TaxTMI 
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2013 (7) TMI 175
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.... 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 nexus between the subsidy received by the as....
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....ically 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 and in the circumstances of the case, the learned Tribunal was righ....
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..... 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 Act, on a total income of Rs.1,33,76,535/-. (iii) During the previous year, relevant t....
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....strial 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 year, relevant to the assessment year under consideration, the respondent had received the following amounts on account of subsidies: ....
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....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, to encourage setting up of new industries in the backward region and the subsidies were made available to the industries only after the production commenced. 12. It is, therefor....
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....al 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, derived from or derived by the industrial undertaking, because of the subsidy received by the assessee. As a corollary thereto, submits the learned ASG, the assessee would have to show, if....
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.... 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 also safely gather, contends the learned ASG, that if no first degree nexus is established between the profits and gains derived by the industrial undertaking, on the one hand, and the subsidy or subsidies r....
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....n 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, Mumbai, confirmed the action of the Assessing Officer in disallowing the assessee's claim for deduction, under section 80-IA of the Act, in respect of sales tax incentives on the ground that the immediate source of t....
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....d 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 business of industrial undertaking eligible for deduction under Section 80-IB of the Act.? 34. Referring to the case of Liberty India (supra), it is contended by Mr. Pathak, learned ASG, that, in Liberty India (supra), the Supreme....
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....(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 be done at the time of its receipt and the subsequent classification, in its books of account, under different heads, is immaterial. 38. Illustrating his above contention the learned ASG submits that for a textile industry producing cloth, ....
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....shing 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 concerned. 44. Referring to the case of Liberty India v. CIT, reported in [2009] 9 SCC 328, Mr. Agarwalla, learned Senior counsel, submits that the issue, raised in Liberty India (supra), was distinct and different from the issues, which the cases at hand rais....
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.... 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 question, which has fallen for determination, in the present cases, was not at all a question, which was raised and decided in Liberty India (supra) and, hence, the reference, made by the Revenue to the decision, in Liberty India (supra), or to the observations made the....
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....eme 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 entitlement would arise, when the undertaking goes on to 'export' after 'manufacturing or production' and is restricted only to 'export product'. Therefore, it is clear, reiterates Mr. Agarwalla, that if there was no export, there was no DEPB entitlement. Further, the entitlement was....
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....g 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 remote parts of the country with other parts so as to bring economic development to remote backward regions and this scheme was introduced to make it feasible and attractive for industrial entrepreneurs to start and run industries in remote parts by giving them a level playing field so that they c....
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....TR 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 hand, and the profits and gains, on the other, derived from, or derived by, the industrial undertaking concerned. There is also no dispute that if any of the subsidies, in question, goes on to reduce the cost of production of an industrial undertaking, the resultant profits and gains are deductible under the pr....
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.... 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 order to sustain its plea, that there is no direct nexus between the subsidies, received by the industrial undertakings of the assessee-respondents, on the one hand, and the manufacturing activities of the industrial undertakings, on the other, the Revenue contends that subsidies, received by the industrial undertakings o....
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...., 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 taken into account. Similarly, while calculating the transport costs of finished goods the costs of movement by road from the location of industrial unit to the nearest railway station and thereafter the cost of movement by rail to Siliguri will be taken into account. In the case of North Eastern region, for materials moving entirel....
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.... 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 unit is located. (Emphasis is added) 77. From the definition of raw material and finished goods, it is crystal clear that the term, raw material, under the Scheme, 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 Te....
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.... 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 transport subsidy fell for consideration in Jai Bhagwan Oil & Flour Mills v. Union of India, reported in [2009] 14 SCC 63, wherein, the Supreme Court, taking note of, amongst others, the definition of raw material and the definition of finished goods, observed that the object of the transport subsidy scheme is not augmentation of revenue by levy and collection of ta....
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....ation. 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 in accordance with the manufacturing programme as approved by the Central Government and/or the Government of the State where the industrial unit is located." (Emphasis provided) 87. From a careful reading of the observations, at para 14, 15 and 18 made by the Supreme Court, in Jai Bhagwan Oil & Flour Mills (supra), what becomes abundantly clear is that huge transportation cost,....
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....ea 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 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." (Emphasis is added) 91. Broadly in tune with Merinoply and Chemicals Ltd. (supra), Sarda Plywood Industries Ltd. (supra) holds that transpor....
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....igible 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 317 ITR 259 (Gau), the eventual income of the business undertaking and establishes thereby direct and first degree nexus between the industrial activities of the assessee-respondents, on the one hand, and the subsidy, in the form of power subsidy, on the other, received by the assessee-respondents. 97. The issue of power subsidy is well explained by the Supreme Court, in CIT v. Rajaram Maize Products, reported in ....
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....vided) 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 helps the industry to run more profitably. Here again, a direct nexus between the power subsidy, on the one hand, and cost of production, on the other, stands well established. Consequently, the profits earned and the gains made from the industrial undertakings concerned will amount to profits and gains derived from, or derived by, the industrial undertakings concerned entitling the assessees to claim deduction under Section 80IB or 80....
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....ons, 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 power and is, therefore, revenue in nature. However, though revenue in nature, the fact remains that it helps in not only growth of the industrial undertaking, but also help an industrial undertaking to earn profits and make gains. Such a subsidy, though revenue in nature and taxable accordingly, is nonetheless covered by the provisions embodied in Section 80IB or 80IC, as the case may be. 106. Situated thus, the principle, deducible from the cases of ....
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....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 appeals. The relevant observations, appearing at para 32, in Pancharatna Cement (supra), is, therefore, quoted below: ".........It cannot be gainsaid that having regard to the layout of investment and income designed for any commercial or business venture, reimbursement of the expenses incurred to whatever extent, would logically contribute to the profits and gains derived from the related enterprise and thus would augment the overall income. The amounts of su....
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....nder 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 activities of the assessee-respondents concerned, on the one hand, and the subsidy, in the form of insurance subsidy, on the other, received by the assessee-respondents. The resultant profits and gains, derived from, or derived by, an industrial undertaking, because of the insurance subsidy, have to be treated as deductible in terms of the provision of Section 80IB or 80IC, as the case may be. 115. Let us, now, turn to the case of Liberty India (supra). 116. As we have already noticed....
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.... 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 on to 'export' after 'manufacturing or production' and is restricted only to 'export product'. Therefore, the position, points out the Supreme Court, in Liberty India (supra) is: If there is no export, there is no DEPB entitlement and its relation to the manufacturing/ production is neither proximate nor direct. 122. Further, rightly points out Mr. Agarwalla, that the entitlement of incentive in DEPB was based on the artifice of 'deemed import content of export product', and not even based on ....
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....port 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) is not applicable to the cases at hand is also evident from the fact that the object behind DEPB was to neutralize the incidence of customs duty payment on the import duty of the export product and, hence, the DEPB scheme was not aimed at neutralizing the cost of production; rather, as observed by the Supreme Court, it was an incentive for export and entitlement arose, when export was made and not otherwise. The relevant observations, appearing, in this regard, in Liberty India (supra), read as under: "26. ....
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....bsidy 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 materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of eac....
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.... 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 Drawback belong to the category of ancillary profits of the industrial undertaking meaning thereby that the profits, derived by way of incentives, such as, DEPB and Duty Drawback Scheme, cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression, "profits derived from industrial undertaking under Section 80-IB". 134. Dealing with Sahney Steel & Press Works Ltd. (supra), the Supreme Court, in Mepco Industries (supra), observed as under: "Sahney Steel a....
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.... 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. 139. 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. 140. In the case of CIT v. Andaman Timber Industries Ltd, reported in 242 ITR 204 (....
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....nding 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 into by the High Court in the reference jurisdiction only if a question has been referred to it which says that the finding arrived at by the Tribunal on the facts is perverse, in the sense that no reasonable person could have taken such a view. In reference jurisdiction, the High Court can answer the question of law referred to it and it is only when a finding of fact recorded by the Tribunal is challenged on the ground of perversity, in the sense set out above, that a question of law can be said to arise. Since the frame of the question was not as to whether the....
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.... 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 the High Court. The relevant observations, appearing in this regard, in Manna Ramji (supra), read:- "It may also be mentioned that Mr. Hajarnavis has assailed the findings of fact of the Tribunal. In this respect we are of the view that the Tribunal is the final fact finding authority. It is for the Tribunal to find facts and it is for the High Court and this court to lay down the law applicable to the facts found. Neither the High Court nor this court has jurisdiction to go behind or to question the statement of facts made by the Tribunal. The statement of case is binding ....