai Bhagwan Oil & Flour Mills v. Union of India, reported in [2009] 14 SCC 63, and having examined the nature of the transport subsidy, the Supreme Court, in Jai Bhagwan Oil & Flour Mills (supra), laid down, in emphatic words, that transport subsidy was 'not' meant to augment revenue, by levy and collection of tax or duty, rather, the object was to 'improve' trade and commerce between the re....
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....es, in the present cases, entitling the assessee-respondents to receive deductions for the subsidies received. 61. Similarly, submits Mr. Agarwalla, learned counsel for the assessee-respondents, that the issue of power subsidy is directly covered by the decisions, in CIT v. Rajaram Maize Products 251 ITR 427 (SC), and CIT v. Eastern Electro Chemical Industries, reported in (1999) 9 SCC 20, and that the nature and character of interest subsidy and insurance subsidy, being identical to that of power subsidy, interest subsidy and insurance subsidy are also covered by the decisions, in Rajaram Maize Products (supra) and Eastern Electro Chemical Industries (supra). RIVAL CONTENTIONS VIS-À-VIS LEGAL PROPOSITIONS : 62. Shorn off rhetorical legal arguments, compassionate pleas and emotionally surcharged submissions, what surfaces from beneath the mass of materials placed before this Court, by way of pleadings and otherwise, is that there is no dispute, in this set of appeals, that, in order to claim deduction either under Section 80IB or under Section 80IC, an assessee has to establish that there is a direct, intrinsic and first degree nexus between a subsidy, on the one ha....
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.... invoked by an assessee for the purpose of claiming deduction so long as an assessee is entitled to statutory deduction. Consequently, the deduction must be allowed even if an assessee refers to an incorrect statutory provision for claiming deduction. 65. The fact of the matter remains that, in the case at hand, since the subsidies, in question, are claimed to have helped the undertakings in generating profits and making gains by reducing the operational cost of the activities of the industrial undertaking concerned, the statutory provision for deduction, apposite to a case of present nature, is Section 80IC inasmuch as the recipient of the profits and gains, arising out of the subsidies, is, eventually, an industrial undertaking. 66. What is, therefore, required to be decided, in the present set of appeals, is as to whether there is direct nexus between the subsidies, on the one hand, and the manufacturing activities of the industrial undertaking, on the other. If there is a direct nexus between the two, then, the industrial undertaking is, undisputedly, entitled to claim deduction in respect of the profits and gains, if any, made by the industrial undertaking. 67. In ord....
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....pproved by the Government of India and/or Government of the State/Union Territory, where the industrial unit is located. 72. In the present appeals, we are concerned not only with Transport Subsidy Scheme (as embodied in the Industrial Policy announced by Notification, dated 23rd of July, 1971, and extended by Office Memorandum, dated 24.12.1997), but also with subsidy on interest, subsidy on power, and subsidy on insurance. The relevant portion of the Scheme embodied in Clause (iv) of the Notification, dated 23rd of July, 1971, aforementioned, and titled as the Transport Subsidy Scheme, 1971, reads as under: "(iv) In the case of North-Eastern region comprising the States of Assam, Meghalaya, Nagaland, Manipur, Tripura and the Union Territories of Arunachal Pradesh and Mizoram the transport subsidy will be given on the transport costs between Siliguri and the location of the industrial unit in these states/Union territories. While calculating the transport costs of raw materials the cost of movement by rail from Siliguri to the railway station nearest to the location of the industrial unit and thereafter the cost of movement by road to the location of industrial unit will be ....
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.... of the Scheme made it a duty of the Directorates of Industries, in the State/Union Territories, to carry out periodical checks to ensure that the raw materials and the finished goods, in respect of which transport subsidy had been given, were actually used for the purpose by adopting a system of scrutinizing of consumption of raw materials and the output of the finished goods. 76. Before proceeding further, we may point out that Clause 4 of the Transport Subsidy Scheme contain various definitions. The definitions, relevant for the purpose of this appeal, are of raw material and finished goods as defined by Sub-Clauses (h) and (i) of Clause (4) of the Scheme and, therefore, reproduced below:- (h) 'Raw material' means any raw material actually required and used by an industrial unit in its manufacturing programme as approved by the Government of India and/or by the Government of State/Union Territory in which the industrial unit is located. (i) 'Finished goods' means the goods actually produced by an industrial unit in accordance with the manufacturing programme approved by the Government of India and/or the Government of the State/Union Territory in which the industrial un....
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....it in accordance with the manufacturing programme approved by the Government concerned. 80. When the transport subsidy, so received, both, on the transportation of the raw materials as well as transportation of the finished goods, does go to reduce the cost of production of an industrial undertaking, the resultant effect of such a reduction, on the cost of production, would, obviously, help generate profits and, at times, higher profits. 81. Thus, it is transparent that there is a direct nexus between the transport subsidy, on the one hand, and the profits earned, and gains made, by the industrial undertakings, on the other. Such a direct nexus cannot but be termed as first degree nexus between the two, namely, transport subsidy, on the one hand, and the resultant profits and gains, on the other. 82. Unless, therefore, the Revenue succeeds in showing that the transport subsidy has no bearing on the cost of production of the industrial undertakings, the claims for deductions, which have been made by the assessee-respondents as recipient of transport subsidy, cannot but have to be necessarily held to be covered by Section 80IB or 80IC. 83. The nature and character of tran....
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....upra), as under: "15. 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 the 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. ** ** ** ** ** ** 18. Any goods, which goes in as a raw material required/used in the manufacturing programme of an industrial unit situated in a notified remote area, or any finished goods that is produced in the industrial unit situated in such area and exported out of the State, was eligible for the transport subsidy under the Scheme. The Scheme itself specifically defines "finished goods" as goods actually produced by an industrial unit....
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....h these decisions, in our respectful opinion, takes a correct view of the law, when it is laid down, in Merinoply and Chemicals (supra), 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 an industry in a backward area and, therefore, there is no room for doubt that the subsidies were inseparably connected with the profitable conduct of the business. The relevant observations, made in Merinoply and Chemicals Ltd. (supra), read as under:- "We do not find any perversity in the Tribunal's finding that the scheme of transportation 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 defi....
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....ndertaking, on the other, stands well established. Unless shown otherwise, the industrial undertakings, in the present set of appeals, which have been granted transport subsidy, are entitled to claim deductions in terms of the directions of the learned Tribunal. POWER SUBSIDY: 95. The Industrial Policy, 1997, as extended by the Industrial Policy of Assam, 2003, provides for Power Subsidy to be given to eligible industrial units (under such scheme) for a period of 5 (five) years from the date of commercial production, the power subsidy being available in the form of reimbursement of fully paid power bills with certain ceiling. 96. The reimbursement of the fully paid power bills, i.e., electrical charges, will obviously reduce the cost of production of an industrial undertaking contributing thereby to the profits and gains derived from, or derived by, the industrial undertaking concerned and augmenting thereby the income of the industrial undertaking concerned. More so, when such a subsidy neutralizes the expenses incurred on consumption of power and this reinforces, if we may borrow the language from the case of Pancharatna Cement Pvt. Ltd. v. Union of India, reported in 31....
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....en set up. Payments are not being made for the purpose of setting up of the industries. But the package of incentives were given to the industries to run more profitably for a period of five years from the date of the commencement of production. In other words, a helping hand was being provided to the industries during the early days to enable them to come to a competitive level with other established industries." (Emphasis provided) 100. From the observations made, and the law laid down, in Sahney Steel and Press Works Ltd. (supra), it becomes clear that various subsidies, including subsidies on electrical charges, were given by the Government concerned for the purpose of enabling industries to run more profitably by obviously reducing the cost of production. Such a subsidy would, undoubtedly, be, in the light of the decision, in Sahney Steeel (supra), operational in nature. No doubt, such a relief, given by way of electricity subsidy, is not a capital receipt, but revenue receipt and can be taxed, if not, otherwise, deductible in terms of the relevant provisions of the Act. When the cost of production is reduced by granting subsidy on electricity charges, it necessarily hel....
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.... CIT [1997] 228 ITR 253, has held that power subsidies are of revenue nature and have to be taxed accordingly. We also find that the terms under which the subsidy was given in the present cases clearly suggest that the subsidy was of a revenue nature in as much as it went towards reduction of the electric bills". (Emphasis provided) 104. Similar view has been expressed in Eastern Electro Chemical Industries (supra). The relevant observations, appearing in Eastern Electro Chemical Industries (supra), read as under: "Looking to the facts, circumstances, and the nature of the subsidy, which is a power subsidy based on a percentage of electricity bills, it is clear that the subsidy is to meet a certain percentage of expenditure on power. The receipt is, therefore, revenue in nature and is covered by the decision of this Court in Sahney Steel & Press Works Ltd. v CIT The appeal is allowed accordingly." (Emphasis provided) 105. From a combined reading of the two decisions, rendered in Rajaram Maize Products (supra) and Eastern Electro Chemical (supra), what becomes transparent is that power subsidy is meant to enable a person meet a certain percentage of expenditure on pow....
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....on of the goods, actually used, and the finished goods, actually produced, by an Industrial undertaking, and carried to the existing market, resulting into earning of profits by any industrial undertaking, one can reasonably infer and hold, in such a case, that the industrial undertaking, as an assessee, will be entitled to deduction, under Section 80IB or 80IC, as the case may be, on the resultant profit. 109. We, now, turn to the case of Pancharatna Cement Pvt. Ltd. v. Union of India, reported in 317 ITR 259 (Gau), wherein Amitava Roy, J., (as his Lordship, then, was), has, upon consideration of the subsidy involved, took the view that the amount of subsidy, given by way of assistance or grants by the Government, serves as stimulus to the willing industrial establishments to cater to the growth of the region and, thus, reinforce the eventual income of the business of the undertaking. Though the case of Pancharatna Cement (supra) is, as rightly pointed out by the learned ASG, arose out of a writ petition and not an appeal under the Act, the fact remains that the law, laid down therein, is relevant in determining the controversy, which is required to be dealt with in this set of....
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....see-respondents and, in consequence thereof, since interest subsidy results into profits and gains derived from, or derived by, an industrial undertaking, there is no reason as to why such profits and gains, earned by an industrial undertaking on the strength of such a subsidy, namely, interest subsidy, be not allowed to be deducted from the taxable income of the industrial undertaking concerned. INSURANCE SUBSIDY:- 113. So far as the insurance subsidy is concerned, it is under the Central Comprehensive Insurance Scheme, 1997. Under this Scheme, the insurance premium paid by eligible industrial units (under such scheme), set up in the North Eastern Region, are reimbursed by the nodal insurance company. It may be mentioned here that all banks/ financial institutions insist upon taking out comprehensive insurance policy on the business assets and stocks offered as primary/ collateral security for the purpose of obtaining the loan. In fact, this factual aspect has not been disputed by the Revenue. 114. The insurance subsidy, thus, helps in reducing the running cost of the industrial unit concerned establishing thereby direct and first degree nexus between the industrial activ....
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....ceived from DPEB and the Duty Drawback scheme and, hence, when the question was as to whether the profits, which are derived from DPEB and Duty Drawback Scheme, and not from the operation of manufacturing activities of an industrial undertaking, would be eligible for deduction under Section 80IB or Section 80IC, the cases at had cannot be treated to be cases, wherein the moot question raised is also the principal question, which was raised and answered in Liberty India (supra). 120. Turning to the question, which was formulated by the Supreme Court, in Liberty India (supra), it needs to be pointed out that the Supreme Court answered the question, formulated in Liberty India (supra), by pointing out that DEPB is an incentive given under Duty Exemption Remission Scheme and it is essentially an export incentive. 121. Thus, the Supreme Court itself made it clear that, in Liberty India (supra), that DEPB and the Duty Drawback schemes are incentives for export. DEPB is not related to business operation of industrial undertaking per se for its 'manufacturing or production'. DEPB's entitlement arises, according to the Supreme Court, in Liberty India (supra), when the undertaking goes....
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.... contended Mr. Agarwalla, learned Senior counsel, the Supreme Court pointed out, in Liberty India (supra), that if there was no export, there was no DEPB entitlement nor entitlement under the Duty Drawback Scheme. 124. Logically extended, this would mean that there was no relationship or nexus between the export incentive, on the one hand, and manufacturing/production, on the other. DEPB entitlement was based on the artifice of deemed import content of export product and was not even based on actual import content of the export product; whereas, in the cases at hand, the transport subsidy was made available on the raw material actually consumed in the manufacturing process and finished goods, which were actually produced and taken to the existing market for sale and, similarly, power subsidy, interest subsidy and insurance subsidy are, as already indicated above, made available on the actual amount of the power bill, interest and insurance premium paid by the assessee-respondents concerned. The inference, so drawn, gets reinforced from the fact that DEPB entitlement was freely transferable and saleable resulting in profit or loss. 125. That the case of Liberty India (supra) i....
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....terest and insurance, in the cases at hand, on the one hand, and Duty Drawback Scheme, on the other, inasmuch as the subsidies, so provided to the assesses concerned, are arithmetically equivalent to the cost of raw materials actually used in the manufacturing process and the finished goods, which is actually taken to the existing market for sale within and outside the north-eastern region and, similarly, the assesses concerned have the right to receive power subsidy, arising out of power bills paid, or interest subsidy or insurance subsidy, equivalent to the amount paid on interest and insurance respectively. These aspects of DEPB and Duty Drawback Scheme give rise to the inference that the decision, in Liberty India (supra), was rendered, in the light of its own facts, and not for universal application. This inference gets strengthened from the following observations made in Liberty India (supra):- "The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on ....
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....f duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in Section 80-IB" 131. Liberty India (supra), it may be noted, is, thus, an exposition of law on the schemes of DEPB and Duty Drawback Scheme, which relate to export of goods by an industrial undertaking; whereas the Scheme of transport subsidy, interest subsidy, power subsidy and insurance subsidy, is inextricably and directly connected with the reduction of cost of production and manufacturing of an industrial undertaking entitling thereby the eligible industrial undertakings to claim deduction under Section 80IB or 80IC, as the case may be. 132. The decision, in Liberty India (supra), is, therefore, not, in our considered view, relevant to the schemes of subsidies at hand. 133. Clearly held the Supreme Court, in Liberty India (supra), that incentive profits, as envisaged by DEPB and Duty Drawback Scheme, are not profits derived from eligible business under Section 80-IB inasmuch as DEPB and Duty Dr....
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....strial undertaking cannot be determined. The decision, in Liberty India (supra), cannot, therefore, be applied to all cases and to all kinds of subsidies. 137. In short, 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. 138. 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. Con....
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....CE TO APPEALS IN ABSENCE OF PLEA OF PERVERSITY 144. Resisting the appeals at its threshold, Mr. Agarwalla has pointed out that the question as to whether there is direct nexus between the subsidies, in question, and the operation of the industrial undertakings of the assessee-respondents, has been answered in the affirmative by the learned Tribunal and so long as this finding remains, the learned Tribunal's decision cannot be disturbed at any stage. In the memorandum of appeal, the Revenue, points out Mr. Agarwalla, has not contended at all that the said finding of the learned Tribunal was perverse and, therefore, in the absence of any perversity having been alleged in the finding of the learned Tribunal, the present appeals deserve to be dismissed. 145. Support for his submission is sought to be derived by Mr. Agarwalla from the case of Sudarshan Silk and Sarees v. CIT, reported in (300 ITR 205), wherein the Supreme Court held as under: "Question as to perversity of the findings recorded by the Tribunal on facts was neither raised nor referred to the High Court for its opinion. The Tribunal is the final court of fact. The decision of the Tribunal on the facts can be gone ....
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....e learned Tribunal, has not been challenged as perverse, the impugned decision, rendered by the learned Tribunal, would not call for any interference and the reply to this submission by Mr. Pathak, learned ASG, by contending that a wrong or incorrect interpretation of law is perversity, what needs to be borne in mind is that if a finding of fact is based on interpretation of facts or purely on facts, such a finding cannot be interfered with, in an appeal, under Section 260A of the Act, inasmuch as no substantial question of law can, in such a case, be said to have arisen if a finding of fact, based purely on facts, is not challenged as perverse. If, however, a finding of fact is based not purely on facts but is based on mixed consideration of fact and law, such a finding can be interfered with, in an appeal, under Section 260A of the Act provided that a substantial question of law is raised. 150. Clarified the Supreme Court, in CIT v. Manna Ramji & Co., reported in 86 ITR 29 (SC), that when a question is framed essentially on the facts and circumstances of a case, it means the facts and circumstances found by the Tribunal and not on the facts and circumstances as may be found by....