TMI Blog2013 (7) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... king contributing thereby to the profits and gains derived from, or derived by, the industrial undertaking concerned and augmenting thereby the income of the industrial undertaking concerned - payments were made only after the industries have been set up. Payments are not being made for the purpose of setting up of the industries. But the package of incentives were given to the industries to run more profitably for a period of five years from the date of the commencement of production - subsidies on electrical charges, were given by the Government concerned for the purpose of enabling industries to run more profitably by obviously reducing the cost of production - such a relief, given by way of electricity subsidy, is not a capital receipt, but revenue receipt and can be taxed, if not, otherwise, deductible in terms of the relevant provisions of the Act - When the cost of production is reduced by granting subsidy on electricity charges, it necessarily helps the industry to run more profitably. Here again, a direct nexus between the power subsidy, on the one hand, and cost of production, on the other, stands well established - profits earned and the gains made from the industrial un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n industrial undertaking, because of the insurance subsidy, have to be treated as deductible in terms of the provision of Section 80IB or 80IC - Decided in favour of Assessee. Case relied on by Respondents - Liberty India v. CIT [2009 (8) TMI 63 - SUPREME COURT] - Case of Liberty India was limited to only two schemes, namely, DEPB and Duty Drawback. Both these Schemes, it deserves to be noticed, related to exports and not meant to reduce the cost of production. Consequently, if no export was made, there was no entitlement to receive the benefit of DEPB or the benefit derivable by Duty Drawback Scheme - Liberty India was a case of non-operational subsidy inasmuch as the subsidy, provided in Liberty India, did not relate to production; whereas the subsidies, in the present set of cases, are operational in nature inasmuch as the subsidies are related to the production of the industrial undertaking concerned. - ITA 7/2010, ITA 16/2011 - - - Dated:- 29-5-2013 - I. A. Ansari And P. K. Musahary, JJ. For the Petitioner : K. P. Pathak, A. Hazarika and B. Chakraborty For the Respondent : R. P. Agarwalla, R. Goenka, U. K. Borthakur, A. Goenka, D. Sahu JUDGMENT (Ansari, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit would be the profits and gains of the business of the industrial undertaking, that all these subsidies are inter-linked, inter-laced and having a direct nexus with the manufacturing activities of the assessee which are inseparable from the expenditure incurred by the assessee on account of transportation of purchase as well as sales, power, interest, insurance cover of the business of the assessee and, therefore, there is a direct nexus between the subsidy received by the assessee's industrial undertaking and the resulting profits and gains thereof and the assessee is eligible for deduction under Section 80-IB/80-IC of the Act. 4. The principal distinction between the two impugned orders, passed on the same date, i.e., on 19.03.2010, may be set out as follows: (i) By the impugned order, passed in No. ITA 52/Gau/2009, the learned Tribunal dismissed the appeal of the Revenue and allowed deduction under Section 80-IB/80-IC of the Act; whereas, by the impugned order, passed in ITA. 95/Gau/2007, the learned Tribunal allowed the appeal of the assessee and, in consequence thereof, allowed deduction under Section 80-IB/80-IC of the Act. (ii) While, in ITA. 52/Gau/2009, the subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hearing of the IT Appeal No. 16/2011, are as under:- Substantial questions of law as framed pursuant to the order dated 01.08.2011 Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that transport subsidy, insurance subsidy, interest subsidy and power subsidy received by the respondent are allowable for computation of deduction U/s. 80IC of the Income Tax Act, 1961? Substantial questions of law as framed pursuant to the order dated 10.04.2013 (1) Whether on the facts and in the circumstances of the case, the learned Tribunal was right in holding that the amount of transport subsidy, insurance subsidy, power subsidy and interest subsidy would go on to reduce the expenses incurred under that particular head and the resultant profits and gains of the business of Industrial Undertaking would be eligible for deduction under Section 80IC of the Income Tax Act, 1961 ? (2) If the answer to question no.1 is in the negative, whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the transport subsidy, insurance subsidy, power subsidy and interest subsidy are inter linked, inter laced and havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, received by the assessee as subsidies, were revenue receipts in nature and did not qualify for deduction under Section 80IB(4) of the Act. The Assessing Officer accordingly disallowed the respondent's claim for deduction of the amount of Rs. 2,74,09,386/-, under Section 80 IB of the Act, on account of transport subsidy, interest subsidy and power subsidy. (v) Against the said assessment order, the assessee-respondent preferred appeal before the Commissioner of the Income Tax (Appeals), Guwahati, (in short, 'the CIT (A)'), who, vide his order, dated 08.03.2007, dismissed the appeal of the respondent by taking the view that the subsidies, received by the assessee-respondent, were not entitled to deduction under Section 80IB inasmuch the subsidies could not be termed as the profits and gains derived from manufacturing business of the respondent and the profits and gains, in order to be eligible for deduction under Section 80IB of the Act, have to be derived from industrial undertaking and, as the immediate source of subsidies was schemes of the Government, it was only incidental to the assessee-respondent's business. The CIT(A) was, however, also of the view that the subsidies, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 31.12.2008, held that the subsidies, so received by the assessee, had no direct nexus with the business of the respondent's industrial undertaking, that the subsidies were income incidental to the business of the respondent's industrial undertaking and, therefore, the subsidies had to be treated as 'other business income' and could not be allowed for the purpose of working out the profits and gains of the respondent's business undertaking within the meaning of Section 80IC. The Assessing Officer accordingly disallowed the respondent's claim of deduction of the amount of 6,72,22,666/-, under Section 80IC of the Act, on account of transport subsidy, insurance subsidy, interest subsidy and power subsidy. (v) Against the said assessment order, the assessee-respondent preferred appeal before the Commissioner of the Income Tax (Appeals), Guwahati, (in short, 'the CIT (A)'), who, vide his order, dated 09.06.2009, allowed the appeal of the assessee-respondent by taking the view that the subsidies, received by the respondent, would go on to reduce the expenditure incurred under those respective heads for the purpose of working out profits and gains of the business of the assessee-respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned ASG, whether the revenue receipt, in the form of transport subsidy, or interest subsidy or power subsidy or insurance subsidy,, at the hands of the assessee-respondents herein, goes on to reduce the cost of production of the industrial undertaking concerned and thereby affects the resultant profits and gains derived from, or derived by, the industrial undertaking concerned and whether the amount of subsidy, in question, in a case of present nature, would be permitted to be deducted under the provisions of either under Section 80IB or under Section 80IC of the Act, as the case may be. 13. Candidly submits the learned ASG that, in the present appeals, it is not in dispute that the industrial undertakings of the assessee-respondents herein are eligible industrial undertakings, under the relevant Government Policy/Scheme, to receive the subsidies, which were received by the assessee-respondents. However, what is in question, once again, points out the learned ASG, is whether any of the subsidies, in question, goes on to reduce the cost of production of the industrial undertakings concerned and thereby makes, the assessee-respondents concerned entitled to claim deductions, either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the profits and gains, so derived or so received, are not attributable to the subsidies, which the assessee received, but either 'derived from' or 'derived by', the industrial undertaking concerned. 17. According to the learned ASG, the word, 'derive', which is of material significance, has been the subject-matter of interpretation in various judicial pronouncements without any reference to the suffix 'from' or 'by'. A reference, in this regard, is made by the learned ASG to the case of Pandian Chemicals Ltd. v. Commissioner of Income Tax [2003] 262 ITR 278. 18. Further elaborating his submission, the learned ASG points out that the word 'derive' is of importance and the use of the suffixes, 'from' or 'by' to the word 'derive' are merely a manner of usage rather than an unintelligible differentia. In support of his contention, the learned ASG refers to the case of National Organic Chemical Industries Limited v. Collector of Central Excise, Bombay (AIR 1997 SC 690), wherein the Supreme Court held as under:- "The dictionaries state that the word 'derive' is usually follows by the word 'from' and it means get or trace from a source, arise from, originate in, show the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish his contention, that there does not really exist any distinction or difference between the two expressions, 'derived from' and 'derived by', the learned ASG has chosen to refer also to Chapter VI-A of the Act, particularly, Section 80-IA, Section 80-ID, Section 80-IAB, Section 80-HHE, Section 80-HHF, etc. of the Act and submits that after going through the Sections, as mentioned hereinbefore, it is not at all difficult for a prudent person to come to the conclusion that the phrases, 'derived from' and 'derived by', used in these Sections of the Act, are, by no means, of any material significance and statutorily, it does not matter whether the profits and gains are derived from or derived by an industrial undertaking. 23. The learned ASG submits that considering the fact that the expression, 'derived from', appearing in Section 80IB, as well as the expression, 'derived by', appearing in Section 80IC, are narrower in scope than the expression, 'attributable to', it becomes transparent that if one has to receive the benefit of Section 80IB or Section 80IC, he must show that the source of profits and gains is directly from the manufacturing activities of the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Welfare Association, reported in [2011] 330 ITR 117 (HP), the learned ASG submits that in this case, the Court has taken the view that interest subsidy, received by the assessee, under a scheme formulated by the State Government, is not a profit derived from business, because it not an operational profit. 29. Referring to the case of CIT v. Kiran Enterprises [2010], reported in 189 TAXMAN 457, the learned ASG also submits that transport subsidy, received by the assessee, was not a profit derived from business, for, it was not an operational profit and that the source of the subsidy is not the business of the assessee, but a scheme of the Central Government and, hence, the subsidy, received by the assessee, was not entitled to deduction under the Act. 30. Mr. Pathak, learned ASG, contends that the ratio of the judgment, rendered by this High Court, in Pancharatna Cement v. Union of India, reported in (2009) 6 GLR 459, which is relied on by the assessee-respondents, is not an issue in lis, in the present case, and the ratio of the said judgement of this High Court is, therefore, not applicable to the substantial questions of law, framed by this Court, in the present cases. 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the receipts, which do not have any direct nexus with the operation of industrial undertaking of the assessee, i.e., whose source is beyond the 'first degree'. The learned ASG refers to paragraph 17 and 18 of the case of Liberty India (supra) and contends that the Supreme Court has already held, in Liberty India (supra), that DEPB and Duty Drawback are incentives, which flow from the Schemes framed by Central Government, and these incentives do not, in any way, establish a nexus between the profits and gains of the industrial undertakings and cannot, therefore, entitle the assessee-respondents to seek exemption under Section 80IB or 80IC. In fact, it has been clearly held, in Liberty India (supra), reiterates Mr. Pathak, that these incentives are revenue receipts, which belong to the category of ancillary profits of the industrial undertakings concerned and shall be taxed accordingly. 35. In other words, submits the learned ASG, the Supreme Court has held, Liberty India (supra), that incentives, originating from a Government Scheme, such as the one in Liberty India (supra), fall beyond the 'first degree' rule and, hence, are not entitled to deduction under Chapter VI-A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustry, the same would not be entitled for special deduction under Section 80 IB or Section 80 IC and it is in this context that the Supreme Court has observed, Liberty India's case (supra), " profits derived by way of such incentives do not fall within the expression 'profits derived from industrial undertaking in Section 80-IB'. 39. In support of his above contention, the learned ASG has also referred to paragraph 24 of Liberty India's case (supra), wherein the Supreme Court has observed as under:- "In the circumstances, we hold that Duty drawback/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80I/80-IA/80-IB of the Act." SUBMISSIONS BY THE RESPONDENTS:- 40. Interestingly enough, Mr. R.P. Agarwalla, learned Senior counsel, while resisting the appeals, does not dispute the fact that there is a difference between the two expressions, namely, 'derived from' and 'attributable to'. In fact, Mr. Agarwalla submits that there can be no two opinions that the said two expressions carry two different meanings inasmuch as the expression 'derived from' is narrower than the expression 'attributable to'. 41. The mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese schemes were not meant for directly reducing the cost of production of the industrial undertaking. In fact, in Liberty India (supra), submits Mr. R.K. Agarwalla, the assessee concerned, unlike the facts of the case at hand, was not involved in manufacturing activities. 45. From the decision, in Liberty India (supra), it is clear, according to Mr. Agarwalla, that DPEB and Duty Drawback Scheme, being export incentives, were not related to the business of industrial undertaking per se for its manufacturing or production. 46. Entitlement of DPEB and Duty Drawback Scheme arose, in Liberty India (supra) points out Mr. Agarwalla, when the undertaking made export after manufacturing or production and remained restricted only to export component. Consequently, points out Mr. Agarwalla, when there was no export, the question of any entitlement, either under the DPEB or under Duty Drawback Scheme, did not arise and, as a result thereof, the relation of DPEB and/or Duty Drawback Scheme with the manufacturing activities was not proximate or direct. This apart, DPEB entitlement was freely transferable or saleable resulting in profit or loss, which is not the case at hand. 47. Coupled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut Mr. Agarwalla, cautioned the courts not to mechanically rely upon a decision of the Supreme Court without taking into account the facts of the case, which render colour to the decision of the Court, and that the decision of the Supreme Court is not to be read like a statute and the words or the sentences are not to be read de hors the context in which the question arose. Unless, therefore, an issue is raised and decided by the Supreme Court in a case, the question of applying the decision of the Supreme Court would not, contends Mr. Agarwalla, learned Senior counsel, arise. A reference, in this regard, is made by Mr. Agarwalla, to the case of Commissioner of Income Tax v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC), wherein the Supreme Court observed as under: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Agarwalla, is an exposition of law in respect of statutory schemes/ provisions of DEPB and Duty Drawback, which were related to export of an industrial undertaking and not at all an exposition on the question of each and every incentive scheme, more particularly, those schemes, which as are inextricably and directly connected to the reduction in the cost of production/manufacture of an industrial undertaking, and the schemes, such as the present ones, did not even fall for consideration in Liberty India's case (supra). Therefore, contends Mr. Agarwalla, the Revenue's reliance, on Liberty India (supra), is wholly misplaced. 56. No wonder, therefore, contends Mr. Agarwalla, that in MEPCO Industries Ltd. v. CIT, D9 319 ITR 208 (SC), which is a later decision, the Court has clearly pointed out that the nature of a subsidy, in each case, is separate and distinct and, therefore, the nature of subsidy has to be examined, in each case, independently. Illustrating this principle, the Supreme Court held, in Mepco Industries Ltd. (supra), as under:- "Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) was a case which dealt with production subsidy, Ponni Sugars and Chemicals Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transportation cost, for the purpose of bringing the raw materials to the industrial unit and carrying of finished goods to the existing market outside the State, was making it unviable for industries in remote parts of the country to compete with industries in the central areas and that is why, transport subsidy was developed as a device so that the industries can become competitive and become economically viable. Thus, industrial units, in remote areas, were extended the benefit of subsidized transportation. For industrial units in Assam and other north eastern States, the benefit was given, in the form of transport subsidy, in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable. Mr. Agarwalla has also referred to paragraph 18 of the decision of the Supreme Court, in Jai Bhagwan Oil Flour Mills (supra), which read as under:- "Any goods which goes in as a raw material required/used in the manufacturing programme of an industrial unit situated in a notified remote area, or any finishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be no entitlement of deduction; but the subsidy, if operational, would entitle an assessee to claim deduction. 63. There is no dispute at the bar that the subsidies, which we are required to deal with, are revenue receipts. The question, however, is: these revenue receipts, if help an industrial undertaking in earning profit and making gains, whether the undertaking is entitled to seek deduction if the undertaking satisfies, otherwise, the conditions prescribed by Section 80IB or 80IC, as the case may be ? 64. Though Mr. Pathak, learned ASG, is correct to some extent in contending that there is no substantial distinction between the two expressions, namely, 'derived from' and 'derived by', what we must point out is that the expression 'derived from', occurring in Section 80IB, implies that the profits and gains have to be derived from the activities of the industrial undertaking. In other words, as rightly contended by Mr. Agarwalla, learned Senior counsel, when the expression, 'derived from, has been used in Section 80IB, it means that it is the business of the undertaking, which is the direct source from which the profits and gains are derived. In the case of a subsidy, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-respondents contend that the subsidies, in question, directly affect the operation of the manufacturing activities of the industrial undertakings and have, therefore, direct bearing on the earning of profits and making of gains by the industrial undertakings concerned. The controversy, thus, lies in a narrow compass, though the arguments addressed are varied and repetitive. 68. The moot question, which, therefore, falls for determination in the present set of appeals is: Whether there is direct and first degree nexus between the subsidies, on the one hand, and the profit and gains, on the other, of the industrial undertakings concerned? 69. While answering the question, posed above, one has to bear in mind, as already indicated above, that there are four distinct subsidies, namely, transport subsidy, interest subsidy, power subsidy and insurance subsidy, which are involved in the present set of appeals. 70. Let us, first, deal with transport subsidy, which would, per force, bring us to the object with which transport subsidy was introduced and the manner in which the scheme of transport subsidy was to operate so that we can determine if there was a direct nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upto the railway station nearest to the location of the industrial unit and thereafter by road. Similarly in the case of movement of finished goods moving entirely by road or other mode of transport in the North Eastern region, the transport costs will be limited to the amount which the industrial unit might have paid had the finished goods moved from the location of the industrial units to the nearest railway station by road and thereafter by rail to Siliguri. (Emphasis is added) 73. For helping in the growth of industries, development of economy and generation of employment, Sub-Clause (iv) of Clause 6 of the Scheme was amended by Government of India's Notification, dated 28.02.1974, which made it clear that transport subsidy would cover movement of 'raw materials' from one State to another within the North Eastern Region and, further, transport subsidy would cover inter-State movement of 'finished goods' within the region, but the subsidy available would, under the amended Scheme, be 50% of the transport cost on the movement of the goods from the location of the industrial units to the nearest Railway Station by road and, thereafter, by rail and vice-versa. 74. Under the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans the goods actually produced by an industrial unit in accordance with the manufacturing programme approved by the Government of India and/or the Government of the State/Union Territory in which the industrial unit is located. 78. From the definition of raw materials and finished goods, embodied in the Transport Subsidy Scheme, 1971, and the details of the Scheme as contained, particularly, in Sub-Clause (iv) of Clause 6 of the Scheme shows that in the case of North-Eastern Region, the Scheme promised that the transport subsidy would be given on the transport costs, between Siliguri and the location of the industrial unit concerned, on the raw materials actually required and used by the qualified industrial unit in its manufacturing programme as may have been approved by the Government concerned. The Transport Subsidy Scheme, 1971, also promised to make available transport subsidy on finished goods, actually produced by the industrial unit in accordance with the manufacturing programme approved by the Government concerned. 79. What logically follows from the above discussion is that subsidy, on transportation of raw materials as well as finished goods, was promised to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by levy and collection of tax or duty". (Emphasis provided) 84. From the above cogent and emphatic observation, made by the Supreme Court, in Jai Bhagwan Oil Flour Mills (supra), as regards the object of transport subsidy, it goes beyond the pale of doubt that transport subsidy Scheme was never meant to be a means of earning revenue by the State or collection of tax or duty by the State. 85. Far from being a source of earning revenue, the object of the Scheme, as pointed out by the Supreme Court, in Jai Bhagwan Oil Flour Mills (supra), has been to improve trade and commerce between remote parts of the country with other parts so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts by giving them a 'level playing field' so that they could compete with their counterparts in the central (non-remote) areas. The relevant observations, appearing, in this regard, at para 14 of Jai Bhagwan Oil Flour Mills (supra), read as under: "14. The object of the Transport subsidy Scheme is not augmentation of revenue, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the States of North-Eastern Region, had been making it unviable for any one to establish industries in the North Eastern Region and it was, in order to 'neutrailse' this heavy transportation cost that the transport subsidy scheme was evolved as a device and, therefore, the object of transport subsidy had never been, as concluded by the Supreme Court at para 14, "................... augmentation of revenue, by levy and collection of tax or duty." 88. In the light of what have been discussed above, there can be no escape from the conclusion that transport subsidy was aimed at reducing the cost of production of the industrial undertakings covered by transport subsidy Scheme. Thus, there was a first degree nexus between the transport subsidy, on the one hand, and cost of production, on the other. When cost is reduced, it naturally helps in earning of profit and, at times, higher profits. Such profits and gains ought to have been treated, and has rightly been treated, by the learned Tribunal, to be profits and gains derived from, or derived by, the industrial undertaking concerned. 89. The Revenue, it has been rightly contended by Mr. Agarwalla, learned Senior counsel, has not ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et up in a backward area, in order to enable the owner of the manufacturing unit to recoup the loss, which he may suffer by way of additional transport cost. The relevant observations, appearing, in this regard, in Sarda Plywood Industries Ltd. (supra), read as under:- "Keeping in view the facts and circumstances of this case we, therefore, find ourselves in complete agreement with the Division Bench decisions of this court in Jeewanlal (1929) ltd. v. CIT [1983] 142 ITR 448, Merinopoly and Chemicals ltd. v. CIT [1994] 209 ITR 508 and Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518, and hold that transport subsidy is granted only for the purpose of recouping or reimbursing a portion of transport costs incurred by an owner of a manufacturing unit set up in a backward area, so as to enable him to recoup the loss which he may suffer by way of additional transport cost." (Emphasis added) 92. We find ourselves in complete agreement with the position of law laid down in Merinoply and Chemicals Ltd. (supra), Sarda Plywood Industries Ltd. (supra). 93. Before proceeding further, it needs to be pointed out that Mr. Agarwalla, learned counsel for the assessee-respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of Rajaram Maize Products (supra) and Eastern Electro Chemical Industries (supra), in order to answer the question as to whether power subsidy or subsidy on the electrical charges has a direct nexus with the profits and gains derived from, or derived by, an industrial undertaking, let us take note of the case of Sahney Steel and Press Works Ltd others v. CIT, reported in 228 ITR 253 (SC). 99. In Sahney Steeel (supra), the Supreme Court has pointed out, while dealing with various subsidies, including subsidy on electricity, that these subsidies were given to encourage setting up of industries in the State of Andhra Pradesh in order to make business of production and sale of goods more profitable. The Supreme Court has also pointed out, in Sahney Steel and Press Works Ltd. (supra), that subsidies were to be paid on establishment of the industry and not for the purpose of setting up of industry and it was aimed at extending helping hand to the person concerned so as to meet competitive level with other established industries. The relevant observations, appearing, in this regard, in Sahney Steel (supra), read as under:- "................... Similarly, subsidy on power was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay tax. What Sahney Steeel (supra) clarifies is that when a subsidy is given for the purpose of setting up of an industry, such a subsidy is a capital receipt. When, however, the subsidy is given, for the purpose of operating an industry more profitably, then, the subsidy would be revenue receipt and, being revenue receipt, the same has to be taxed in accordance with law meaning thereby that the profits and gains, derived from, or derived by, an industrial undertaking in a case, where operational cost is reduced by providing subsidy, in any form, the profits and gains earned, because of such subsidy, would be eligible for deduction under Section 80IB or under 80IC, as the case may be. 102. The fact that the subsidies, in the present cases, are revenue receipts, has, in fact, not been disputed. The question is whether these revenue receipts can result in earning of profits and making of gains by an industrial undertaking, because of reduction in the cost of production. This question, in the light of the scheme, as have been analysed above, has to be answered in the affirmative. 103. Reverting to the case of Rajaram Maize Products (supra), we may point out that the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erational in nature, which helps in generation of profits for any industrial undertaking, such a profit is, indeed, covered by the provisions embodied in Section 80IB or 80IC, as the case may be. 107. An analogy can be drawn between the subsidies, which are subject-matters of discussion, in the present set of appeals, on the one hand, and the Explanation 10 to Section 43(1) of the Act, on the other. Explanation 10 to Section 43(1) reads as under: "Explanation - 10. - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee:- Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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." (Emphasis provided) 110. We respectfully agree with the above observations, made in Pancharatna Cement Pvt. Ltd. (supra), and the law laid down therein. INTEREST SUBSIDY: 110a. Under the Industrial Policy, 1997, all eligible industrial units (under such scheme) are given interest subsidy to the extent of 3% on the working capital advanced to them by Scheduled banks or Central/ State financial institutions for a maximum period of 10 (ten) years from the date of commencement of production. 111. The scheme of interest subsidy clearly shows that it reduces the interest payable on working capital advanced to an industrial undertaking by a scheduled bank or Central/State financial institutions. There is no dispute that the assessee-respondents concerned have received working capital, whereupon they have been paying interest to the scheduled banks or Central/State financial institutions, as the case may be. 112. The facts are, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending that the various subsidies, which have been provided under the Scheme, are non-operational subsidies, there is no direct nexus between the subsidies received and the profits and gains derived from, or derived by, the industrial undertakings concerned. 117. What is, however, of paramount importance to note is that the Revenue does not contend, because it could not have obviously contended, in the light of the decisions in Sahney Steel and Press Works Ltd. (supra), Mepco Industries Ltd. (supra) Jai Bhagwan Oil Flour Mills (supra), Raja Ram Maize Products (supra) and Eastern Electro Chemical Industries (supra), that the subsidies, in question, do not reduce the cost of production of the industrial undertakings concerned. 118. Bearing in mind, therefore, the fact that the subsidies, provided by the Government, in the cases at hand, do come to reduce the cost of production of manufacturing and thereby help the industrial undertakings concerned in earning profits and making gains, when we turn to the case of Liberty India (supra), we find that the question, raised in Liberty India (supra), was not the question raised in the present set of appeals inasmuch as the question, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount actually paid in the form of transport cost, electricity bills, interest or insurance premium. This position is borne out of the following observations made in Liberty India (supra):- "16 .This factual matrix of the case unequivocally shows that DEPB is not related to business of industrial undertaking per se for its 'manufacturing or production'. DEPB's entitlement arises when the undertaking goes on to 'export' after 'manufacturing or production' and is restricted only to 'export product'. Therefore, the position is: if there is no export, there is no DEPB entitlement and the relation to manufacturing/ production is not proximate or direct, it is one step removed. Further, the entitlement is based on the artifice of 'deemed import content of export product', not even based on 'actual import content of the export product'." (Emphasis provided) 123. From the above observations, appearing in Liberty India (supra), it becomes more than abundantly clear that DEPB and Duty Drawback were not provided by the Government as a means to reduce the cost of production of the industrial undertaking. Viewed from this angle, Mr. Agarwalla, learned Senior counsel, is correct, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from Section 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such Undertakings". (Emphasis supplied) 126. On turning to the question as to what is Duty Drawback scheme, the Supreme Court pointed out that Section 75 of the Customs Act, 1962, and Section 37 of the Central Excise Act, 1944, empowers the Government of India to provide for repayment of customs and excise duty, which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Customs Act and Section 37 of the Central Excise Act." (Emphasis provided) 128. In short, thus, DEPB and Duty Drawback Scheme were not, as already indicated above, related to the business of industrial undertaking per se for its manufacturing or production. Entitlement for DEPB or Duty Drawback arose, when the undertaking decided to export after manufacturing or production and this incentive was restricted only to the export of goods of a specified class. Consequently, if there was no export, there was no incentive from DEPB or Duty Drawback. This apart, DEPB or Duty Drawback Scheme did not provide refund of exemption from Central Excise Duty actually paid. 129. Thus, the relationship under the DEPB or Duty Drawback Scheme, on the one hand, and the manufacturing or production, on the other, was not proximate and direct. The entitlement was based on the artifice of average amount of duty paid. In the case of transport subsidy, power subsidy and insurance subsidy, the relation between subsidy received, on the one hand, and the profits earned or the gains made, by an industrial undertaking, stand, as already observed at paragraph 127, well established. 130. Analysing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) dealt with subsidy linked to loan repayment whereas the present case deals with a subsidy for setting up an industry in the backward area. Therefore, in each case, one has to examine the nature of the subsidy. The judgment of this court in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 was on its own facts; so also, the judgment of this court in Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC). The nature of the subsidies in each of the three cases is separate and distinct. There is no strait jacket principle of distinguishing a capital receipt from a revenue receipt. It depends upon the circumstances of each case. As stated above, in Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC), this court has observed that the production incentive scheme is different from the scheme giving subsidy for setting up industries in backward areas. In the circumstances, the present case is an example of change of opinion. Therefore, the Department has erred in invoking section 154 of the Act." (Emphasis is supplied) 135. Thus, the case of Liberty India (supra) was limited to only two schemes, namely, DEPB and Duty Drawba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the effect of reducing transportation cost was not considered by the Court and, hence, the decision, Andaman Timber Industries Ltd (supra) cannot help in advancing the case of the appellants. 141. Even in CIT v. Sterling Foods, 237 ITR 579 (SC), the issue, under consideration, before the Supreme Court, was whether 'profits from sale of import entitlements' were derived from Industrial undertaking within the meaning of Section 80HH of the Act. Thus, the issue before the Supreme Court, in Sterling Foods (supra), was entirely different from the one at hand. 142. So far as Pandian Chemicals Ltd. v. CIT, reported in 262 ITR 278 (SC), concerned, the issue, considered by the Supreme Court, was whether 'interest income' from fixed deposits can be treated as income derived from industrial undertaking under Section 80HH of the Act. Thus, the issue for consideration, in Pandian Chemicals (supra), was wholly different from what we are dealing with. 143. A finding of fact, reached by a Tribunal, cannot be disturbed in an appeal under Section 26A of the Act unless perversity is alleged. This proposition is not in dispute. No substantial question was raised in the present set of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecluded from entering into any discussion regarding the perversity of the finding of fact recorded by the Tribunal." (Emphasis is added) 146. Reacting to the above submission of Mr. Agarwal that the Revenue has not challenged the finding of the learned Tribunal as perverse, the learned ASG has submitted that perversity need not always be factual, but it can also be perversity in law and since the conclusion, reached by the learned Tribunal, in the present cases, on the questions of law, was erroneous by wrongly interpreting the provisions of Section 80IB and 80IC vis- -vis the Scheme of the subsidies, in question, one cannot help, but hold that the learned Tribunal's finding suffers from perversity. 147. The learned ASG contends that the learned Tribunal, for no good reason, has not followed the decision rendered in Liberty India (supra). It is also pointed out by the learned ASG that when an authority draws a conclusion, which cannot be drawn by any reasonable person on the disclosed state of facts, then, a perverse decision is entered and a perverse decision is wrong in law. The learned ASG has referred, in this regard, to the case of Kejriwal Enterprises v. CIT, reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the statement. When the question referred to the High Court speaks of "on the facts and circumstances of the case", it means on the facts and circumstances found by the Tribunal and not on the facts and circumstances as may be found by the High Court (see Karnani Properties Ltd. v. Commissioner of Income-tax)." (Emphasis is added) 151. In the cases at hand, which have given rise to the appeals, it is the clear finding of the learned Tribunal that there is a direct nexus between the subsidies, in question, on the one hand, and the profits and gains derived by, or derived from, the industrial undertakings concerned. This finding is a finding, which is not purely a finding of fact inasmuch as this finding has been reached on the interpretation of the Schemes of subsidies, in question, and the questions of law, which were raised in the learned Tribunal. In other words, the finding, as indicated hereinbefore, has been arrived at by the learned Tribunal by taking into account the relevant Schemes of subsidies in light of the questions of law raised in the learned Tribunal. 152. Situated thus, it is clear that the finding, which the learned Tribunal has reached to the effect that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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