By TIOL News Service

SRINAGAR, JUNE 01, 2017: THE ISSUE BEFORE THE COURT IS - Whether a manufacturer is entitled to deduction u/s 80IB of the I-T Act in respect of excise duty refund & transport subsidy. YES is the verdict.

Facts of the case:

The assessee is a manufacturer of cement and it is said to be an industrial undertaking, eligible for 100% exemption in relation to profit and gains derived from industrial undertaking u/s 80-IB. It had filed the return declaring the income as Nil, claiming deduction u/s 80-IB. Among various exemptions, assessee claiming the exemption in relation to excise duty refund in a sum of Rs. 1,52,38,466/-, transport subsidy of Rs. 83.05902/-. The AO however declined to grant the benefit and the CIT(A) upheld the same.

On appeal, the HC held that,

++ the issue relating to excise duty refund in relation to claim in terms of Section 80 IB was considered by this Court in ITA No. 02 of 2010 dated 31.01.2011, in M/S Shree Balaji Alloys & Ors. vs. Commissioner of Income Tax & Anr, by virtue of an exhaustive and detailed judgment, analysing the industrial policy of the State and the need for granting the benefit of excise refund on the industrial undertaking. The Court therein has held that: "....the incentives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve Public Purpose, cannot by any stretch of reasoning, be construed as production of operational incentives for the benefit of assessee alone. Thus, looking to the purpose, the incentives cannot be construed as mere Production and Trade Incentives. Accordingly, the Excise Duty Refund, interest subsidy and Insurance subsidy were Production Incentives, hence cannot be treated as Revenue Receipt...." The Court held that excise refund to be capital receipts in the hands of assesses and deduction u/s 80IB. This decision was up held by the Supreme Court in Commissioner of Income Tax v. M/S Meghalaya Steels Lld. - 2016-TIOL-25-SC-IT, and in case M/S Shree Balaji Alloys v. Commissioner of Income Tax and anr - 2011-TIOL-269-HC-J&K-IT. Therefore, the appellant is entitled to deduction under section 80-IB in respect of excise duty refund of Income Tax Act;

++ in so for as the transport subsidy is concerned in the case of Commissioner of Income Tax income Tax Vs. M/S Meghalaya Steels Ltd - 2016-TIOL-25-SC-IT, the Supreme Court held that the benefit of deduction under section 80-IB of the Income Tax Act is applicable to transport subsidy. A circular No. 39/2016 dated November 29th, 2016, issued by Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi is also on the aforesaid terms. In view of the above, the question of law are answered in favour of the assessee.

(See 2017-TIOL-1038-HC-J&K-IT)