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2013 (7) TMI 175 - HC - Income TaxDeduction u/s 80IB and 80IC - Transport subsidy - Held that:- transportation of the raw materials as well as transportation of the finished goods, does go to reduce the cost of production of an industrial undertaking, the resultant effect of such a reduction, on the cost of production, would, obviously, help generate profits and, at times, higher profits - 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 - Following decision of Jai Bhagwan Oil & Flour Mills v. Union of India [2009 (5) TMI 630 - SUPREME COURT OF INDIA], Merinoply and Chemicals Ltd. v. CIT [1993 (8) TMI 29 - CALCUTTA High Court] and Sarda Plywood Industries Ltd. v. CIT [1999 (1) TMI 16 - CALCUTTA High Court] - Decided in favour of Assessee. Deduction u/s 80IB and 80IC - Power subsidy - Held that:- The reimbursement of the fully paid power bills, i.e., electrical charges, will obviously reduce the cost of production of an industrial undertaking 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 undertakings concerned will amount to profits and gains derived from, or derived by, the industrial undertakings concerned entitling the assessees to claim deduction under Section 80IB or 80IC - Following the decision of CIT v. Rajaram Maize Products [2001 (8) TMI 13 - SUPREME Court] and CIT v Eastern Electro Chemical Industries [1999 (8) TMI 921 - SUPREME COURT] - Decided in favour of Assessee. Deduction u/s 80IB and 80IC - Interest subsidy - Held that:- 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 - If the object of the relevant Scheme is borne in mind, it clearly shows that interest subsidy, having aimed at reducing the interest payable on working capital by an industrial undertaking, helps directly in reducing the cost of manufacturing or production activities and establish thereby direct and first degree nexus between the industrial activities of the assessee-respondents, on the one hand, and the interest subsidy, on the other, received by the assessee-respondents and, in consequence thereof, since interest subsidy results into profits and gains derived from, or derived by, an industrial undertaking, there is no reason as to why such profits and gains, earned by an industrial undertaking on the strength of such a subsidy, namely, interest subsidy, be not allowed to be deducted from the taxable income of the industrial undertaking concerned - Decided in favour of Assessee. Deduction u/s 80IB and 80IC - Insurance subsidy - Held that:- Under this Scheme, the insurance premium paid by eligible industrial units (under such scheme), set up in the North Eastern Region, are reimbursed by the nodal insurance company - The insurance subsidy, thus, helps in reducing the running cost of the industrial unit concerned establishing thereby direct and first degree nexus between the industrial activities of the assessee-respondents concerned, on the one hand, and the subsidy, in the form of insurance subsidy, on the other, received by the assessee-respondents. The resultant profits and gains, derived from, or derived by, an 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.
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