AI Drafter 
TaxTMI 
TaxTMI 
2022 (2) TMI 818
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.... that extent the order of the coordinate bench originally passed on 19/2/2021 in the above ITA was recalled. 02. Therefore now the grounds remain to be adjudicated are as Under:- 5. The learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of deduction under section 80(IB) of Rs.25,31,96,667/-, in respect of the fertilizer unit of Haldia: a. Without going through the detailed submissions made, b. Holding that the Sales Tax Incentive Scheme does not have a direct nexus with the activities of the industrial unit; c. Holding that the Fertilizer subsidy provided by the government as price concession was not income from the industrial undertaking and therefore not eligible for deduction u/s 80(IB)." 03. The additional ground number 3 raised originally is as Under:- "3. That the sales tax incentive money of Rs. 33,061,201/- being the amount retained by the company in accordance with Section 41 of the West Bengal Sales Tax Act, 1944 (read with the West Bengal incentive scheme, 1999), was a capital receipt not chargeable to tax Under the income tax act ." 04. Facts shows that for the impugned assessment year, ....
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....hrough the detailed submissions made, b. holding that the Sales Tax Incentive Scheme does not have a direct nexus with the activities of the industrial unit; c. holding that the Fertilizer Subsidy provided by the government as price concession was not income from the industrial undertaking and therefore not eligible for deduction u/s 80 (IB). The assessee has also filed and additional ground, which reads as under: "That the Sales Tax Incentive money of Rs. 3,30,61,201/- being the amount retained by the company in accordance with section 41 of the West Bengal Sales Tax Act, 1944 (read with The West Bengal Incentive Scheme, 1999), was a capital receipt not chargeable to tax under the Income Tax Act." As the above additional ground does not require investigation of additional facts and as it goes to the root of the matter, we admit it for adjudication by following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra). The AO noted that for the impugned assessment year, Hind Lever Chemicals Ltd. (HLCL) (since amalgamated with the assessee) filed its return of income on 28.11.2003, claiming a refund ....
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....ted by the fact that the old unit was not in receipt of any such incentive; it is not the industrial unit from which this benefit was derived by the appellant but the Government scheme allowing such benefit depending upon the location of industry. Therefore, he held that there is merit in the finding of the AO that the remission/reimbursement is not 'derived from the business of' the industrial undertaking. The Ld. CIT(A) in agreement with the AO relied on the decision of the Hon'ble Supreme Court in Andaman Timber chemicals Inds (244 ITR 204) and CIT v. Sterling Foods (237 ITR 579). Stating that the impugned sales tax incentives has its genesis in the scheme of the Government, being located in a 'backward area' and not in the profits derived from the industrial undertaking per se, he upheld the action of the AO in disallowing deduction u/s 80IB in respect of sales tax incentive. In respect of fertilizer subsidy, the Ld. CIT(A) agreed with the findings of the AO that the selling price of the fertilizer in AY 2002-03 was much less than the MRP and that in case of DAP, while the MRP fixed by the Government was Rs. 9,350/- per metric ton, the selling price of the assessee was....
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....ts 3 new industrial undertakings located in category "B" industrially backward district i.e. in Midnapore, West Bengal. It is stated that the effective date of amalgamation was 01.06.2004 and the appointed date of amalgamation was 01.04.2002 i.e. HLCL amalgamated with the assessee-company w.e.f. 01.04.2002. It is stated that the order of the Hon'ble Bombay and Punjab & Haryana High Court sanctioning the scheme of amalgamation were filed before the AO. After the amalgamation, the assessee-company filed its revised return of income for the year under reference incorporating the working results of HLCL. In the revised return of income, section 80IB claim was not made but a disclosure was made that the same will be claimed at the time of assessment. It is stated by the Ld. counsel that during the course of assessment proceedings, vide letter dated 30.11.2005, section 80IB claim of Rs. 7,59,59,000/- (same as that claimed in original return of HLCL) @ 30% of the profits (this being the 4th year of claim) in respect of erstwhile HLCL was made. It is explained that the audit report in Form No. 10CCB along with audited accounts of the new industrial undertakings, duly certified by Chartered....
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....under reference, HLCL (since amalgamated with the assessee) filed its return of income on 28.11.2003 claiming a refund of Rs. 2.87 crores ; in the said return of income, section 80IB claim of Rs. 7.59 crores was made in respect of its 3 new industrial undertakings located in category "B" industrially backward district i.e. in Midnapore, West Bengal; the effective date of amalgamation was 01.06.2004 and the appointed date of amalgamation was 01.04.2002 i.e. HLCL amalgamated with the assessee-company w.e.f. 01.04.2002 ; after the amalgamation, the assessee-company filed its revised return of income for the year under consideration incorporating the working results of HLCL. Also it is the contentions of the assessee that during the course of assessment proceedings, vide letter dated 30.11.2005, section 80IB claim of Rs. 7,59,59,000/- (same as that claim in original return of HLCL) @ 30% of the profits (this being the 4th year of claim) in respect of erstwhile HLCL was made. Regarding fertilizer price concession from the Government of Rs. 105.40 crores, it is the contentions of the assessee that to support industries, certain portion of price is reimbursed by Central Governmen....
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....6 the coordinate bench reproduced ground number 5 and admitted the additional ground as per page number 15 - 16 of the order. In paragraph number 17 the coordinate bench also considered the order of the learned CIT - A wherein it has been categorically held by him that since tax remission and subsidy received on account of the scheme of the government for setting up the industrial unit in the backward district is not derived from the business of the industrial undertaking relying upon the decision of the honourable Supreme Court in case of Andaman timber chemicals Ltd 244 ITR 204 and CIT versus sterling foods 237 ITR 579. Thus, the learned CIT - A held that the Sales tax incentive and the subsidy has its genesis in the scheme of the government and not in the profits derived from the industrial undertaking per se. vide paragraph number 18 the arguments of the learned authorised representative and vide paragraph number 19 the arguments of the learned departmental representative were considered. Thereafter in paragraph number 20, the coordinate bench reached its decision giving the detailed reasons. After examining the material available on record the coordinate bench set-aside the or....
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....18) 400 ITR 279 (SC), Kirloskar oil engines Ltd (2014) 364 ITR 88 (Bom) and Mapco industries Ltd (2009) 319 ITR 208 (SC). 014. The learned departmental representative stated that the above issue was not before the learned assessing officer or the learned CIT - Al and therefore it should go back to the learned assessing officer for examination of the claim of the assessee with respect to the exemption/non-chargeability of tax on sales tax remission. He submitted that the purpose and intent of subsidy was never verified by the learned assessing officer and additional ground was raised first time before the coordinate bench and therefore the scheme vis-a-vis its taxability should be examined by the learned assessing officer and therefore the matter should go back to the learned AO. 015. In rejoinder the learned authorised representative submitted that the scheme was available with the CIT - A and therefore now it cannot be set-aside back to the file of the learned lower authorities as the issue may be decided by the coordinate bench. 016. In the additional ground number 3 by the assessee it is challenged that the sales tax remission benefit derived by the assessee is not char....
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....e subsidy is given. It was explained that in case of DAP the maximum retail price was fixed by the government at Rs. 9350 per metric ton and the selling price of the assessee was only Rs. 8458/- per MT and therefore the assessee was not able to sell the products and the maximum retail price fixed by the government and the subsidy given by the government was merely an aid to the assessee. He also referred to item number 10 of the paper book where the concession scheme for the controlled phosphate and potassic fertilizer is submitted. He also submitted that the above subsidy is granted for 'to give impetus to the stagnating demand for these fertilizers and to ameliorate the nutrient imbalance in the soil, which is essential for sustaining the desired growth in agricultural productivity.' He submitted that in view of the decision of the honourable Supreme Court in case of Meghalaya steels Ltd (SC) this issue is squarely covered in favour of the assessee. The learned authorised representative further referred to the provisions of Section 80 IB of the income tax act and stated that the gross total income of an assessee includes any profits and gains derived from 'any business' referred ....
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....-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in th....
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....t of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking: Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004: Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years. Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning on the 1st day of April....
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.... for the industries set up in the North Eastern Region is an obvious reference to the second proviso to sub-section (4) of Section 80-IB set out hereinabove. The speech of a Minister is relevant insofar it gives the background for the introduction of a particular provision in the Income Tax Act. It is not determinative of the construction of the said provision, but gives the reader an idea as to what was in the Minister's mind when he sought to introduce the said provision. As an external aid to construction, this Court has, in K.P. Varghese v. ITO [1981] 7 Taxman 13 (SC), referring to a Minister's speech piloting a Finance Bill, stated as under:- "Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in ....
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....ct and purpose. We must therefore accept as the underlying assumption of Sub-section (2) that there is under-statement of consideration in respect of the transfer and Sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received." 13. A series of decisions have made a distinction between "profit attributable to" and "profit derived from" a business. In one of the early judgments, namely, Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), this Court had to construe Section 80-E of the Income Tax Act, which referred to profits and gains attributable to the business of generation or distribution of electricity. This Court held: "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to....
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....lements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking." (Para 13) 15. Similarly, in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) , this Court dealt with the claim for a deduction under Section 80HH of the Act. The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of electricity to the appellant's industrial undertaking should be treated as income derived from the industrial undertaking under Section 80HH. This Court held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. On this basis, the appeal was decided in favour of Revenue. 16. The sheet anchor of Shri Radhakrishnan's submissions is the judgment of this Court in Liberty India's case (supra). This wa....
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....his stage. In the first decision, that is in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) this Court held that since an expression of wider import had been used, namely "attributable to" instead of "derived from", the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "attributable to". Since we are directly concerned with the expression "derived from", this judgment is relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well. 18. The judgment in Sterling Foods case (supra) lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental.....
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....f cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20.Liberty India's case (supra) being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also,....
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....ries Ltd. reported in [2000] 242 ITR 204/109 Taxman 135 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted. He also relied on a judgment of the Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking. We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. Bu....
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....dustries in remote parts of the country to compete with industries in 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." (Paras 14 and 15) 25. The decision in Sahney Steel and Press Works Ltd.'s case (supra) dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee. 26. We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in ....