2023 (2) TMI 1364 - HC - Income Tax

Deduction u/s 80IC - transport subsidy received by the undertaking engaged in manufacturing process - whether the refund of excise duty obtained by the respondent/assessee could have been treated as profit from business and the assessee could have been granted the benefit of deduction u/s 80IC? HELD THAT - We find that identical issue was decided by Meghalaya Steels Ltd. 2010 (9) TMI 679 - GAUHATI HIGH COURT Central excise duty refund does not appear to bear the character of income since what is refunded to the assessee is the amount paid under the modalities provided by the Department of revenue for giving effect to the exemption notifications. There is also nothing to suggest that the assessee has recovered or passed on the excise duty element to its customers. Even assuming the refund does amount to income in the hands of the assessee, it is a profit or gain directly derived by the assessee from its industrial activity. The payment of Central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of Central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of Central excise duty and its refund. In the circumstances, we are of the opinion that question must be answered in the affirmative in favour of the assessee and against the revenue.

Summary

Issues:
1. Interpretation of whether transport subsidy received by a manufacturing undertaking constitutes "business income" under Section 80 IC of the Income Tax Act, 1961.

Analysis:
The High Court of Calcutta considered an appeal filed by an assessee against an order of the Income Tax Appellate Tribunal regarding the classification of a transport subsidy as "business income" under Section 80 IC of the Income Tax Act, 1961. The substantial question of law in focus was whether the transport subsidy received by a manufacturing entity falls within the ambit of "business income." The Court noted that a similar issue had been addressed in the assessee's own case for the assessment year 2011-12, where the revenue's appeal was dismissed, favoring the assessee. The Court referred to the judgment in the case of Commissioner of Income-tax vs. Meghalaya Steels Ltd. and highlighted the significance of the Central excise duty refund claimed by the assessee. The Court emphasized that the refund was not considered income but rather a mechanism to operationalize exemptions provided by the Ministry of Finance, Department of Revenue. It was established that the refund was directly linked to the manufacturing activity and did not bear the character of income. The Court also cited a judgment from the High Court of Jammu & Kashmir, reinforcing the notion that incentives provided for industrial development aimed at generating employment do not constitute revenue receipts. The Supreme Court's decision in Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd. was referenced to support the dismissal of the revenue's appeal in a similar case. The Court ultimately dismissed the revenue's appeal and ruled in favor of the assessee based on the settled issue in previous decisions.

In conclusion, the High Court of Calcutta, in the judgment under consideration, addressed the issue of whether a transport subsidy received by a manufacturing entity qualifies as "business income" under Section 80 IC of the Income Tax Act, 1961. By analyzing previous judgments and legal principles, the Court established that certain subsidies, such as Central excise duty refunds, are not to be treated as income but rather as mechanisms to facilitate exemptions and support industrial activities. The Court's decision aligned with previous rulings and dismissed the revenue's appeal, affirming the assessee's position.