Monday, March 14, 2016

Subsidy relatable to manufacturing cost would be eligible for Sec. 80-IB relief

Facts

a)  Assessee, eligible for claiming deduction under Section 80-IB, received subsidy, inter-alia, transport subsidy, interest subsidy and power subsidy from the Government.
b)  Assessee claimed deduction under section 80-IB in respect of subsidy so received from the Government by contending that subsidies were directly relatable to cost of manufacture and/or sale of products.
c)  Assessing Officer (AO) disallowed the deduction so claimed by assessee by holding that deduction under section 80-IB is admissible only in respect of profits derived from eligible business. There is a world of difference between the expression “profits derived from” any business, and “profit attributable” to any business.

d)  The contention of the AO was that subsidies that were allowed to assessee had no close and direct nexus with the business of the assessee but had a close and direct nexus with grants from the Government.

e)  The appellate tribunal and the High Court reversed the order of the AO. Aggrieved by the order of the High Court, revenue filed the instant appeal before the Supreme Court.

The Supreme Court held in favour of assessee as under-

1)  Deduction under section 80-IB is admissible only in respect of profit and gains derived from the business. Therefore, 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.
2)  In the instant case, all subsidies were revenue receipts which were reimbursed to the assessee for elements of cost relating to manufacture or sale of their products. Hence, there was a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies.
3)  Hence, assessee would be entitled to claim deduction under Section 80-IB in respect of all subsidies received from the Government as same were granted in relation to manufacture and sale of the products of the undertaking and not in relation to post- manufacturing activity- [2016] 67 taxmann.com 158 (SC) 
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