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TMI Blog2016 (10) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... l questions of law: "(i) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified and correct in law in holding that the assessee is entitled to deduction under Section 80IC of the IT Act, 1961 on Transport subsidy amounting to Rs. 35,04,657/- received by it? (ii) Whether the learned Income Tax Appellate Tribunal was legally justified in holding that subsidies goes to reduce the expenditure actually incurred and hence they ought to be regarded as operational profits?" The relevant background aspects of the matter are that the respondent assessee-company is engaged in the business of agro based manufacturing industry and has setup an industrial undertaking at Byrnihat, Ri Bhoi District, Meghal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal is essentially based on the ratio of the decision in Meghalaya Steels Ltd. case (supra); and the said decision of the Gauhati High Court has since been approved by the Supreme Court while dismissing a batch of appeals filed by the Revenue in the case of Commissioner of Income Tax v. Meghalaya Steels Limited: (2016) 6 SCC 747. The Hon'ble Gauhati High Court, in the decision aforesaid, indicated the basic principles for a particular subsidy being covered by the provisions contained in Section 80-IB or 80-IC of the Income Tax Act in the following:- "106. Situated thus, the principle, deducible from the cases of Sahney Steel (supra), Rajaram Maize (supra) and Eastern Electro (supra), is that when a subsidy, granted by Government, is op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously, held generate profits and, at times, higher profits. 81. Thus, it is transparent that there is a direct nexus between the transport subsidy, on the one hand, and the profits earned, and gains made, by the industrial undertakings, on the other. Such a direct nexus cannot but be termed as first degree nexus between the two, namely, transport subsidy, on the one hand, and the resultant profits and gains, on the other. 82. Unless, therefore, the Revenue succeeds in showing that the transport subsidy has no bearing on the cost of production of the industrial undertakings, the claims for deductions, which have been made by the assessee-respondents as recipient of transport subsidy, cannot but have to be necessarily held to be covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The "profits and gains" spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of costs which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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