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2022 (2) TMI 818 - AT - Income TaxDisallowance of deduction u/s 80(IB) in respect of the fertilizer unit of Haldia - HELD THAT - As relying on MEGHALAYA STEELS LTD 2016 (3) TMI 375 - SUPREME COURT assessee is eligible for deduction u/s 80 IB of the Income Tax Act on fertilizer subsidy received by it. Accordingly, we hold that the fertilizer subsidy income received by the assessee is income derived from the business of the industrial undertaking and is eligible for deduction u/s 80 IB of the income tax act. Nature of receipt - whether sales tax remission benefit derived by the assessee is not chargeable to income tax as it is a capital receipt? - HELD THAT - As held by Honourable Supreme court in CIT Madras Vs Ponni Sugar 2008 (9) TMI 14 - SUPREME COURT it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. In the present case when once the object of subsidy is to industrialize state, it is capital receipt. All the judgments cited before us also lay down the same ratio. Even otherwise subsidy is included in the definition of Income u/s 2 (24) (xviii) with effect from 1/4/2016. Accordingly, we hold that Sales tax incentive money received being the amount retained by the company in accordance with Section 41 of the West Bengal sales tax act, 1944 read with the West Bengal incentive scheme, 1999 was a capital receipt not chargeable to tax under the income tax act.
Issues Involved:
1. Taxability of sales tax incentive and its eligibility for deduction under section 80IB of the Income Tax Act. 2. Eligibility of fertilizer subsidy provided by the government for deduction under section 80IB of the Income Tax Act. Issue-wise Detailed Analysis: 1. Taxability of Sales Tax Incentive and Its Eligibility for Deduction Under Section 80IB: The appeal was recalled to address the unresolved issue regarding the taxability of the sales tax incentive and its eligibility for deduction under section 80IB. The assessee argued that the sales tax incentive, amounting to ?33,061,201, retained by the company under Section 41 of the West Bengal Sales Tax Act, 1944, was a capital receipt not chargeable to tax. The assessee's unit was set up in Midnapore district, qualifying for the West Bengal Incentive Scheme, 1999, which provided sales tax deferment/remission for nine years. The Tribunal examined the scheme and determined that the sales tax incentive was intended to promote industrialization in the state. Citing the Supreme Court's decision in CIT Madras Vs Ponni Sugar, it was concluded that the object of the subsidy determines its nature. Since the subsidy aimed to industrialize the state, it was deemed a capital receipt and not taxable under the Income Tax Act. The additional ground raised by the assessee was allowed, confirming that the sales tax incentive was a capital receipt not chargeable to tax. 2. Eligibility of Fertilizer Subsidy for Deduction Under Section 80IB: The Tribunal also addressed whether the fertilizer subsidy provided by the government was income derived from the industrial undertaking and thus eligible for deduction under section 80IB. The assessee contended that the fertilizer subsidy was part of the sales proceeds and directly related to the sale of fertilizer products to farmers. The subsidy, provided to cover the difference between the cost of production and the maximum retail price (MRP), was integral to the business operations. The Tribunal referred to the Supreme Court's decision in Meghalaya Steel Ltd, which clarified that subsidies reimbursing elements of cost related to manufacturing or selling products have a direct nexus with the business and are considered profits derived from the business. The Tribunal concluded that the fertilizer subsidy was income derived from the business of the industrial undertaking and eligible for deduction under section 80IB. The ground raised by the assessee was allowed, affirming the eligibility of the fertilizer subsidy for deduction. Conclusion: The Tribunal allowed the appeal, holding that the sales tax incentive was a capital receipt not chargeable to tax and that the fertilizer subsidy was income derived from the business of the industrial undertaking, eligible for deduction under section 80IB. The matter was restored to the file of the Assessing Officer to pass an order afresh, giving the assessee a reasonable opportunity to present relevant documents and evidence. The appeal was allowed to the extent recalled.
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