By TIOL News Service

NEW DELHI, MAR 10, 2016: THE issue before the Bench is - Whether subsidies received towards reimbursement of actual costs of manufacture are eligible for benefits of Sec 80IB. YES is the answer.

Facts of the case

The assessee is engaged in the business of manufacture of Steel and Ferro Silicon. Assessee submitted its return disclosing an income of Rs.2,06,970/- after claiming deduction under Section 80-IB of the Income Tax Act on the profits and gains of business of the assessee’s industrial undertaking. The assessee had received amounts of subsidies under the heads of transport, interest and power. The AO held that the amounts received by the assessee as subsidies were revenue receipts and did not qualify for deduction under Section 80-IB(4) of the Act and, accordingly, the claims were disallowed.

The CIT(A) dismissed the appeal but the Tribunal ruled in favour of the assessee. The High Court also held in favour of the assessee.

On appeal, the Apex Court held that,

++ the parties have locked horns on the meaning of the expression “any profits and gains derived from any business”. The aforesaid provisions were inserted by the Finance Act 1999 with effect from 1.4.2000. The Finance Minister in his budget speech for the year 1999-2000 spoke about industrial development in the North Eastern Region;

++ the reference to the 10 year tax holiday (in Budget Speech) for the industries set up in the North Eastern Region is an obvious reference to the second proviso to sub-section (4) of Section 80-IB. The speech of a Minister is relevant insofar it gives the background for the introduction of a particular provision in the Income Tax Act. It is not determinative of the construction of the said provision, but gives the reader an idea as to what was in the Minister’s mind when he sought to introduce the said provision;

++ we are of the view that the judgment in Merino Ply & Chemicals Ltd. and the recent judgment of the Calcutta High Court have correctly appreciated the legal position;

++ we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided.

(See 2016-TIOL-25-SC-IT)