2013 (6) TMI 42 - HC - Income Tax

Deduction u/s 80IA - tariff subsidy specifically given to meet the cost of power of the industrial undertaking - exclusion from computing the deduction admissible under Section 80IA - held that - As already stated, the admitted case is that the assessee received operational subsidy based on the performance of the assessee in its industrial activity. When the receipt is thus referable to the source of income earning activity of the assessee, applying the decision in Liberty India vs. Commissioner of Income Tax (2009 (8) TMI 63 - SUPREME COURT), we have no hesitation in setting aside the order of the Tribunal by holding that the assessee is entitled to deduction in respect of operational subsidy under Section 80IA. As far as reference to the decision of the Apex Court in Pandican Chedmicals Ltd., Vs. Commissioner of Income Tax (2003 (4) TMI 3 - SUPREME Court) is concerned, the Tribunal referred to the said decision for the purpose of considering the relief of interest receipt on the deposit made with the Electricity Department. The assessee has restricted its claim before this court with reference to the tariff subsidy alone and has not raised any issue as regards the interest receipt. - Decided in favor of assessee.

Summary

Issues:
- Interpretation of Section 80IA of the Income Tax Act 1961 regarding the exclusion of tariff subsidy received by an industrial undertaking in computing deduction.
- Applicability of judicial precedents in determining the treatment of operational subsidy received by the assessee.
- Consideration of the source of income earning activity in relation to the entitlement of deduction under Section 80IA.

Analysis:
1. The primary issue in this case pertains to the interpretation of Section 80IA of the Income Tax Act 1961 regarding the exclusion of a tariff subsidy received by an industrial undertaking in the computation of deduction. The Tribunal had held that the subsidy received to meet the cost of power was not eligible for deduction under Section 80IA as it did not directly flow from the industrial activity. The Assessing Authority and the Commissioner of Income Tax (Appeals) had also concurred with this view.

2. The assessee contended that the subsidy received was an operational subsidy from the Tamil Nadu Electricity Board, aimed at reducing the cost of production. The counsel for the assessee relied on judicial precedents, specifically citing the decision in Commissioner of Income Tax Vs. Rajaram Maize Products and Sahney Steel & Press Works Limited Vs. Commissioner of Income Tax, to argue that the subsidy should be considered for deduction under Section 80IA as it was related to the income-earning activity of the assessee.

3. The High Court, in its judgment delivered by CHITRA VENKATARAMAN, J., agreed with the submissions of the counsel for the assessee. The court noted that the subsidy received by the assessee was based on its performance in the industrial activity, making it referable to the source of income earning activity. Citing the decision in Liberty India vs. Commissioner of Income Tax, the court held that the assessee was entitled to deduction in respect of the operational subsidy under Section 80IA.

4. The court also addressed the reference made by the Tribunal to a different decision regarding interest receipts on deposits with the Electricity Department, clarifying that the assessee's claim was limited to the tariff subsidy alone. Consequently, the court set aside the Tribunal's order and allowed the tax case appeal, granting the assessee the entitlement to deduction under Section 80IA in respect of the operational subsidy received.