Meghalaya High Court
Principal Commissioner Of Income Tax ... vs Shree Mahabir Foods Limited on 8 September, 2016
Bench: Dinesh Maheshwari, Ved Prakash Vaish
IN THE HIGH COURT OF MEGHALAYA AT
SHILLONG
: JUDGMENT :
Principal Commissioner of Income Tax, Shillong Versus Shree Mahabir Foods Limited ITA NO. 1 OF 2015 Date of Judgment: :: 08.09.2016 HON'BLE THE CHIEF JUSTICE SHRI DINESH MAHESHWARI HON'BLE SHRI JUSTICE VED PRAKASH VAISH Shri S. Saikia, for the appellant.
Shri BK Deb Roy, for the respondent.
BY THE COURT: (per Hon'ble the Chief Justice) (Oral) This appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 ['the Act of 1961'], directed against the order dated 23.01.2015 as passed by the Income Tax Appellate Tribunal, Guwahati Bench, Guwahati ['ITAT'] in the Appeal No.83/Gau/2012, was initially admitted on 27.08.2015 on the following substantial questions of law:
"(i) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified and correct in law in holding that the assessee is entitled to deduction under Section 80IC of the IT Act, 1961 on Transport subsidy amounting to Rs.35,04,657/- received by it?
(ii) Whether the learned Income Tax Appellate Tribunal was legally justified in holding that subsidies goes to reduce the expenditure actually incurred and hence they ought to be regarded as operational profits?"
The relevant background aspects of the matter are that the respondent assessee-company is engaged in the business of agro based manufacturing industry and has setup an industrial undertaking 1 at Byrnihat, Ri Bhoi District, Meghalaya for commercial production of Roller Flour Mills. During the assessment proceeding for the Assessment Year 2009-2010, it had claimed deduction of a sum of Rs.35,04,657/- under Section 80-IB of the Act of 1961 towards transport subsidy received from the Government. The learned Assessing Officer, however, did not accept the claim of the assessee and, while disallowing the deduction, considered the said amount as other taxable income. In appeal, the learned Commissioner of Income Tax, Shillong endorsed the views of the Assessing Officer. Being aggrieved, the assessee preferred the said appeal bearing No.83/Gau/2012 before ITAT, while contending that disallowing of transport subsidy under Section 80-IB of the Act of 1961 was contrary to the law and to the facts of the case.
It is not in dispute that during pendency of the said appeal, the matter in issue was considered and examined by the Gauhati High Court in the case of Commissioner of Income Tax v. Meghalaya Steels Limited and others: (2013) 356 ITR 235 (Gau) and it was, inter alia, held that the transport subsidy was available for deduction under Section 80-IB or under Section 80-IC as the case may be. Thus, following the decision of the jurisdictional High Court, the ITAT allowed the appeal while holding that the assessee was entitled to claim deduction on the amount of transport subsidy.
Upon taking up this matter for hearing, learned counsel for the appellant Revenue has frankly submitted that the decision of the Tribunal is essentially based on the ratio of the decision in Meghalaya Steels Ltd. case (supra); and the said decision of the Gauhati High Court has since been approved by the Supreme Court while dismissing 2 a batch of appeals filed by the Revenue in the case of Commissioner of Income Tax v. Meghalaya Steels Limited: (2016) 6 SCC 747.
The Hon'ble Gauhati High Court, in the decision aforesaid, indicated the basic principles for a particular subsidy being covered by the provisions contained in Section 80-IB or 80-IC of the Income Tax Act in the following:-
"106. Situated thus, the principle, deducible from the cases of Sahney Steel (supra), Rajaram Maize (supra) and Eastern Electro (supra), is that when a subsidy, granted by Government, is operational in nature, which helps in generation of profits for any industrial undertaking, such a profit is, indeed, covered by the provisions embodied in Section 80IB or 80IC, as the case may be."
As regards transport subsidy, the Hon'ble Gauhati High Court clearly held as under:-
"79. What logically follows from the above discussion is that subsidy, on transportation of raw materials as well as finished goods, was promised to be made available to the industrial units concerned in a manner which would directly affect the cost of production inasmuch as transportation subsidy, on the raw materials, was not meant to cover all the raw materials, but only that part or portion of the raw materials, which was actually required and used by an industrial unit in its manufacturing programme approved by the Government concerned and, similarly, transport subsidy, on the finished goods, too, held in reduction of the cost of manufacturing of the industrial unit concerned inasmuch as subsidy on transportation of finished goods was promised to be given on the finished goods actually produced by the industrial unit in accordance with the manufacturing programme approved by the Government concerned.
80. When the transport subsidy, so received, both, on the transportation of the raw materials as well as transportation of the finished goods, does go to reduce the cost of production of an industrial undertaking, the resultant effect of such reduction, on the cost of production, would, obviously, held 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.3
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88. In the light of what have been discussed above, there can be no escape from the conclusion that transport subsidy was aimed at reducing the cost of production of the industrial undertakings covered by transport subsidy Scheme. Thus, there was a first degree nexus between the transport subsidy, on the one hand, and cost of production, on the other. When cost is reduced, it naturally helps in earning of profit and, at times, higher profits. Such profits and gains ought to have been treated, and has rightly been treated, by the learned Tribunal, to be profits and gains derived from, or derived by, the industrial undertaking concerned.
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94. Put shortly, there is an existence of direct nexus between transport subsidy, on the one hand, and the manufacturing/production activities of industrial undertaking, on the other, stands well established. Unless shown otherwise, the industrial undertakings, in the present set of appeals, which have been granted transport subsidy, are entitled to claim deductions in terms of the directions of the learned Tribunal."
The Hon'ble Supreme Court, in the appeals filed against the aforesaid decision of the Gauhati High Court, has referred to several other decisions and has pointed out the principles for applicability of Section 80-IB and 80-IC in the following:
"........ What is to be seen for the applicability of Section 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 costs 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"
It is not the case of Revenue that in the present case, the referred transport subsidy has no bearing on the cost of production of the industrial undertaking of the respondent assessee. In this view of the matter and for the law declared by the Hon'ble Supreme Court, the decision by the Assessing Officer as approved by the Appellate Commissioner to the effect that the transport subsidy cannot be said to 4 be derived from industrial undertaking and would not fall in the category of profits and gains derived from industrial activities could only be disapproved. Thus, the ITAT in its order dated 23.01.2015 has rightly allowed the appeal filed by the assessee while relying on the decision in the case of Meghalaya Steels Limited case (supra), which has now been approved in no uncertain terms by the Hon'ble Supreme Court.
In view of above, the answers to the basic questions involved in the matter are required to be in the affirmative. We may observe that in question No.(i) as formulated, only Section 80-IC has been mentioned, probably with reference to the question as formulated in the memo of appeal, whereas essentially the claim had been with reference to Section 80-IB (4) of the Act of 1961. With this clarification, answers to the questions involved in this matter are in the affirmative, that is to say that the Tribunal was legally justified in regarding the transport subsidy as part of operational profits; and was justified in holding the assessee entitled to deduction under Section 80-IB of the Act of 1961 on the transport subsidy amounting to Rs.35,04,637/-.
In view of the answers aforesaid, this appeal stands dismissed. No costs.
JUDGE CHIEF JUSTICE Sylvana Item No. 6 5