S C) and CIT v. Raja Ram Maize Products

The assessee is an industrial undertaking engaged in the business of manufacture and sale of Fire Brick and Fire Clay. In its return for the assessment year in question, the assessee claimed deduction under Section 80IB of the Act with rega rd to the amount received by it towards transport subsidy. The Assessing Officer disallowed the same on the ground that the subsidy received was not income (cid:28)der ived from (cid:29) the industrial undertaking and was thus not eligible for deduction un der Section 80IB. The said view was upheld by the CIT (A) as an appellate author ity. On further appeal, the Tribunal upheld the plea of the assessee holding that the subsidy received was (cid:28)attributable to (cid:29) the business of the assessee and had dir ect nexus with its profit or loss. The subsidy received reduced expenses resulti ng in profit and the same could be treated to be income (cid:28)derived from (cid:29) the busin ess of the assessee in terms of Section 80 IB of the Act. Reference was made to the Industrial Policy Document of 1977 which contained the scheme of the subsidy in question. Reliance was placed on its earlier decision dated 19.03.2010 in IT A No. 46/Gau/09 in CIT vs. M/s. Meghalaya Steels Ltd. Therein, the judgment of t he Hon’ble Supreme Court in Liberty India vs. CIT (2009) 317 ITR 218 was disting uished on the ground that the same was per incuriam having not referred to earli er judgments in Sahney Steel and Press Works Ltd. & Ors. Vs. CIT, 228 ITR 253 (S C) and CIT vs. Raja Ram Maize Products, 251 ITR 427 (SC). Notice was issued to the assessee and it was deemed to have been served, but non e appears for the assessee. The assessee is proceeded ex-parte. The view taken by the Tribunal in its earlier decision in M/s Meghalaya Steels L td. was considered by this Court in order dated 16.9.2010 in ITA 6/2010. The vie w taken by the Tribunal was reversed.It was held that there was no conflict in l aw laid down in Liberty India to the effect that the receipt by way of subsidy was not income (cid:28)derived from (cid:29) the business of the assessee for being eligible u nder Section 80 IB and the view taken in Sahney Steels and Press Works & Ors. Vs . CIT, 228 ITR 253(SC) and CIT vs. Raja Ram Maize Products, 251 ITR 427 (SC) whi ch dealt with the question whether the subsidy was revenue receipt or capital re ceipt. Expression (cid:28)attributable to (cid:29) was wider and covered source of income beyon d the 1st degree while the expression (cid:28)derived from (cid:29) was narrower and did not co ver source of income beyond 1st degree. Reliance was also placed on Cambay Elect ric Supply Industrial Co. vs. CIT, (1978) 113 ITR 84. The observations of this C ourt are reproduced below:- (cid:28)10. e revenue receipts and have been granted after setting up of the new industries and after commencement of production. In a sense, therefore, as contended by lea rned counsel for the assessee, the transport subsidy would have the effect of re ducing the inward and outward transport costs for the purposes of determining th e cost of production as well as for sales. However, this does not have any direc t nexus with the profits or gains derived by the assessee from its industrial ac tivity - the benefit to the assessee is only ancillary to its industrial activit y. Since the subsidies are not directly relatable to the industrial activity of In the case before us, there is no dispute that the subsidies granted ar the assessee, they do not fall within the first degree contemplated by the Act a nd as explained by the Supreme Court in Liberty India. Learned counsel for the assessee referred to Commissioner of Income Tax 11. vs. Rajaram Maize Products, [2002] 251 ITR 427. However, we cannot see how the a ssessee can derive any support from this decision. In that case, the question wa s whether the power subsidy received was of a revenue nature or not. That is not the issue before us because admittedly the subsidies in this case are of a reve nue nature.

#12. The expression (cid:28)derived from (cid:29) occurring in Section 80IB of the Act in re lation to the business of an industrial undertaking is narrower in connotation t han the expression (cid:28)attributable to (cid:29) the business of an industrial activity. Thi s was so held long back in Cambay Electric Supply Industrial Co. v. CIT [1978] 1 13 ITR 84. Therefore, while (cid:28)attributable to (cid:29) as used in some other sections of the Act, may cover sources of income beyond the first degree, (cid:28)derived from (cid:29) as used in Section 80IB of the Act is not intended to cover sources beyond the firs t degree. It is keeping this distinction in mind that it must be held that trans port subsidy and interest subsidy cannot be said to be (cid:28)derived from (cid:29) the indust rial undertaking of the assessee. At best, it can only be ancillary to the profi ts and gains relatable to or (cid:28)attributable to (cid:29) the business of the industrial un dertaking and not in the category of profit and gains (cid:28)derived from (cid:29) its industr ial activity. (cid:29) In view of above, the question raised is fully covered by the earlier judgment o f this Court in CIT vs. M/s Meghalaya Steels Limited in favour of the revenue. Accordingly, the question raised by the Revenue is answered in its favour. The appeal is allowed.