2021 (3) TMI 265 - AT - Income Tax

Disallowance of deduction u/s 80IC - Transport Subsidy, Power Subsidy and Interest Subsidy - nexus between the profits and gains of the industrial undertaking or business - HELD THAT - We note that the Hon ble jurisdictional High Court (Guwahati High Court) while dealing with the nature of the above referred subsidy (transport subsidy, power subsidy and interest subsidy) 2013 (7) TMI 175 - GAUHATI HIGH COURT Aforesaid decision of the Hon ble Guwahati High Court was confirmed in CIT vs. Meghalaya Steel Ltd. 2013 (7) TMI 175 - GAUHATI HIGH COURT in favour of the assessee by holding as Transport subsidy, interest subsidy, power subsidy and insurance subsidy are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture and sale of its products; there is certainly a direct nexus between the profits and gains of the industrial undertaking or business and such subsidies and therefore, the amount received by the assessee as subsidies qualify for deduction under Section 80IB and 80IC. The assessee succeeds and claim of the assessee in respect of deduction u/s 80IC of the Act in respect of subsidy (transport subsidy, power subsidy and interest subsidy) should be granted and the AO is directed to do so. - Decided in favour of assessee.

Issues:
- Appeal against order of Ld. CIT(A) confirming addition of subsidies to income
- Interpretation of Section 80IC of the Income Tax Act
- Nexus between subsidies received and industrial activities
- Applicability of tax deductions under Section 80IB and 80IC

Analysis:
1. The appeal was filed by the assessee against the Ld. CIT(A)'s order confirming the addition of Transport Subsidy, Power Subsidy, and Interest Subsidy to the income, disallowing the deduction under Section 80IC of the Income Tax Act for the A.Y. 2008-09.
2. The AO noted that the subsidies received by the assessee company were adjusted with charges on raw materials and electricity power charges, and the company claimed this income as business income. The AO questioned the eligibility of these subsidies for deduction under Section 80IC of the Act.
3. The assessee argued that the subsidies had a direct nexus with its industrial activities and should be considered as derived from the business. However, the AO contended that only profits directly connected with the business are eligible for deduction under Section 80IC.
4. The AO relied on judicial precedents to support the narrow interpretation of "derived from" and emphasized that any indirect or incidental profit cannot be considered as earned from the main business activity. The Hon’ble Guwahati High Court's decision in a similar case was cited to support this interpretation.
5. Both the AO and Ld. CIT(A) decided against the assessee based on the Guwahati High Court's decision. However, the assessee pointed out subsequent judgments by the High Court and the Supreme Court favoring the allowance of subsidies under Section 80IC.
6. The Tribunal considered the subsequent decisions and held that the subsidies received by the assessee had a direct nexus with its industrial activities, making them eligible for deduction under Section 80IC. The Tribunal directed the AO to grant the deduction accordingly.
7. The Tribunal allowed the appeal of the assessee, citing the rulings of the Hon’ble Supreme Court in favor of allowing subsidies as deductions under Section 80IC.

This detailed analysis of the judgment highlights the issues raised, the arguments presented, and the final decision rendered by the Tribunal in favor of the assessee, providing a comprehensive understanding of the legal interpretation and application of tax deductions under the Income Tax Act.

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