High Court
Case Details
ITA 7/2010 BEFORE THE HON’BLE MR.JUSTICE I.A. ANSARI THE HON’BLE MR. JUSTICE P.K. MUSAHARY By this common judgment and order, we propose to dispose of these two appeals, p referred under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ’the Act’), against the orders, dated 19.03.2010, passed by the learned Inco me Tax Appellate Tribunal (hereinafter referred to as the ’learned Tribunal’), G uwahati, in Income Tax Appeal (in short, ’ITA’) Nos. ITA 52/Gau/2009 and ITA 95/ Gau/2007 inasmuch as these two appeals, as would be seen, cover all the four sub sidies, namely, transport subsidy, interest subsidy, power subsidy and insurance subsidy, which form the subject-matter of controversy in the present set of app eals. While disposing of the two appeals, as indicated above, the learned Tribu nal took the view that the assessee-respondents are entitled to claim deduction either under Section 80IB or under Section 80IC of the Act, though the Revenue c ontends that the assessee-respondents are not entitled to receive, and could not have been legally given, the benefit of deduction either under Section 80IB or under Section 80IC. 2. Whereas, by the impugned order, dated 19.03.2010, the learned Tribunal h as dismissed the appeal No. ITA 52/Gau/2009, preferred by the Revenue, by taking the view that the subsidies, namely, transport subsidy, power subsidy, interest subsidy and insurance subsidy, received by the assessee-respondents, would go o n to reduce the corresponding expenses incurred and the resultant profit would b e the profits and gains of the business of the industrial undertaking, that all these subsidies are inter-linked, inter-laced and having a direct nexus with the manufacturing activities of the assessee which are inseparable from the expendi ture incurred by the assessee on account of transportation of purchase as well a s sales, power, interest, insurance cover of the business of the assessee and, t herefore, there is a direct nexus between the subsidy received by the assessee’s industrial undertaking and the resulting profits and gains thereof and the asse ssee is eligible for deduction under Section 80-IB/80-IC of the Act. 3. The learned Tribunal, by its order, passed on the same date (i.e., by th e order, dated 19.03.2010), has allowed the appeal No. ITA 95/Gau/2007, preferre d by the assessee, by taking the view that the subsidies, in question, would go on to reduce the corresponding expenses incurred and the resultant profit would be the profits and gains of the business of the industrial undertaking, that all these subsidies are inter-linked, inter-laced and having a direct nexus with th e manufacturing activities of the assessee which are inseparable from the expend iture incurred by the assessee on account of transportation of purchase as well as sales, power, interest, insurance cover of the business of the assessee and, therefore, there is a direct nexus between the subsidy received by the assessee’ s industrial undertaking and the resulting profits and gains thereof and the ass essee is eligible for deduction under Section 80-IB/80-IC of the Act. 4. The principal distinction between the two impugned orders, passed on the same date, i.e., on 19.03.2010, may be set out as follows: (i) By the impugned order, passed in No. ITA 52/Gau/2009, the learned Tribunal dismissed the appeal of the Revenue and allowed deduction under Section 80-IB/80 -IC of the Act; whereas, by the impugned order, passed in ITA. 95/Gau/2007, the learned Tribunal allowed the appeal of the assessee and, in consequence thereof, allowed deduction under Section 80-IB/80-IC of the Act. (ii) While, in ITA. 52/Gau/2009, the subsidies involved were transport subsidy, insurance subsidy, interest subsidy and power subsidy, the ITA 95/Gau/2007 invo lved transport subsidy, interest subsidy and power subsidy; and (iii) While, in ITA 95/Gau/2007, the deductions had been claimed under Section 8 0-IC of the Act, the deductions, claimed in ITA 52/Gau/2009, were claimed under Section 80-IB of the Act. The learned Tribunal, however, as already indicated h ereinbefore, allowed the deductions without expressly saying as to whether the d eductions, in the said two appeals, had been allowed under Section 80IB or 80IC of the Act. In other words, the learned Tribunal allowed the deductions in resp ect of the relevant subsidies, received by the assessee concerned, without speci fically determining if the deductions were allowable under Section 80IB or under Section 80IC. The substantial questions of law, which have been framed for hearing of 5. the IT Appeal No. 7/2010, are as under: Substantial Question of law as framed in pursuant to Order dated 08.12.2010 Whether on the facts and in the circumstances of the case, the Tribunal was just ified in holding that transport subsidy, power subsidy and interest subsidy, rec eived by the respondent, are allowable for computation of deduction under Sectio n 80IB of the Income Tax Act, 1961? Additional Substantial Question of law as framed in pursuant to Order dated 10.0 4.2013 (1) Whether, on the facts and circumstances of the case, the learned Tribuna l was right in holding that the amount of transport subsidy, interest subsidy an d power subsidy would go on to reduce the expenses incurred under that particula r head and the resultant profits and gains of the business of Industrial Underta king would be eligible for deduction under Section 80IB of the Income Tax Act, 1 961? If the answer to question no.1 is in the negative, whether, on the fact (2) s and in the circumstances of the case, the learned Tribunal was right in holdin g that the transport subsidy, interest subsidy and power subsidy are inter-linke d, inter-laced and having a direct nexus with the manufacturing activities of th e assessee, which are inseparable from the expenditure incurred by the assessee on account of transportation, purchase as well as sales of the business of the a ssessee are allowable for deduction under Section 80IB ? 6. the IT Appeal No. 16/2011, are as under: Substantial questions of law as framed pursuant to the order dated 01.08.2011 The substantial questions of law, which have been framed for hearing of Whether on the facts and in the circumstances of the case, the Tribunal was just ified in holding that transport subsidy, insurance subsidy, interest subsidy and power subsidy received by the respondent are allowable for computation of deduc tion U/s. 80IC of the Income Tax Act, 1961? Substantial questions of law as framed pursuant to the order dated 10.04.2013 Whether on the facts and in the circumstances of the case, the learne (1) d Tribunal was right in holding that the amount of transport subsidy, insurance subsidy, power subsidy and interest subsidy would go on to reduce the expenses i ncurred under that particular head and the resultant profits and gains of the bu siness of Industrial Undertaking would be eligible for deduction under Section 8 0IC of the Income Tax Act, 1961 ? (2) If the answer to question no.1 is in the negative, whether on the f acts and in the circumstances of the case, the Tribunal was right in holding tha t the transport subsidy, insurance subsidy, power subsidy and interest subsidy a re inter linked, inter laced and having a direct nexus with the manufacturing ac tivities of the assessee, which are inseparable from the expenditure incurred by the assessee on account of transportation of purchase as well as sales of the b usiness of the assessee are allowable for deduction under Section 80IC? 7. From a bare reading of the substantial questions of law, which have been framed in the present two appeals, it becomes more than abundantly clear that t he questions, raised in the present two appeals, are, in substance, same, the p rincipal difference between the questions raised in these two appeals being that , while in ITA No. 7/2010, the deductions claimed were under Section 80IB of the Act, the deductions claimed, in ITA No. 16/2011, were under Section 80IC of the Act. Therefore, as we shall proceed further, it would become transparent that the substantial questions of law, which have been framed in these two appeals, a re, in effect, akin to each other. 8. Before entering into the discussion of the merit of the questions, which have been framed, for determination in the present two appeals, it is apposite that the material facts, giving rise to the present two appeals, be taken note o f. With this end in view, the material facts, leading to each of these two appea ls, are, in brief, set out as under:
Legal Reasoning
FACTS OF THE CASE IN ITA No. 7/2010: (i) The respondent is an assessee under the Act, the respondent bein g an industrial undertaking engaged in the business of manufacture of Steel and Ferro Silicon. (ii) The respondent submitted, on 19.10.2004, its return of income fo r the assessment year 2004-2005 disclosing income at Rs. 2,06,970/- after claimi ng deduction, under Section 80IB of the Act, on the profits and gains of busines s of the respondent’s industrial undertaking. The assessment of the respondent w as completed, on 07.12.2006, under Section 143(3) of the Act, on a total income of Rs.1,33,76,535/-. (iii) During the previous year, relevant to the assessment year under consideration, the respondent had received the following amounts on account of s ubsidies: Transport subsidy Interest subsidy Power subsidy Total - - - Rs. - Rs. 2,64,94,817. 00 Rs. 7,00,000. 00 Rs. 2,74,09,386. 00 2,14,569. 00 The Assessing Officer, in his assessment order, dated 07.12.2006, held t (iv) hat the amounts, received by the assessee as subsidies, were revenue receipts in nature and did not qualify for deduction under Section 80IB(4) of the Act. The Assessing Officer accordingly disallowed the respondent’s claim for deduction of the amount of Rs. 2,74,09,386/- , under Section 80 IB of the Act, on account of transport subsidy, interest subsidy and power subsidy. (v) Against the said assessment order, the assessee-respondent preferred appea l before the Commissioner of the Income Tax (Appeals), Guwahati, (in short, ’the CIT (A)’), who, vide his order, dated 08.03.2007, dismissed the appeal of the r espondent by taking the view that the subsidies, received by the assessee-respon dent, were not entitled to deduction under Section 80IB inasmuch the subsidies c ould not be termed as the profits and gains derived from manufacturing business of the respondent and the profits and gains, in order to be eligible for deducti on under Section 80IB of the Act, have to be derived from industrial undertaking and, as the immediate source of subsidies was schemes of the Government, it was only incidental to the assessee-respondent’s business. The CIT(A) was, however , also of the view that the subsidies, received by the respondent’s industrial u ndertaking, had some commercial connection with the business of the respondent a nd, hence, such receipts were to be assessed as ’business income’ and not as inc ome from other sources. (vi) Aggrieved by the aforesaid order of the CIT(A), the respondent p referred appeal before the learned Tribunal. The said appeal was registered, we have already indicated above, as ITA No. 95/Gau/2007. The learned Tribunal has, by its order, dated 19.03.2010, allowed the appeal of the respondent. (vii) While so allowing the appeal of the respondent concerned, the learned Tr ibunal followed its own order, passed in the case of C.I.T. V/s. Meghalaya Steel s Ltd. in I.T.A. No. 46/Gau/2009, for the assessment year 2006-2007, decided on 19.03.2010. The learned Tribunal held that the subsidies, received by the respon dent’s industrial undertaking, would go on to reduce the corresponding expenses incurred under those particular heads and the resultant profit would be the prof its and gains of the business of the industrial undertaking eligible for deducti on under Section 80-IB of the Act. The learned Tribunal further held that all th e subsidies were inter-linked, inter-laced and have direct nexus with the manufa cturing activities of the assessee-respondent’s industrial undertaking. (viii) the Revenue is, now, in appeal before us. Against the order, dated 19.03.2010, so passed by the learned Tribunal, FACTS OF THE CASE IN ITA No. 16/2011 (i) The respondent is an assessee under the Act, the respondent bein g an industrial undertaking engaged in the business of manufacture of coke produ cts. (ii) The respondent submitted, on 17.11.2006, its return of income fo r the assessment year 2006-07 disclosing income at Rs. NIL. The assessment of th e respondent was completed, on 31.12.2008, under Section 143(3) of the Act, on a total income of Rs. 87,93,230/-. (iii) During the previous year, relevant to the assessment year under consideration, the respondent had received the following amounts on account of s ubsidies: Transport subsidy Insurance subsidy Interest subsidy Power subsidy Total - - - Rs. - 4,84,836. 00 Rs. 6,55,40,049. 00 Rs. Rs. 10,11,771. 00 1,86,010. 00 Rs. 6,72,22,666. 00 - (iv) The Assessing Officer, in his assessment order, dated 31.12.2008, held t hat the subsidies, so received by the assessee, had no direct nexus with the bus iness of the respondent’s industrial undertaking, that the subsidies were income incidental to the business of the respondent’s industrial undertaking and, ther efore, the subsidies had to be treated as ’other business income’ and could not be allowed for the purpose of working out the profits and gains of the responden t’s business undertaking within the meaning of Section 80IC. The Assessing Offic er accordingly disallowed the respondent’s claim of deduction of the amount of 6 ,72,22,666/-, under Section 80IC of the Act, on account of transport subsidy, in surance subsidy, interest subsidy and power subsidy. (v) Against the said assessment order, the assessee-respondent preferred appea l before the Commissioner of the Income Tax (Appeals), Guwahati, (in short, ’the CIT (A)’), who, vide his order, dated 09.06.2009, allowed the appeal of the ass essee-respondent by taking the view that the subsidies, received by the responde nt, would go on to reduce the expenditure incurred under those respective heads for the purpose of working out profits and gains of the business of the assessee -respondent’s industrial undertaking within the meaning of Section 80IC of the A ct. (vi) Aggrieved by the aforesaid order of the CIT(A), the Revenue pref erred appeal before the learned Tribunal. The said appeal was registered, we hav e already indicated above, as ITA No. 52/Gau/2009. The learned Tribunal, by its order, dated 19.03.2010, dismissed the appeal preferred by the Revenue. (vii) While so dismissing the Revenue’s appeal, the learned Tribunal followed its own order, passed in the case of C.I.T. V/s. Meghalaya Steels Ltd. in I.T.A. No. 46/Gau/2009, for the assessment year 2006-2007, decided on 19.03.2010. The learned Tribunal held that the subsidies, received by the assessee-respondent’s industrial undertaking, would go on to reduce the corresponding expenses incurre d under those particular heads and the resultant profit would be the profits and gains of the business of the industrial undertaking eligible for deduction unde r Section 80-IC of the Act. The learned Tribunal further held that all the subsi dies were inter-linked, inter-laced and have a direct nexus with the manufacturi ng activities of the respondent’s industrial undertaking. (viii) Against the order, dated 19.03.2010, passed by the learned Tribunal, the Revenue is, now, in appeal before us.
Legal Reasoning
9. We have heard Mr. K. P. Pathak, learned Additional Solicitor General, ap pearing for the appellants. We have also heard Mr. R. P. Agarwalla, learned Sen ior counsel, for the assessee-respondents. SUBMISSIONS MADE BY THE APPELLANTS: 10. Presenting the case of the appellant, Mr. K. P. Pathak, learned ASG, sub mits that the crux of the matter, which falls for determination in the present a ppeals, is: Whether the assessee-respondents herein were entitled to deductions, either under Section 80IB or under Section 80IC of the Act, in the light of the Schemes of the various subsidies formulated by the Government. 11. The object of granting of the subsidies, in the present cases, was, subm its the learned ASG, to encourage setting up of new industries in the backward r egion and the subsidies were made available to the industries only after the pro duction commenced. 12. It is, therefore, an admitted position, contends the learned ASG, that t he subsidies, in question, are revenue receipts and not capital receipts. What is, however, crucial, for decision, in the present appeals, is, the question, ac cording to the learned ASG, whether the revenue receipt, in the form of transpor t subsidy, or interest subsidy or power subsidy or insurance subsidy,, at the ha nds of the assessee-respondents herein, goes on to reduce the cost of production of the industrial undertaking concerned and thereby affects the resultant profi ts and gains derived from, or derived by, the industrial undertaking concerned a nd whether the amount of subsidy, in question, in a case of present nature, woul d be permitted to be deducted under the provisions of either under Section 80IB or under Section 80IC of the Act, as the case may be. 13. Candidly submits the learned ASG that, in the present appeals, it is not in dispute that the industrial undertakings of the assessee-respondents herein are eligible industrial undertakings, under the relevant Government Policy/Schem e, to receive the subsidies, which were received by the assessee-respondents. Ho wever, what is in question, once again, points out the learned ASG, is whether a ny of the subsidies, in question, goes on to reduce the cost of production of th e industrial undertakings concerned and thereby makes, the assessee-respondents concerned entitled to claim deductions, either under Section 80IB or under Secti on 80IC of the Act of the amounts of the subsidies, which were received, in the form of revenue receipt, by the assessee-respondents. 14. Referring to the schemes the of subsidies,, the learned ASG submits that the schemes had been introduced by the Government with the main object of promo ting industrial growth in the areas, where the schemes had been made available, and this policy had been continued during the relevant year, but, in order to ob tain the benefit of deduction of profits and gains, under the Act, arising out o f the schemes of subsidies, an industrial undertaking has to satisfy the conditi ons embodied under Section 80IB or 80IC of the Act, as the case may be. While, in the case of Section 80IB, the fundamental requirement, accordi 15. ng to Mr. Pathak, learned ASG, is that the profits and gains have to be ’derived from’ the industrial undertaking, the profits and gains have to be ’derived by’ the industrial undertaking if one has to claim deduction under Section 80IC. Ne vertheless, in either case, submits the learned ASG, in order to become entitled to claim deduction of the amount of subsidy, received by an industrial undertak ing, the assessee must be able to show a direct nexus between the subsidy receiv ed, on the one hand, and the profits and gains of the industrial undertaking con cerned, on the other, inasmuch as there is no material distinction, contends the learned ASG, between the phrase, ’derived from’ and the phrase, ’derived by’ an d any attempt to distinguish the meaning of the said two expressions would be an academic exercise with no substantial gain and it is for this reason that the t wo phrases, namely, ’derived from’ and ’derived by’, are used interchangeably. What is, however, according to the learned ASG, imperative to show by an 16. assessee, in order to claim deduction, be it under Section 80IB or under Sectio n 80IC, is that the profits and gains have been, as the case may be, derived fro m or derived by the industrial undertaking, because of the subsidy received by t he assessee. As a corollary thereto, submits the learned ASG, the assessee would have to show, if the assessee has to claim deduction either under Section 80IB or under Section 80IC, that the profits and gains of the industrial undertaking concerned are directly relatable to, and connected with, the subsidies received and, hence, the profits and gains, so derived or so received, are not attributab le to the subsidies, which the assessee received, but either ’derived from’ or ’ derived by’, the industrial undertaking concerned. 17. According to the learned ASG, the word, ’derive’, which is of material s ignificance, has been the subject-matter of interpretation in various judicial p ronouncements without any reference to the suffix ’from’ or ’by’. A reference, in this regard, is made by the learned ASG to the case of Pandian Chemicals Ltd. vs. Commissioner of Income Tax [2003] 262 ITR 278. 18. Further elaborating his submission, the learned ASG points out that the word ’derive’ is of importance and the use of the suffixes, ’from’ or ’by’ to th e word ’derive’ are merely a manner of usage rather than an unintelligible diffe rentia. In support of his contention, the learned ASG refers to the case of Nat ional Organic Chemical Industries Limited vs. Collector of Central Excise, Bomba y (AIR 1997 SC 690), wherein the Supreme Court held as under: (cid:28)The dictionaries state that the word ’derive’ is usually follows by the word ’ from’ and it means get or trace from a source, arise from, originate in, show th e origin or formation of’. It, therefore, suggests that the root word is ’derived’ and the suffix ’from’ or ’by’ or ’directly’, etc., are indistinguishable and do not impinge on the inter pretation at hand. In other words, there is no greater significance in the word ’from’ following the word ’derived’ other than the fact that it is the usual lin guistic practice & & &.. (cid:29) (Emphasis added) The learned ASG has also placed reliance on the decisions rendered by va 19. rious High Courts as well as the Supreme Court, in Sharavathy Steel Products (P) Ltd vs. ITO [2011], 347 ITR 371, Commissioner of Income-tax vs. Maharani Packa ging (P) Ltd [2012] 209, reported in Taxman 49 (HP) (Mag), Commissioner of Incom e Tax in [2010] 193 Taxman 12, Janak Raj Bansal vs. CIT [2010], 228 CTR 167, Co mmissioner of Income Tax Karnal vs. Accent for living [2010], reported in 191 Ta xman 88, and Pine Packaging (P) Ltd vs. CIT, reported in 250 CTR 45, on the cont roversy if any distinction, between the meaning of the expressions, ’derived fro m’ and ’derived by’ really exists. 20. From the decisions referred to above, further submits the learned ASG, i t can be safely said that a number of superior judicial authorities have chosen to ignore the word ’from’ or ’by’, appearing after the word ’derived’, while con sidering the subject-matter involving and/or using the said two expressions. 21. According to the learned ASG, since there is no existing authority or de cided case, which establishes any intelligible distinction between the two expre ssions, namely, ’derived from’ and ’derived by, what has to be considered by thi s Court, in the present appeals, is whether the profits and gains of the industr ial undertakings, in question, were ’derived from’ or ’derived by’ the industria l undertakings concerned and whether the profits and gains, so derived, have a f irst degree nexus with the subsidies, which were received by the industrial unde rtakings. In consequence thereof, one can also safely gather, contends the learn ed ASG, that if no first degree nexus is established between the profits and gai ns derived by the industrial undertaking, on the one hand, and the subsidy or su bsidies received by the industrial undertaking concerned, on the other, the asse ssee would neither be entitled to deduction under Section 80IB nor would the ass essee be entitled to deduction under Section 80IC. 22. In his endeavour to establish his contention, that there does not really exist any distinction or difference between the two expressions, ’derived from’ and ’derived by’, the learned ASG has chosen to refer also to Chapter VI-A of t he Act, particularly, Section 80-IA, Section 80-ID, Section 80-IAB, Section 80-H HE, Section 80-HHF, etc. of the Act and submits that after going through the Sec tions, as mentioned hereinbefore, it is not at all difficult for a prudent perso n to come to the conclusion that the phrases, ’derived from’ and ’derived by’, u sed in these Sections of the Act, are, by no means, of any material significance and statutorily, it does not matter whether the profits and gains are derived f rom or derived by an industrial undertaking. 23. The learned ASG submits that considering the fact that the expression, ’ derived from’, appearing in Section 80IB, as well as the expression, ’derived by ’, appearing in Section 80IC, are narrower in scope than the expression, ’attrib utable to’, it becomes transparent that if one has to receive the benefit of Sec tion 80IB or Section 80IC, he must show that the source of profits and gains is directly from the manufacturing activities of the assessee and that the profits and gains, so derived, are directly affected by subsidy or subsidies received. Mr. Pathak has also submitted that merely because the scheme, in questio 24. n, provides for various subsidies, it does not mean that the subsidies have a di rect nexus with the profits and gains of the assessee-respondents’ industrial un dertakings. Had any subsidy been given on the cost of the raw materials actuall y consumed by the assessee-respondent’s industrial undertakings, the subsidy, on raw materials, would have, perhaps, been, according to the learned ASG, eligibl e for deduction under Section 80IB or 80IC. 25. Referring to the cases of Janak Raj Bansal vs CIT [2010], reported in 22 8 CTR 167, CIT vs. Maharani Packaging (P) Ltd, reported in [2012] 209 TAXMAN 49 (Mag.), Eastman Exports Global Clothing (P) Ltd vs. ACIT, reported in [2011] 331 ITR 232, Karnal vs. Accent of Living [2010], reported in 191 TAXMAN 88, and M.M . Forgings Ltd vs. Addl. CIT [2010], reported in 349 ITR 643, the learned ASG su bmits that in these cases, the Courts have taken the view that the Duty Drawback is not a profit or gain derived from industrial activity and, hence, Duty Drawb ack would not be eligible for deduction under Section 80IB. 26. The learned ASG has further pointed out that, in the case of Supriya Gil l vs. Commissioner of Income Tax [2010], reported in 193 TAXMAN 12, the Himachal Pradesh High Court has held that that freight subsidy, received from the govern ment by the assessee, will not be eligible for deduction, under Section 80-IA of the Act, on the ground that the source of freight subsidy was not the business of the assessee, but a scheme of the Central Government and, therefore, the same could not be treated as a profit ’derived from’ business. 27. Pointing out to the case of Sri Umesh M. Joshi, Mumbai vs. ITO [ITA No. 4287/Mum/2010, dated 23.12.2011], the learned ASG submits that in this case, the learned Income Tax Appellate Tribunal, Mumbai, confirmed the action of the Asse ssing Officer in disallowing the assessee’s claim for deduction, under section 8 0-IA of the Act, in respect of sales tax incentives on the ground that the immed iate source of the incentives, received by the assessee, was the relevant scheme of the State Government and not the business of the industrial undertaking of t he assessee. 28. Referring to the case of CIT vs. Gheria Oil Gramudyog Workers Welfare As sociation, reported in [2011] 330 ITR 117 (HP), the learned ASG submits that in this case, the Court has taken the view that interest subsidy, received by the a ssessee, under a scheme formulated by the State Government, is not a profit deri ved from business, because it not an operational profit. 29. Referring to the case of CIT vs. Kiran Enterprises [2010], reported in 1 89 TAXMAN 457, the learned ASG also submits that transport subsidy, received by the assessee, was not a profit derived from business, for, it was not an operati onal profit and that the source of the subsidy is not the business of the assess ee, but a scheme of the Central Government and, hence, the subsidy, received by the assessee, was not entitled to deduction under the Act. 30. Mr. Pathak, learned ASG, contends that the ratio of the judgment, render ed by this High Court, in Pancharatna Cement Vs. Union of India, reported in (20 09) 6 GLR 459, which is relied on by the assessee-respondents, is not an issue i n lis, in the present case, and the ratio of the said judgement of this High Cou rt is, therefore, not applicable to the substantial questions of law, framed by this Court, in the present cases. 31. In the cases at hand, submits the learned ASG, none of the subsidies can be said to be reducing the cost of production of the industrial undertakings co ncerned and no first degree nexus can be said to have been established between t he profits and gains derived from, or derived by, the assessee-respondents’ indu strial undertakings concerned, on the one hand, and the subsidies, received by t he assessee-respondents, on the other, and it is for this purpose that a subsidy , in a case of present nature, cannot be regarded as a subsidy, which helps in t he profits and gains of the industrial undertaking and, in such a case, the prof its and gains, derived from, or derived by, cannot be attributed to the subsidy received and, in a case of this nature, deduction, neither under Section 80IB no r under Section 80IC, would be available to the assessee concerned. 32. Heavily relying upon the case of Liberty India vs. CIT, reported in [200 9] 317 ITR218: (2009) 9 SCC 328, the learned ASG submits that the ’profits and g ains’ derived from, or derived by, the industrial undertakings of the assessee-r espondents, are, in effect, the subsidies provided by the Government and, althou gh the profits and gains of the industrial undertakings concerned may be attribu table to the subsidies received by the industrial undertakings concerned, the fa ct of the matter remains that the subsidies are revenue receipts and are liable to be taxed. 33. The issue, in these appeals, if a subsidy is or is not entitled for dedu ction under Section 80IB or 80IC has, submits the learned ASG, no longer remaine d res integra inasmuch as the issue is fully covered by the decision in Liberty India (supra). By referring to the case of Liberty India (supra), the learned AS G submits that, in this case, the issue, which fell for consideration, was: Whet her the profit from Duty Entitlement Passbook Scheme and Duty Drawback Scheme co uld be said to be profit derived from the business of industrial undertaking eli gible for deduction under Section 80-IB of the Act.? 34. Referring to the case of Liberty India (supra), it is contended by Mr. P athak, learned ASG, that, in Liberty India (supra), the Supreme Court has unamb iguously laid down that the tax incentives, under Chapter VI-A of the Act, are a ttracted only to the generation of operational profits and that the benefit of d eduction will not be available in respect of the receipts, which do not have any direct nexus with the operation of industrial undertaking of the assessee, i.e ., whose source is beyond the ’first degree’. The learned ASG refers to paragrap h 17 and 18 of the case of Liberty India (supra) and contends that the Supreme C ourt has already held, in Liberty India (supra), that DEPB and Duty Drawback are incentives, which flow from the Schemes framed by Central Government, and these incentives do not, in any way, establish a nexus between the profits and gains of the industrial undertakings and cannot, therefore, entitle the assessee-respo ndents to seek exemption under Section 80IB or 80IC. In fact, it has been clear ly held, in Liberty India (supra), reiterates Mr. Pathak, that these incentives are revenue receipts, which belong to the category of ancillary profits of the i ndustrial undertakings concerned and shall be taxed accordingly. 35. In other words, submits the learned ASG, the Supreme Court has held, Lib erty India (supra), that incentives, originating from a Government Scheme, such as the one in Liberty India (supra), fall beyond the ’first degree’ rule and, he nce, are not entitled to deduction under Chapter VI-A of the Act. In paragraph 1 8 of the decision, in Liberty India (supra), the Supreme Court has held, points out Mr. Pathak, as under: (cid:28)We are satisfied that remission of duty is on account of the statutory/policy provisions of Custom Act/Scheme(s) framed by the Government of India. In these c ircumstances, we hold that profits derived by way of such incentives do not fall within the expression (cid:29) profits derived from industrial undertaking (cid:29) in section 80-IB. (cid:29) 36. Mr. Pathak, learned ASG, has also submitted that there is no material di fference between an incentive scheme, such as, DEPB and Duty drawback, which wer e dealt with by the Supreme Court, in Liberty India’s case (supra), and the subs idies, which have fallen for consideration in the present cases. It cannot be d isputed, according to the learned ASG, that the various kinds of subsidies may f low from Governmental schemes and, therefore, the subject-matter, which was deal t with by the Supreme Court, in Liberty India’s case (supra), cannot be distingu ished from the cases at hand and that the Liberty India’s case (supra) is square ly applicable to the cases at hand inasmuch as the subsidies, in the present cas es, cannot but be regarded as non-operational profits, having no direct nexus wi th the activities of the undertakings of the assessee-respondents. Any argument to the contrary, further submits Mr. Pathak, would be perverse and in breach of Article 141 of the Constitution of India. Assailing the contention of the assessee-respondents, that the subsidies 37. , received by the assessee-respondents, in the present cases, go to reduce the e xpenditure actually incurred by the industrial unit of the assessee-respondents and, hence, the same ought to be regarded as operational profits, Mr. Pathak su bmits that this contention of the assessee-respondents cannot hold water on the ground that the classification of a particular receipt, by an industrial unit, i s required to be done at the time of its receipt and the subsequent classificati on, in its books of account, under different heads, is immaterial. 38. Illustrating his above contention the learned ASG submits that for a tex tile industry producing cloth, the main industrial components for profits and ga ins would be the manufacture and sale of cloth itself. If any profits and gains are derived by the industry by operation of a canteen for its employees in the i ndustry, the same would not be entitled for special deduction under Section 80 I B or Section 80 IC and it is in this context that the Supreme Court has observed , Liberty India’s case (supra), (cid:28) & & & &profits derived by way of such incentives d o not fall within the expression ’profits derived from industrial undertaking in Section 80-IB’. 39. In support of his above contention, the learned ASG has also referred to paragraph 24 of Liberty India’s case (supra), wherein the Supreme Court has obs
Decision
erved as under: (cid:28)In the circumstances, we hold that Duty drawback/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of secti on 80I/80-IA/80-IB of the Act. (cid:29) SUBMISSIONS BY THE RESPONDENTS: 40. Interestingly enough, Mr. R.P. Agarwalla, learned Senior counsel, while resisting the appeals, does not dispute the fact that there is a difference betw een the two expressions, namely, ’derived from’ and ’attributable to’. In fact, Mr. Agarwalla submits that there can be no two opinions that the said two expres sions carry two different meanings inasmuch as the expression ’derived from’ is narrower than the expression ’attributable to’. 41. The meaning of the word ’derived’ is, according to Mr. Agarwalla, learne d Senior counsel, not a subject matter of controversy, but the attempted questio n, raised by the Revenue, regarding the expressions ’derived from’ and ’derived by’ is incorrect. It can be easily comprehended, submits Mr. Agarwalla, learned Senior counsel, that the ’profits and gains’, ’derived from’ an industrial under taking means that it is the business of the undertaking, which is the direct sou rce of the ’profit and gains’; whereas the expression ’derived by’ means that th e business of the undertaking is the recipient of the profits and gains. 42. At any rate, submits Mr. Agarwalla, the question of interpreting the exp ression ’derived from’ or the expression ’derived by’ would arise only when this Court finds that the nexus, between the subsidies, in question, on the one hand , the manufacturing process/production of the industrial undertaking, on the oth er, is not direct, or else, the question of distinguishing the expression ’deriv ed by’ from the expression ’derived from’ would be, contends Mr. Agarwalla, irre levant. 43. While resisting the appeal, Mr. R.P. Agarwalla, learned Senior counsel, makes it also clear that it is not material, as far as the assessee-respondents are concerned, whether deduction is required to be allowed under Section 80IB or 80IC of the Act for the subsidies, which the assessee-respondents’ industrial u ndertakings have received during the relevant year inasmuch as the assessee-resp ondents, in either case, according to Mr. Agarwalla, would be entitled to deduct ions if the assessee-respondents can show that the subsidies, given in the form of transport subsidy, or interest subsidy, or power subsidy, or insurance subsid y, are aimed at reducing the cost of production of the assessee-respondents’ ind ustrial undertakings and thereby directly affect the profits and gains made by t he industrial undertakings concerned. 44. Referring to the case of Liberty India Vs. CIT, reported in (2009) 9 SCC 328, Mr. Agarwalla, learned Senior counsel, submits that the issue, raised in L iberty India (supra), was distinct and different from the issues, which the case s at hand raise inasmuch as the subjects for consideration, in Liberty India (su pra), were Duty Entitlement Passbook Scheme (DPEB) and Duty Drawback Scheme, whi ch were schemes providing for incentives to augment export and these schemes wer e not meant for directly reducing the cost of production of the industrial under taking. In fact, in Liberty India (supra), submits Mr. R.K. Agarwalla, the asses see concerned, unlike the facts of the case at hand, was not involved in manufac turing activities. From the decision, in Liberty India (supra), it is clear, according to M 45. r. Agarwalla, that DPEB and Duty Drawback Scheme, being export incentives, were not related to the business of industrial undertaking per se for its manufacturi ng or production. Entitlement of DPEB and Duty Drawback Scheme arose, in Liberty India (su 46. pra) points out Mr. Agarwalla, when the undertaking made export after manufactur ing or production and remained restricted only to export component. Consequently , points out Mr. Agarwalla, when there was no export, the question of any entitl ement, either under the DPEB or under Duty Drawback Scheme, did not arise and, a s a result thereof, the relation of DPEB and/ or Duty Drawback Scheme with the m anufacturing activities was not proximate or direct. This apart, DPEB entitlemen t was freely transferable or saleable resulting in profit or loss, which is not the case at hand. Coupled with the above, it is submitted by Mr. Agarwalla that the Suprem 47. e Court, in Liberty India (supra), clearly pointed out that so far as the Duty D rawback was concerned, the same envisaged repayment of customs and excise duty p aid by an assessee, but the refund of the amount shall not arithmetically be equ al to customs duty or central excise duty actually paid by an individual importe r or manufacturer. 48. It is, therefore, clear, submits Mr. Agarwal, that the Duty Drawback was not related to the business of industrial undertaking so far as manufacturing or production was concerned and, that is why, the Supreme Court held, in Libert y India (supra), that the profits, derived by way of incentive, such as, DEPB, d o not fall within the expression ’profits derived from industrial undertaking’ a ppearing in Section 80IB; whereas the present cases are the ones, wherein the su bsidies directly affect the cost of production of the industrial undertakings co ncerned and are inextricably linked to the assessee-respondents’ manufacturing a ctivities. 49. Liberty India (supra) is, thus, according to Mr. Agarwalla, an authority for the proposition, which governs the statutory schemes or provisions of DEPB and Duty Drawback inasmuch as the said scheme relate to the export of an industr ial undertaking and is not at all an answer to the question of deduction arising in each and every incentive embodied scheme, more particularly, a scheme, which is directly connected with reduction of cost of production/manufacture of an in dustrial undertaking. By no means, therefore, contends Mr. Agarwalla, learned Se nior counsel, Liberty India (supra) can be said to be a decision applicable to t he facts of the present case. 50. Referring to the case of Liberty India (supra), Mr. Agarwalla submits th at though the Revenue has heavily relied on the decision, in Liberty India (supr a), the fact of the matter remains that the chief question, which has fallen for determination, in the present cases, was not at all a question, which was raise d and decided in Liberty India (supra) and, hence, the reference, made by the Re venue to the decision, in Liberty India (supra), or to the observations made the rein, which is not in the context of a case of present nature, cannot be said to be the answer to the question(s) raised in the present appeals. 51. In fact, the Supreme Court has, in the past, points out Mr. Agarwalla, c autioned the courts not to mechanically rely upon a decision of the Supreme Cour t without taking into account the facts of the case, which render colour to the decision of the Court, and that the decision of the Supreme Court is not to be r ead like a statute and the words or the sentences are not to be read de hors the context in which the question arose. Unless, therefore, an issue is raised and decided by the Supreme Court in a case, the question of applying the decision o f the Supreme Court would not, contends Mr. Agarwalla, learned Senior counsel, a rise. A reference, in this regard, is made by Mr. Agarwalla, to the case of Com missioner of Income Tax vs. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC ), wherein the Supreme Court observed as under: (cid:28)It is neither desirable nor permissible to pick out a word or a sentence from t he judgment of this court, divorced from the context of the question under consi deration and treat it to be the complete \ law \ declared by this court. The jud gment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decisio n of this court takes its colour from the questions involved in the case in whic h it is rendered and, while applying the decision to a later case, the courts mu st carefully try to ascertain the true principle laid down by the decision of th is court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support thei r reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9 / AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC). (Emphasis supplied) It is not proper to regard a word, a clause or a sentence occurring in a judgme nt of the Supreme Court, divorced from its context, as containing a full exposit ion of the law on a question when the question did not even fall to be answered in that judgment. (cid:29) The question, points out Mr. Agarwalla, which was raised in Liberty Indi 52. a (supra), was: Whether profit from the Duty Entitlement Passbook Scheme (DEPB) and Duty Drawback Scheme could be said to be profit derived from the business of the industrial undertaking eligible for deduction under section 80-IB of the In come Tax Act, 1961 (1961 Act) ? 53. Thus, the question, in Liberty India (supra), as can be clearly gathered , was, submits Mr. Agarwalla, learned Senior counsel, whether the profits, which were received from Duty Entitlement Passbook Scheme and Duty Drawback Scheme, c ould be regarded as profits derived from the business of the industrial undertak ing and, if so, whether the profits, so derived, were permissible to be deducted under Section 80IB. 54. The Supreme Court, while answering the above question in the negative, p ointed out, submits Mr. Agarwalla, that DEPB is an incentive and it is given und er Duty Exemption Remission Scheme and that DEPB is not related to the business of industrial undertaking per se for its ’manufacturing or production’ inasmuch as DEPB’s entitlement would arise, when the undertaking goes on to ’export’ afte r ’manufacturing or production’ and is restricted only to ’export product’. Ther efore, it is clear, reiterates Mr. Agarwalla, that if there was no export, there was no DEPB entitlement. Further, the entitlement was based on the artifice of ’deemed import content of export product’ and not even based on ’actual import c ontent of the export product’. 55. The decision, in Liberty India (supra), according to Mr. Agarwalla, is a n exposition of law in respect of statutory schemes/ provisions of DEPB and Duty Drawback, which were related to export of an industrial undertaking and not at all an exposition on the question of each and every incentive scheme, more parti cularly, those schemes, which as are inextricably and directly connected to the reduction in the cost of production/manufacture of an industrial undertaking, an d the schemes, such as the present ones, did not even fall for consideration in Liberty India’s case (supra). Therefore, contends Mr. Agarwalla, the Revenue’s reliance, on Liberty India (supra), is wholly misplaced. 56. No wonder, therefore, contends Mr. Agarwalla, that in MEPCO INDUSTRIES L TD. V/s C.I.T., D9 319 ITR 208 (S.C.), which is a later decision, the Court has clearly pointed out that the nature of a subsidy, in each case, is separate and distinct and, therefore, the nature of subsidy has to be examined, in each case, independently. Illustrating this principle, the Supreme Court held, in MEPCO I NDUSTRIES LTD. (supra), as under: (cid:28)Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) was a case which dea lt with production subsidy, Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 ( SC) dealt with subsidy linked to loan repayment whereas the present case deals w ith a subsidy for setting up an industry in the backward area. Therefore, in cas e, one has to examine the nature of the subsidy. The judgment of this court in S ahney Steel and Press Works Ltd. [1997] 228 ITR 253 was on its own facts; so als o, the judgment of this court in Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC). The nature of the subsidies in each of the three cases is separate and distinct. There is no strait jacket principle of distinguishing a capital recei pt from a revenue receipt. It depends upon the circumstances of each case. As st ated above, in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC), this c ourt has observed that the production incentive scheme is different from the sch eme giving subsidy for setting up industries in backward areas. In the circumsta nces, the present case is an example of change of opinion. Therefore, the Depart ment has erred in invoking section 154 of the Act. (cid:29) (Emphasis is added) 57. In the light of the decision, in MEPCO INDUSTRIES LTD (supra), one can h ave no escape from the conclusion, submits Mr. Agarwalla, that the nature of sub sidy has to be examined by the Court, in each case, in order to determine if an asseessee’s undertaking is entitled to deduction under Section 80IB or 80IC of t he Act. 58. The exact nature and character of transport subsidy, points out Mr. Agar walla, were examined and considered by the Supreme Court, in JAI BHAGWAN OIL & F LOUR MILLS V/S. Union of India, reported in (2009) 14 SCC 63, and having examine d the nature of the transport subsidy, the Supreme Court, in JAI BHAGWAN OIL & FLOUR MILLS (supra), laid down, in emphatic words, that transport subsidy was ’n ot’ meant to augment revenue, by levy and collection of tax or duty, rather, the object was to ’improve’ trade and commerce between the remote parts of the coun try with other parts so as to bring economic development to remote backward regi ons and this scheme was introduced to make it feasible and attractive for indust rial 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 the no n-remote areas. 59. The Court has also pointed out, in clear words, in JAI BHAGWAN OIL & FLO UR MILLS (supra), submits Mr. Agarwalla, that huge transportation cost, for the purpose of bringing the raw materials to the industrial unit and carrying of fin ished goods to the existing market outside the State, was making it unviable for industries in remote parts of the country to compete with industries in the cen tral areas and that is why, transport subsidy was developed as a device so that the industries can become competitive and become economically viable. Thus, indu strial units, in remote areas, were extended the benefit of subsidized transport ation. For industrial units in Assam and other north eastern States, the benefit was given, in the form of transport 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. Mr. Agarwalla has al so referred to paragraph 18 of the decision of the Supreme Court, in JAI BHAGWAN OIL & FLOUR MILLS (supra), which read as under: (cid:28)Any goods which goes in as a raw material required/used in the manufacturing p rogramme of an industrial unit situated in a notified remote area, or any finish ed goods that is produced in the industrial unit situated in such area and expor ted out of the State, was eligible for the transport subsidy under the Scheme. T he Scheme itself specifically defines (cid:28)finished goods (cid:29) as goods actually produce d by an industrial unit in accordance with the manufacturing programme as approv ed by the Central Government and/or the Government of the State where the indust rial unit is located. (cid:29) (Emphasis is added). 60. The Revenue, according to Mr. Agarwalla, has not even attempted to comme nt, far less distinguish the decision in JAI BHAGWAN OIL & FLOUR MILLS (supra). There is, therefore, direct nexus, submits Mr. Agarwalla, between the subsidies and manufacturing activities, in the present cases, entitling the assessee-respo ndents to receive deductions for the subsidies received. 61. Similarly, submits Mr. Agarwalla, learned counsel for the assessee-respo ndents, that the issue of power subsidy is directly covered by the decisions, in C.I.T. V/S. Rajaram Maize Products 251 I.T.R. 427 (S.C.), and C.I.T. V/S. Easte rn Electro Chemical Industries, reported in (1999) 9 SCC 20, and that the nature and character of interest subsidy and insurance subsidy, being identical to tha t of power subsidy, interest subsidy and insurance subsidy are also covered by t he decisions, in Rajaram Maize Products (supra) and Eastern Electro Chemical Ind ustries (supra). RIVAL CONTENTIONS VIS-À-VIS LEGAL PROPOSITIONS : 62. Shorn off rhetorical legal arguments, compassionate pleas and emotionall y surcharged submissions, what surfaces from beneath the mass of materials place d before this Court, by way of pleadings and otherwise, is that there is no disp ute, in this set of appeals, that, in order to claim deduction either under Sect ion 80IB or under Section 80IC, an assessee has to establish that there is a dir ect, intrinsic and first degree nexus between a subsidy, on the one hand, and th e profits and gains, on the other, derived from, or derived by, the industrial u ndertaking concerned. There is also no dispute that if any of the subsidies, in question, goes on to reduce the cost of production of an industrial undertaking , the resultant profits and gains are deductible under the provisions of Section 80IB or 80IC, as the case may be. Surfacing from beneath this statutory require ment, the legal proposition is that if the subsidy is non-operational in nature, there will be no entitlement of deduction; but the subsidy, if operational, wou ld entitle an assessee to claim deduction. 63. There is no dispute at the bar that the subsidies, which we are required to deal with, are revenue receipts. The question, however, is: these revenue r eceipts, if help an industrial undertaking in earning profit and making gains, w hether the undertaking is entitled to seek deduction if the undertaking satisfie s, otherwise, the conditions prescribed by Section 80IB or 80IC, as the case may be ? Though Mr. Pathak, learned ASG, is correct to some extent in contending 64. that there is no substantial distinction between the two expressions, namely, ’d erived from’ and ’derived by’, what we must point out is that the expression ’de rived from’, occurring in Section 80IB, implies that the profits and gains have to be derived from the activities of the industrial undertaking. In other words, as rightly contended by Mr. Agarwalla, learned Senior counsel, when the express ion, ’derived from, has been used in Section 80IB, it means that it is the busi ness of the undertaking, which is the direct source from which the profits and g ains are derived. In the case of a subsidy, the expression, ’derived from’, appe aring in Section 80IB, would, logically extended, mean that the subsidy, provide d by the State, directly affects the business activity of the industrial underta king. In the case at hand, the assessee-respondents contend that the subsidies, provided to them, go on to reduce the cost of production of the industrial under takings concerned and the resultant effect is generation of more money resulting into higher profits. In the case of 80IC, however, one has to show that it is t he industrial undertaking, which is the recipient of profits and gains arising f rom a subsidy, which the industrial undertaking has received. It is immaterial as to what Section has been invoked by an assessee for the purpose of claiming d eduction so long as an assessee is entitled to statutory deduction. Consequently , the deduction must be allowed even if an assessee refers to an incorrect statu tory provision for claiming deduction. The fact of the matter remains that, in the case at hand, since the sub 65. sidies, in question, are claimed to have helped the undertakings in generating p rofits and making gains by reducing the operational cost of the activities of th e industrial undertaking concerned, the statutory provision for deduction, appos ite to a case of present nature, is Section 80IC inasmuch as the recipient of th e profits and gains, arising out of the subsidies, is, eventually, an industrial undertaking. 66. What is, therefore, required to be decided, in the present set of appeal s, is as to whether there is direct nexus between the subsidies, on the one hand , and the manufacturing activities of the industrial undertaking, on the other. If there is a direct nexus between the two, then, the industrial undertaking is , undisputedly, entitled to claim deduction in respect of the profits and gains, if any, made by the industrial undertaking. 67. In order to sustain its plea, that there is no direct nexus between the subsidies, received by the industrial undertakings of the assessee-respondents, on the one hand, and the manufacturing activities of the industrial undertaking s, on the other, the Revenue contends that subsidies, received by the industrial undertakings of the assessee-respondents, are non-operational, in nature, meani ng thereby that it does not have any bearing on the manufacturing activities of the industrial undertakings, while the assessee-respondents contend that the sub sidies, in question, directly affect the operation of the manufacturing activiti es of the industrial undertakings and have, therefore, direct bearing on the ear ning of profits and making of gains by the industrial undertakings concerned. T he controversy, thus, lies in a narrow compass, though the arguments addressed a re varied and repetitive. 68. The moot question, which, therefore, falls for determination in the pres ent set of appeals is: Whether there is direct and first degree nexus between th e subsidies, on the one hand, and the profit and gains, on the other, of the ind ustrial undertakings concerned? 69. While answering the question, posed above, one has to bear in mind, as a lready indicated above, that there are four distinct subsidies, namely, transpor t subsidy, interest subsidy, power subsidy and insurance subsidy, which are invo lved in the present set of appeals. 70. Let us, first, deal with transport subsidy, which would, per force, brin g us to the object with which transport subsidy was introduced and the manner in which the scheme of transport subsidy was to operate so that we can determine i f there was a direct nexus between transport subsidy, on the one hand, and the r esultant profits and gains of the industrial undertakings concerned, on the othe r. SCHEME OF TRANSPORT SUBSIDY: 71. A new industrial policy was unfurled by Notification, dated 23rd of July , 1971, issued by the Government of India embodying a scheme for grant of subsid y on the transport of raw materials actually required and used by an industrial unit in its manufacturing programme as approved by the Government of India and/o r Government of the State/Union Territory, where the industrial unit is located, and also transportation of finished goods actually produced by an industrial un it in accordance with the manufacturing programme approved by the Government of India and/or Government of the State/Union Territory, where the industrial unit is located. 72. In the present appeals, we are concerned not only with Transport Subsidy Scheme (as embodied in the Industrial Policy announced by Notification, dated 2 3rd of July, 1971, and extended by Office Memorandum, dated 24.12.1997), but als o with subsidy on interest, subsidy on power, and subsidy on insurance. The rele vant portion of the Scheme embodied in Clause (iv) of the Notification, dated 23 rd of July, 1971, aforementioned, and titled as the Transport Subsidy Scheme, 19 71, reads as under: (cid:28)(iv) In the case of North-Eastern region comprising the States of Assam, Meghal aya, Nagaland, Manipur, Tripura and the Union Territories of Arunachal Pradesh a nd Mizoram the transport subsidy will be given on the transport costs between Si liguri and the location of the industrial unit in these states/Union territories . While calculating the transport costs of raw materials the cost of movement by rail from Siliguri to the railway station nearest to the location of the indust rial unit and thereafter the cost of movement by road to the location of industr ial unit will be taken into account. Similarly, while calculating the transport costs of finished goods the costs of movement by road from the location of indus trial unit to the nearest railway station and thereafter the cost of movement by rail to Siliguri will be taken into account. In the case of North Eastern regio n, for materials moving entirely by road or other mode of transport the transpor t costs will be limited to the amount which the industrial unit might have paid had the raw materials moved from Siliguri by rail upto the railway station neare st to the location of the industrial unit and thereafter by road. Similarly in t he case of movement of finished goods moving entirely by road or other mode of t ransport in the North Eastern region, the transport costs will be limited to the amount which the industrial unit might have paid had the finished goods moved f rom the location of the industrial units to the nearest railway station by road and thereafter by rail to Siliguri. added) (Emphasis is 73. For helping in the growth of industries, development of economy and gene ration of employment, Sub-Clause (iv) of Clause 6 of the Scheme was amended by G overnment of India’s Notification, dated 28.02.1974, which made it clear that tr ansport subsidy would cover movement of ’raw materials’ from one State to anothe r within the North Eastern Region and, further, transport subsidy would cover in ter-State movement of ’finished goods’ within the region, but the subsidy availa ble would, under the amended Scheme, be 50% of the transport cost on the movemen t of the goods from the location of the industrial units to the nearest Railway Station by road and, thereafter, by rail and vice-versa. 74. Under the unamended Scheme, transport subsidy was to cover 75% of the ai r freight on movement of electronic component/products by air to, and from, Calc utta up to the location of the industrial unit and vice-versa. The Scheme, on am endment, clarified that in case of movement of goods moving partly by air and pa rtly by rail/road, the transport subsidy would be admissible @ 75% on air freigh t from Calcutta up to the airport nearest to the location of the industrial unit and, thereafter, at the rate of 90% for movement by rail/road up to the locatio n of the industrial unit and vice versa. 75. In order to check that no misuse of transport subsidy takes place, Sub-C lause (iii) of Clause 6 of the Scheme made it a duty of the Directorates of Indu stries, in the State/Union Territories, to carry out periodical checks to ensure that the raw materials and the finished goods, in respect of which transport su bsidy had been given, were actually used for the purpose by adopting a system of scrutinizing of consumption of raw materials and the output of the finished goo ds. Before proceeding further, we may point out that Clause 4 of the Transpo 76. rt Subsidy Scheme contain various definitions. The definitions, relevant for the purpose of this appeal, are of raw material and finished goods as defined by Su b-Clauses (h) and (i) of Clause (4) of the Scheme and, therefore, reproduced bel ow: (h) ’Raw material’ means any raw material actually required and used by an i ndustrial unit in its manufacturing programme as approved by the Government of I ndia and/or by the Government of State/Union Territory in which the industrial u nit is located. (i) ’Finished goods’ means the goods actually produced by an industrial unit in accordance with the manufacturing programme approved by the Government of In dia and/or the Government of the State/Union Territory in which the industrial u nit is located. (Emphasis is added) 77. From the definition of raw material and finished goods, it is crystal cl ear that the term, raw material, under the Scheme, means any raw material actual ly required and used by an industrial unit in its manufacturing programme as app roved by the Government of India and/or by the Government of State/Union Territo ry in which the industrial unit is located. Similarly, the definition of finishe d goods makes it abundantly clear that the term, finished goods, under the Schem e, means the goods actually produced by an industrial unit in accordance with th e manufacturing programme approved by the Government of India and/or the Governm ent of the State/Union Territory in which the industrial unit is located. 78. From the definition of raw materials and finished goods, embodied in the Transport Subsidy Scheme, 1971, and the details of the Scheme as contained, par ticularly, in Sub-Clause (iv) of Clause 6 of the Scheme shows that in the case o f North-Eastern Region, the Scheme promised that the transport subsidy would be given on the transport costs, between Siliguri and the location of the industria l unit concerned, on the raw materials actually required and used by the qualifi ed industrial unit in its manufacturing programme as may have been approved by t he Government concerned. The Transport Subsidy Scheme, 1971, also promised to ma