2021 (7) TMI 93 - AT - Income Tax

Deduction u/s 80IA(4)(iv)(c) - subsidy received by the Assessee had to be regarded as profits and gains derived from eligible business - as per CIT-A subsidy subsidy as well as the additional subsidy received by the assessee from the Karnataka Government was in lieu of electricity supply to farmers and others at subsidized rates - HELD THAT - Entitlement for DEPB or Duty Drawback Scheme arose, when the undertaking decided to export after manufacturing or production and this incentive was restricted only to the export of goods of a specified class. Consequently, if there was no export, there was no incentive from DEPB or Duty Drawback. This apart, DEPB or Duty Drawback Scheme did not provide refund of exemption from Central Excise Duty actually paid. Thus, the relationship under the DEPB or Duty Drawback Scheme, on the one hand, and the manufacturing or production, on the other, was not proximate and direct. The entitlement was based on the artifice of average amount of duty paid . The scrutiny of the scheme under which the assessee received additional subsidy is required to be seen. It is only after perusal of the scheme under which subsidy was given to the assessee, the principles laid down in the case of Meghalaya Steels 2016 (3) TMI 375 - SUPREME COURT can be applied to the facts of the case of the assessee. Since this exercise has not been carried out in the proceedings before the lower authorities, we are of the view that it would be just and appropriate to set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in the light of the decision cited by the learned DR before the Tribunal, after scrutiny of the scheme under which the assessee received the subsidy. Despite specific directions copies of the subsidy scheme has not been provided by the parties. In these circumstances, we have no other alternative but to remand the issue to the AO for consideration afresh in the light of the directions give above - Appeal of the Revenue is allowed for statistical purposes.

Issues Involved:
1. Whether the additional subsidy received from the State Government by the assessee can be included as profit derived from the industrial undertaking and be eligible for deduction under section 80IA of the Income Tax Act, 1961.
2. The interpretation of the term "derived from" in the context of section 80IA, in light of judicial precedents.

Detailed Analysis:

Issue 1: Eligibility of Additional Subsidy for Deduction under Section 80IA

The primary contention of the Revenue is whether the additional subsidy received by the assessee from the State Government qualifies as "profits derived from the industrial undertaking" and is thus eligible for deduction under section 80IA of the Income Tax Act, 1961. The Assessing Officer (AO) contended that the additional subsidy amounting to ?412.67 Crores, received pursuant to the order of the Karnataka Electricity Regulatory Commission (KERC), should not be considered as profits derived from the eligible business. The AO relied on the Supreme Court's decision in Liberty India Ltd. Vs. CIT, where it was held that DEPB and Duty Drawback Scheme incentives were not directly related to the business of the industrial undertaking for its manufacturing or production.

Issue 2: Interpretation of "Derived From"

The Revenue argued that the term "derived from" should be interpreted narrowly, as held by the Supreme Court in Cambay Electrical Supply Company Limited Vs. CIT and Liberty India Ltd Vs. CIT, where it was established that the term has a narrower meaning than "attributable to." The CIT(A) had allowed the deduction, considering the subsidy as compensation for the loss incurred by providing electricity at subsidized rates to weaker sections of society, which was directly related to the business operations of the assessee.

Tribunal's Findings:

The Tribunal reviewed the judicial precedents, including the Supreme Court's decision in CIT Vs. Meghalaya Steels Ltd., which clarified that subsidies that recoup expenditure incidental to the business are inseparably connected with the profitable business and should be included under "profits and gains of business." The Tribunal noted that the Supreme Court in Meghalaya Steels distinguished between subsidies like DEPB and Duty Drawback, which are post-manufacture incentives, and other subsidies directly related to business operations.

The Tribunal emphasized the need to scrutinize the scheme under which the assessee received the additional subsidy to determine its eligibility for deduction under section 80IA. The Tribunal pointed out that the lower authorities had not carried out this scrutiny, and thus, it would be appropriate to remand the issue to the AO for fresh consideration.

Conclusion:

The Tribunal set aside the order of the CIT(A) and remanded the issue to the AO for fresh consideration. The AO was directed to scrutinize the scheme under which the subsidy was given to the assessee and apply the principles laid down by the Supreme Court in Meghalaya Steels. The assessee was also directed to provide the relevant scheme and justify the claim for deduction. The appeal of the Revenue was treated as allowed for statistical purposes.

Final Order:

The appeal of the Revenue is treated as allowed for statistical purposes, and the matter is remanded to the AO for fresh consideration in light of the directions provided by the Tribunal.

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