TaxTMI 
TaxTMI 
2021 (7) TMI 93
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....he words 'derived from' referred to in the section 80IA has narrow meaning than 'attributable to' and the additional subsidy cannot be treated as profits 'derived' from industrial undertaking though it may be 'attributable' to industrial undertaking. 3. Whether the Ld. CIT(A) was correct in law in holding that 'additional subsidy' received from the State Government by the assessee is allowed to be included as profit derived from the industrial undertaking and eligible for deduction u/s8OIA of the Income Tax Act 1961, oblivious to the decision rendered by the Hon'ble Supreme Court in the case CIT Vs. Sterling Foods 237 ITR 53 (SC) & Liberty India Ltd Vs. CIT 183 Taxman 349 (SC) 4. Any other ground that may be taken during the appeal. 5. The appellant craves leave to add, alter, amend and delete any of the grounds of leave. 2. The assessee is a company which is engaged in the business of distribution of electricity in 7 districts of Karnataka. The assessee claimed deduction under section 80IA(4)(iv)(c) of the Income Tax Act, 1961 (hereinafter called 'the Act'). The AO in para 12 of the Assessment Order has accepted that the assessee ....
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....dditional subsidy received by the Assessee, also was of a similar nature and therefore had to be regarded as "profits and gains derived from eligible business". 4. Aggrieved by the aforesaid order of the AO, the assessee preferred appeal before the CIT(A). The CIT(A) was of the view that the subsidy as well as the additional subsidy received by the assessee from the Karnataka Government was in lieu of electricity supply to farmers and others at subsidized rates. The Government of Karnataka compensated the assessee for the loss incurred for providing electricity at subsidized rates to weaker sections of the society / farmers. The CIT(A) was of the view that the subsidy was given to the assessee to make good the loss as the assessee supplied electricity at subsidized rates. The CIT(A) also found that in Assessment Years 2006-07 and 2007-08, the CIT(A) in an order passed under section 263 of the Act held that the assessee would be entitled to claim deduction under section 80IA(4)(iv)(c) of the Act. The CIT(A) accordingly took the view that the assessee would be entitled to deduction under section 80IA(4)(iv)(c) of the Act on the additional subsidy received of Rs. 412.67 Crores. Aggri....
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....o restrict the quantum of deduction to a specified percentage of profits. This is the importance ofthe words "derived from industrial undertaking" as against "profits attributable to indus:-undertaking". 35. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is a7-export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profits der....
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....ent 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 becalculated y 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 co....