2015 (12) TMI 125 - AT - Income Tax

Deduction u/s. 80IC on transport subsidy and interest subsidy - Held that - As decided in CIT Vs. Meghalaya Steels Ltd. & Pride Coke Pvt. Ltd. 2013 (7) TMI 175 - GAUHATI HIGH COURT under this Scheme, the insurance premium paid by eligible industrial units (under such scheme), set up in the North Eastern Region, are reimbursed by the nodal insurance company - The insurance subsidy, thus, helps in reducing the running cost of the industrial unit concerned establishing thereby direct and first degree nexus between the industrial activities of the assessee-respondents concerned, on the one hand, and the subsidy, in the form of insurance subsidy, on the other, received by the assessee-respondents. The resultant profits and gains, derived from, or derived by, an industrial undertaking, because of the insurance subsidy, have to be treated as deductible in terms of the provision of Section 80IB or 80IC - Decided in favour of Assessee.

Summary

Issues:
Deduction u/s. 80IC of the Income-tax Act for insurance claim, sale of salvages, transport subsidy, and interest subsidy.

Detailed Analysis:

Issue 1: Deduction u/s. 80IC for insurance claim and sale of salvages
The appeal concerned the allowance of deduction u/s. 80IC for insurance claim and sale of salvages by the assessee. The CIT(A) allowed the deduction for these items, stating that the insurance claim and sale of salvages were related to the industrial unit's activities. The CIT(A) observed that the insurance premium expenses were deducted by the assessee, indicating a direct link to the industrial unit. The Tribunal upheld the CIT(A)'s decision, citing a previous judgment that established a direct nexus between subsidies and profits derived from industrial undertakings. Therefore, the Tribunal allowed the deduction for insurance claim and sale of salvages.

Issue 2: Disallowance of deduction u/s. 80IC for transport subsidy and interest subsidy
The AO disallowed the deduction for transport subsidy and interest subsidy claimed by the assessee. The CIT(A) upheld this disallowance. However, the Tribunal referred to a decision by the Hon'ble Guwahati High Court, which established a direct nexus between subsidies and profits derived from industrial undertakings. The Tribunal noted that the subsidies provided, including transport and interest subsidies, directly impacted the cost of production and were linked to the profits earned by the industrial unit. Therefore, the Tribunal allowed the deduction for transport subsidy and interest subsidy based on the established nexus between the subsidies and the industrial activities.

Additional Issue: Book Profit computation under section 115JB
The assessee raised a ground against the CIT(A)'s confirmation of the AO's decision not to grant deduction u/s. 80IC in the computation of book profit under section 115JB. However, the assessee did not press this ground during the hearing, leading to its dismissal.

In conclusion, the Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection. The decision was based on the established nexus between the subsidies and profits derived from the industrial undertakings, as per the precedent set by the Hon'ble Guwahati High Court. The judgment highlighted the importance of direct links between subsidies and industrial activities in determining the eligibility for deductions under section 80IC of the Income-tax Act.