TaxTMI 
TaxTMI 
2009 (6) TMI 75
X X X X Extracts X X X X
X X X X Extracts X X X X
....vanced. The petitioner has presented itself to be a private limited company registered under the provisions of the Companies Act, 1956, with its registered office at Purana Titabar in the district of Jorhat, Assam. It is engaged in the business of manufacture and sale of cement and is an existing assessee under the Act. On November 1, 2004, it submitted its return of income for the assessment year 2004-05 corresponding to the financial year 2003-04 and deposited an amount of Rs. 8,81,560 as tax under section 140A of the Act. Along with its return, the audited account, i.e., profit and loss account as well as the balance-sheet ending on March 31, 2004, were also filed. According to the petitioner, it had, during the relevant year, received an amount of Rs. 1,44,99,462 and Rs. 1,70,133 as transport subsidy and insurance subsidy, respectively, and the said amounts were duly accounted for and credited in the profit and loss account. It has insisted that the aforementioned subsidies had been received by it for actual conduct of the business of its industrial undertaking and thus it was entitled to necessary deductions under section 80-IC of the Act. The return submitted. by it was accor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....petitioner accordingly on May 12, 2008, submitted its detailed reply with a request to drop the reassessment proceeding in the facts and circumstances of the case. The Assistant Commissioner of Income-tax, Circle Jorhat, however, vide his communication No. ARIT/147/Pancharatna/04-05/AABCP/9172 G, dated July 9, 2008, provided point-wise reply to the petitioner's explanation. By the impugned communication dated July 9, 2008, the said authority intimated the petitioner that further informations on certain points relating to its return pertaining to the assessment year 2004-05 submitted on November 1, 2004, were required to be furnished and thereby directed production of document, accounts and evidence in support of the said return. The extra-ordinary jurisdiction of this court has been invoked at this stage. 6. The Assistant Commissioner of Income-tax, Circle Jorhat, respondent No. 4, in his affidavit while endorsing the impugned notices to be valid, has dismissed the petitioner's claim for deductions under section 80-IC of the Act for the transport subsidy and the insurance subsidy as referred to its return for the assessment year 2004-05 as the same were merely grants receipt fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and void. According to the learned senior counsel, the subsidy schemes under which the transport subsidy and the insurance subsidy had been sanctioned to the petitioner presupposes its business activities relatable thereto as an essential pre-condition therefor and in that view of the matter, it being obviously eligible for the benefit of deductions under section 80-IC in connection therewith, the impugned notices are manifestly illegal and are liable to be annulled. He emphasized that the transport subsidy has a direct nexus with the business activity of the petitioner contributing to its profit derived therefrom and thus it was rightly accorded the benefit of deductions in the assessment order dated January 17, 2006. Mr. Sahewalla contended that the assessment so made was on a correct appreciation of facts and law involved and that the initiation of the process of reassessment by the impugned notices being by way of a review based on the same facts is palpably untenable in law rendering the impugned notice dated September 13, 2007, inoperative and invalid. As a mere change in opinion cannot be a valid ground for reopening an assessment already made, on an objective evaluation of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an ample opportunity of presenting its case on all counts in the proceeding pending before the Assistant Commissioner of Income-tax, Circle Jorhat, on the merits, this court would not entertain the instant petition, he urged. While contending that a transport subsidy is a legally recognized taxable receipt liable to be assessed, the learned standing counsel has maintained that in the assessment order dated January 17, 2006, the transport subsidy and the insurance subsidy were not taxed due to mistake of law and, hence, in the above premise, the impugned notice under section 148 of the Act is valid. Drawing the attention of the court to clause (c)(iii) of Explanation 2 to section 147 of the Act, Mr. Bhuyan has insisted that the impugned notices are unassailable in law and, therefore, the challenge projected in the instant petition is liable to be negated. Maintaining with all emphasis at his command that the impugned notice is not an yield, of a mere change in opinion of the authority concerned, but a statutory imperative to desist escapement of income assessable to tax, Mr. Bhuyan has contended that as the impugned notices are neither mala fide nor influenced by any jurisdictional ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent year 2004-05, it (petitioner) offered its return originally submitted. It, however, requested the concerned Revenue authority to furnish it with the reasons for the proposed reassessment. By letter dated March 3, 2008, the Assistant Commissioner of Income-tax, Circle Jorhat sought for an explanation from the petitioner as to why the transport subsidy and the insurance subsidy amounts as above would not be treated as incidental to its business and, therefore, not eligible for deduction under section 80-IC. Along with the said communication, the supporting reasons were also forwarded. As the same would disclose the Assessing Officer entertained the view that the profits and gains which are derived from an industrial undertaking are only eligible for deduction and that any income which is merely incidental to its business is not so. The Revenue authority relying on the decision of the Calcutta High Court in CIT v. Andaman Timber Industries Ltd. [2000] 242 ITR 204, therefore, concluded that the petitioner's income of Rs. 1,46,69,595 (transport subsidy of Rs. 1,44,99,462 + insurance subsidy of Rs. 1,70,133) though chargeable to tax had escaped assessment within the meaning of sub-cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to pursue its objection with regard to the maintainability of the process initiated by the impugned notice dated September 13, 2007. The decision of the apex court in GKN Driveshafts (India) Ltd. [2003] 259 ITR 19, relied upon by the respondents to mount its impeachment on the maintainability of the writ petition has no application in the facts of the instant case inasmuch as, therein their Lordships were seized with a situation where the Revenue authority had not disposed of the objection filed by the assessee to the notice under section 148 of the Act. The challenge to the maintainability of the instant proceeding therefore, fails. 15. As observed hereinabove, the petitioner's entitlement to the subsidies in question under the relevant schemes has remained unquestioned by the Revenue. These subsidies as the schemes produced in course of the arguments reveal, are by way of incentive to the eligible industrial unit in the selected areas referred to therein with a view to promote the growth of industries thereat. The selected area (A) as mentioned in the transport subsidy scheme includes, inter alia, the North Eastern Region comprised amongst others of the State of Assam. The s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the Revenue to the contrary asserts it only to be incidental thereto (business) and, therefore, not eligible for the deduction. It is profitable at this stage to mark that the word "income" as defined in section 2(24) of the Act includes, inter alia, profits and gains. Profits and gains, therefore, are an integral and inseparable segments of income as is contemplated by the Act. 17. The apex court in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253, was seized with the situation as to whether the subsides in the form of certain facilities and incentives which included subsidy on power accorded by the Government of Andhra Pradesh to new industrial undertakings that had commenced production on or after January 1, 1969, was capital or revenue receipt. The assessee-company, appellant had contended that subsidies so received by it for the accounting year relating to the assessment year 1974-75 were of a capital nature. 18. Placing reliance on the decision rendered in Pontypridd and Rhondda Joint Water Board v. Ostme [1946] 14 ITR (Suppl) 45 ; [1946] 1 All ER 668 (HL), it was held that the subsidies whether by way of refund of sales tax or relief of electricity charges or w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igible to tax as profits and gains of business under section 41(1) of the Act. It was further outlined that such a subsidy was inseparably connected with the business carried on by the assessee and was contingent upon the industry's continuing in production. It was also observed that as the subsidy was given for the development of the business and not for any unrelated purpose, there was no room or basis for disassociating it from the business of the assessee. 22. The receipt of subsidies for transportation of sleepers to the Railways at different sites, in the facts of the case in CIT v. Arvind Construction Co. Ltd. [2008] 3 DTR 94 (Delhi); [2009] 317 ITR 276 (Delhi) (Appx.) was considered to be a part of the assessee's business receipts and resultantly the benefit of deduction to it under section 80-IA of the Act was granted. 23. Though the above decisions as such do not deal with any scheme for deduction as under section 80-IC, these unequivocally establish that the subsidies (1) by way of transportation charges to recompense the expenses incurred in connection therewith for the furtherance of the business of the assessee, (2) towards power consumption therefor, and (3) re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the amount receivable by the assessee during the course of its business on account of the sale of forgings also qualified to be included as the profits and gains derived from the business of the assessee. In arriving at this conclusion, their Lordships noticed the observations of the apex court in CIT v. Sterling Foods [1999] 237 ITR 579 and in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) that for the application of the words "derived from" in the legal provision involved in those cases, a direct nexus between the profits and gains and the industrial undertaking was essential. 26. These two decisions as well, dealt with a scheme for deduction under section 80HH of the Act. 27. The claim for deduction under section 80HH qua subsidy or transport subsidy was rejected by the Calcutta High Court in CIT v. Andaman Timber Industries Ltd. [2000] 242 ITR 204 relying on the rendering of the apex court in CIT v. Sterling Foods [1999] 237 ITR 579 (SC). While emphasizing that the profits and gains which are derived from an industrial undertaking are only eligible for deduction under section 80HH, it was laid down that the subsidy or transport subsidy is not t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he business of the industrial undertaking from which the same are derived, the rigour of the essentiality of correlation with the industrial undertaking is not a stolid imperative as in section 80HH. If the profits and gains of the assessee, however, have no association or any relation whatsoever with the business of the industrial undertaking involved or cannot be imagined to be related or connected therewith, by no means the same would qualify to be deducted from the total income under section 80-IC. 30. The decision of the Delhi High Court in CIT v. Eltek SGS P. Ltd. [2008] 300 ITR 6, holding that the duty drawback in the nature of reimbursement of the customs duty paid on the imported goods subject to a manufacturing process had a direct nexus with the industrial undertaking itself noticed the difference in the language between section 80HH and section 80-IB of the Act which similarly contemplates profits and gains derived from any business of an industrial undertaking and not from it. 31. As observed hereinabove, the essence of the justification of the Revenue for initiating the reassessment proceeding is the perception that the subsidies received by the petitioner are n....