TaxTMI 
TaxTMI 
2022 (12) TMI 291
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....Business Income as Income from Other Sources, without providing any decision about the Head of Income. 3. The learned CIT(A) erred in confirming the disallowance of Rs.3,13,43,633 made by the Assessing Officer without appreciating that the income is assessable as Business Income and not as Income from Other Sources 4. The learned CIT(A) erred in holding that the Business Income of Rs.3,13,43,633 was not derived from the Eligible Business without giving any reasons 5. The learned CIT(A) erred in holding that the Business Income of Rs.3,13,43,633 was not derived from the Eligible Business when the direct nexus between the income and the Eligible Business was clearly established and is evident from the facts and circumstances of the Appellant 6. For the grounds stated above and for the grounds which may be permitted to be adduced at the time of hearing of the appeal it is prayed that the disallowance made in the assessment order be deleted and justice rendered. 3. The assessee is engaged in the business of providing cargo handling services to airlines and clearing, forwarding at Bangalore International Airport Ltd. [BIAL]. The assessee filed retu....
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....arnataka High Court in the case of CIT . Telco Construction Equipment Co. Ltd. [2021] 127 taxmann.com 488 (Kar). 7. The ld. AR also made an alternate plea that in case the income is to be treated as income from other sources, then the corresponding expenses relating to renting of the property should be allowed as a deduction. 8. The ld. DR drew our attention to the fact that the CIT(Appeals) has accepted the rental income as business income of the assessee. However, he has denied the benefit of deduction u/s. 80IA to the assessee on the ground that the rental income is not 'derived from' the business of the assessee. The ld. DR in this regard relied on the following decisions of the Supreme Court:- (i) CIT v. Sterling Foods, [1999] 237 ITR 579/104 Taxman 204 (SC) (ii) Cambay Electric Supply Industrial Co. Ltd. v CIT [1978] 113 ITR 84 (SC) (iii) Liberty India v. CIT [2009] 183 Taxman 349 (SC) 9. The ld. DR drew our attention to the relevant findings of the Hon'ble Supreme Court in the above listed cases to submit that the income earned should not be incidental to the business, but should be derived from the business and that there should be a dire....
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....it is not the ownership of that business which attracts the incentives but what attracts the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). - Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC) (iv) The words "derived from" are narrower in connotation as compared to the words "attributable to". - Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC) (v) By using the expression "derived from", Parliament intended to cover sources not beyond the first degree from where the profit/income is generated. - Liberty India Ltd. Vs CIT [2009] 183 Taxman 349 (SC) (vi) There should be direct and proximate connection between carrying on business and the income earned - Vellore Electric Corpn. Ltd. v. CIT [1997] 93 Taxman 401/227 ITR 557 (SC) 13. The Hon'ble Supreme Court in the case of CIT(A) vs Meghalaya Steels Ltd [2016] 67 taxmann.com 158 (SC) has discussed all these principles while deciding whether the subsidy received by the assessee is eligible for deduction u/s.80IB/80IC. Before proceeding further to consider the merits of assessee's case it is relevant to reproduce the extracts from the decision of this case where ....
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.... 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 be calculated by 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 cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chem....
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....re 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." 22. However, in CIT v. Andaman Timber Industries Ltd., [2000] 242 ITR 204/109 Taxman 135 (Cal.), the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in Cement Mfg Co. Ltd.'s case (supra) by a judgment dated 15.1.2015, distinguished the judgment in Andaman Timber Industries Ltd.'s case (supra) and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held: 'Mr. Bandhyopadhyay, learned Advocate appearing for the ....
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....esh by making the business of production and sale of goods in the State more profitable.' 23. We are of the view that the judgment in Merinoply & Chemicals Ltd.'s case (supra) and the recent judgment of the Calcutta High Court have correctly appreciated the legal position. 24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan Oil and Flour Mills' case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under: "The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas. The huge transportation cost for getting ....
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....n'ble Supreme Court, it can be said that so long as profits and gains emanate directly from the business itself and that income earned is inseparably connected with the business carried on by the assessee the assessee would be eligible to get a deduction u/s.80IA. 15. The assessee has entered into a Service Providers Right Holders Agreement (SPRH) with Bangalore International Airport Limited whereby the assessee is required to provide seamless cargo handling services on a 365 * 7 *24 basis without any material interruptions during the term of the agreement. Schedule A of the agreement provides description of the cargo services as extracted below - 16. From the above it is clear that providing cargo service as agreed between the assessee and BIAL includes cargo handling services, mailing services, post office mail services etc. We notice from the perusal of records that the assessee has entered into License Agreement for using of the space in the Cargo Terminal operated by the assessee with Cargo Handling Agents, Airlines, Banks, Post Office etc. The list of licensee from whom the assessee has received the rental income is given page 120 to 123 of paper book. In our view there....