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TMI Blog2009 (6) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner seeks to abrogate the process of reassessment sought to be initiated by the impugned notice dated September 13, 2007, issued by the Deputy Commissioner of Income-tax, Circle, Jorhat, under section 148 of the Income-tax Act, 1961, and the steps consequential thereto. By order dated August 29, 2008, this court while issuing notice had, in the interim, interdicted the exercise proposed. 2. I have heard Mr. G. N. Sahewalla, senior advocate assisted by Mr. D. Senapati, advocate for the petitioner and Mr. U. Bhuyan, learned counsel for the Revenue. 3. The relevant facts providing the background as well as the rival pleadings have to be essentially noted to better comprehend the arguments advanced. The petitioner has presented itself to be a private limited company registered under the provisions of the Companies Act, 1956, with its registered office at Purana Titabar in the district of Jorhat, Assam. It is engaged in the business of manufacture and sale of cement and is an existing assessee under the Act. On November 1, 2004, it submitted its return of income for the assessment year 2004-05 corresponding to the financial year 2003-04 and deposited an amount of Rs. 8,81,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 26, 2007, the petitioner while requested for the reasons for the reassessment notice, intimated the authority concerned that its return for the assessment year 2004-05 submitted on November 1, 2004, may be treated to be one offered in compliance with the said notice. The Assistant Commissioner of Income-tax, Circle Jorhat, thereafter on March 3, 2008, furnished the reasons in support of the notice under section 148 of the Act and also required the petitioner to offer its explanation as to why the transport subsidy of Rs. 1,44,99,462 and the insurance subsidy of Rs. 1,70,133 would not be treated as incidental to the business of the assessee and thus ineligible for deductions under section 80-IC. The petitioner accordingly on May 12, 2008, submitted its detailed reply with a request to drop the reassessment proceeding in the facts and circumstances of the case. The Assistant Commissioner of Income-tax, Circle Jorhat, however, vide his communication No. ARIT/147/Pancharatna/04-05/AABCP/9172 G, dated July 9, 2008, provided point-wise reply to the petitioner's explanation. By the impugned communication dated July 9, 2008, the said authority intimated the petitioner that further info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terating that subsidies cannot qualify for deductions under section 80-IC of the Act, the respondents have contended that no view or opinion had been expressed by the Assessing Officer regarding the eligibility or otherwise of the deductions of the aforementioned subsidies under section 80-IC of the Act earlier and that, therefore, the question of change in opinion by taking a different view of the matter on the subsisting facts did not arise. They also questioned the challenge in the instant proceeding to be premature and thus not maintainable in law. 8. Mr. Sahewalla has empathically urged that the impugned notices are patently illegal and without jurisdiction and are thus liable to be adjudged null and void. According to the learned senior counsel, the subsidy schemes under which the transport subsidy and the insurance subsidy had been sanctioned to the petitioner presupposes its business activities relatable thereto as an essential pre-condition therefor and in that view of the matter, it being obviously eligible for the benefit of deductions under section 80-IC in connection therewith, the impugned notices are manifestly illegal and are liable to be annulled. He emphasized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Ltd. v. CIT [1999] 238 ITR 354 (Cal); (6) Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 Cal; (7) Padamram Payeng Care alias Basanta Gare v. State of Assam [1995] 3 GLR 249; (8) CIT v. Eltek SGS P. Ltd. [2008] 300 ITR 6 (Delhi); (9) CIT v. Arvind Construction Co. Ltd. [2008] 3 DTR 94 (Delhi) ; [2009] 317 ITR 276 (Delhi) (Appx.) and (10) Asst. CIT v. Maithan Smelters Ltd. [2008] 307 ITR (AT) 225 (Kolkata) ; [2008] 14 DTR (Kolkata) (Tribunal). 9. Mr. Bhuyan, per contra, has contended that having regard to the stage of the proceeding before the Revenue authorities, the instant petition is clearly premature and on that count alone, it is liable to be rejected. As the petitioner has an ample opportunity of presenting its case on all counts in the proceeding pending before the Assistant Commissioner of Income-tax, Circle Jorhat, on the merits, this court would not entertain the instant petition, he urged. While contending that a transport subsidy is a legally recognized taxable receipt liable to be assessed, the learned standing counsel has maintained that in the assessment order dated January 17, 2006, the transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 of the Act seeking to conduct a reassessment on the plea that the amounts of these subsidies had due to error of law been deducted from the taxable income of the petitioner by a purported application of section 80-IC thereby occasioning escapement of income within the meaning of section 147 of the Act. As the Revenue, amongst others, has questioned the maintainability of the instant petition on the ground of it being premature, the proceeding under section 148 of the Act being pending before the Assistant Commissioner of Income-tax, Circle Jorhat, it would be expedient to deal with this aspect at the threshold. 11. In response to the notice dated September 13, 2007, under section 148 of the Act intimating the petitioner of the proposal to reassess its income for the assessment year 2004-05, it (petitioner) offered its return originally submitted. It, however, requested the concerned Revenue authority to furnish it with the reasons for the proposed reassessment. By letter dated March 3, 2008, the Assistant Commissioner of Income-tax, Circle Jorhat sought for an explanation from the petitioner as to why the transport subsidy and the insurance subsidy amounts as above would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 80-IC. It was sought to be avowed further that in the earlier assessment, the transport subsidy and the revenue subsidy had been catalogued under the head "Miscellaneous income" by the assessee and the same were not regarded as reimbursement of certain expenses of the undertaking. The letter in clear terms stated that thereby the objection taken by the petitioner to the initiation of the proceeding under section 148 of the Act stood disposed. 14. A plain reading of the reply of the Revenue authority to the petitioner's challenge to the initiation of the reassessment proceeding demonstrates a final decision thereon. In other words, this reply does not in the opinion of this court leave any scope to contemplate that the petitioner would be left with any meaningful scope to pursue its objection with regard to the maintainability of the process initiated by the impugned notice dated September 13, 2007. The decision of the apex court in GKN Driveshafts (India) Ltd. [2003] 259 ITR 19, relied upon by the respondents to mount its impeachment on the maintainability of the writ petition has no application in the facts of the instant case inasmuch as, therein their L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3)." 16. The conundrum that seeks resolution in the instant case is that whether the amounts of subsidies received by the petitioner can be regarded as profits and gains derived by it from its business referred to in sub-section (2). As observed hereinabove, the parties are not at issue on the nature of the business or any aspect relatable thereto as is outlined in sub-section (2). To revert to the petitioner's contention, these receipts are profits and gains contributing to its income from the business for the assessment year involved and the Revenue to the contrary asserts it only to be incidental thereto (business) and, therefore, not eligible for the deduction. It is profitable at this stage to mark that the word "income" as defined in section 2(24) of the Act includes, inter alia, profits and gains. Profits and gains, therefore, are an integral and inseparable segments of income as is contemplated by the Act. 17. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenditure, (3) mode of calculation of such costs being laid down under the scheme and thus not the entire costs, and (4) the manner of grant thereof. It was concluded that keeping these factors into consideration, it could be deduced that the subsidy is granted for recouping and/or reimbursing the expenses on account of transport so as to supplement the trading receipts of the manufacturer so as to entitle him to compete with those of the same products having their manufacturing units at places which are not in a backward area. 21. The Calcutta High Court in the case of Kesoram Industries and Cotton Mills Ltd. [1991] 191 ITR 518, had, inter alia, held that the subsidy in respect of power tariff that was granted to the assessee by the Government under a well defined policy is a revenue receipt and is exigible to tax as profits and gains of business under section 41(1) of the Act. It was further outlined that such a subsidy was inseparably connected with the business carried on by the assessee and was contingent upon the industry's continuing in production. It was also observed that as the subsidy was given for the development of the business and not for any unrelated pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. Forgings Ltd. [2002] 257 ITR 60, their Lordships of the High Court Of Madras on an exhaustive appraisal of the law enunciated by the apex court as well as that High Court, held that the amounts received by the assessee under modvat credits and international price rationalization were directly relatable to the industrial undertaking alone and to no other activity other than the business activity of the assessee. Their Lordships were of the considered opinion that the amounts received by way of modvat credits could not have been received by the assessee had it not purchased the raw materials for running its industry of manufacturing the forgings and thus that credit would have to be held as directly relatable to the industrial undertaking and the activity of the assessee-company. It was further held that the interest payable to the amount receivable by the assessee during the course of its business on account of the sale of forgings also qualified to be included as the profits and gains derived from the business of the assessee. In arriving at this conclusion, their Lordships noticed the observations of the apex court in CIT v. Sterling Foods [1999] 237 ITR 579 and in Camb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same to qualify for deduction would have to be derived by an undertaking or an enterprise from any business referred to in sub-section (2). Thus, while the profits and gains to be worthy for deduction have to be derived from an industrial undertaking or a business of hotel vis-a-vis section 80HH, it would be enough if the same is derived by an undertaking from its business referred to in sub-section (2) of section 80-IC. The language employed in section 80-IC, therefore, visibly is of wider import and amplitude and the profits and gains to be allowable for deduction have to be derived from the business in which the industrial undertaking is engaged. Such profits and gains need not essentially be derived from the industrial undertaking. Though it is indubitable that there has to be a direct and perceptible nexus between the profits and gains and the business of the industrial undertaking from which the same are derived, the rigour of the essentiality of correlation with the industrial undertaking is not a stolid imperative as in section 80HH. If the profits and gains of the assessee, however, have no association or any relation whatsoever with the business of the industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of Government assistance or grants under the schemes to provide stimulus to the willing industrial establishments to cater to the industrial growth in the region and, therefore, the same (subsidy) are aimed necessarily at neutralizing the expenses incurred and thus reinforce the eventual income of the business undertaking. The words "derived by an undertaking or an enterprise from any business" having regard to the plenitude of expanse would take in their fold profits and gains made by any activity associable with the business it undertakes and which forms the subject matter of assessment under the Act to determine its tax liability thereunder. Judged by the above criteria fortified by the statutory provision involved, the plea of the Revenue in favour of the impugned notice does not commend for acceptance. 33. Section 147 of the Act which contemplates assessment of income or reassessment of income irrefutably, prescribes a reason to believe that any income chargeable to tax had escaped assessment for any assessment year, the procedure to undertake the process being lodged in section 148. The reason to believe that any income chargeable to tax has escaped assessment is thus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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