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2022 (7) TMI 498 - HC - Income TaxDeduction u/s 80IC - whether the remission of Value Added Tax (VAT) extended to the respondent/assessee pursuant to a scheme formulated by the State Government can be claimed as a deduction under Section 80IC ? - HELD THAT:- the facts of the case in Merinoply & Chemicals Ltd. [1993 (8) TMI 29 - CALCUTTA HIGH COURT] are more or less identical to the case on hand. In the said case the assessee was a manufacturer of plywood and has its unit in a backward area and was entitled to certain benefits under a scheme formulated by the State Government. However, on facts, the assessee therein claimed the transport expenditure to be incidental expenditure of the assessee’s business and while considering the said plea, it was pointed out that the subsidy recoups and that the purpose of recoupment is to make up the possible profit for operating in a backward area and the subsidises were inseparably connected with the profitable conduct of the business and, therefore, the assessee was entitled to the benefit of Section 80IC - The Hon’ble Supreme Court in Meghalaya Steels Ltd. (supra) held that the decision in Merinoply & Chemicals Ltd. [1993 (8) TMI 29 - CALCUTTA HIGH COURT] correctly appreciated the legal position. Undisputed facts of the case on hand is that the assessee had set up their business in a backward area. Consequently, they were entitled to the benefit of a scheme under which the assessee upon collection of VAT from the customer on sale is entitled to a remission of 99 per cent as issued by the Commercial Tax Department. This remission obviously is a business receipt because the assessee is allowed to retain the amount for the growth of the business and, therefore, the VAT remission in the hands of undertaking is very much business income. The Hon’ble Supreme Court in Sahney Steel and Press Works Ltd. [1997 (9) TMI 3 - SUPREME COURT] pointed out that when subsidy is given for the purpose of operating an industry more profitably, the subsidy would be revenue receipt and being revenue receipt, it 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 80IC or 80IB, as the case may be. Hon’ble Supreme Court in CIT Vs. Rajaram Maize Products [2001 (8) TMI 13 - SC ORDER] and CIT Vs. Eastern Electro Chemcial Industry [1999 (8) TMI 921 - SC ORDER] held that when a subsidy granted by the Court, is operational in nature, which helps in generation of profits for any industrial undertaking, such a profit, is indeed, covered by the provisions embodied under Section 80IB or 80IC of the Act. In the light of the above discussions, we are of the view that the tribunal had rightly allowed the appeals filed by the assessee and no grounds have been made out to interfere with the said order. Accordingly, the appeal fails and the same is dismissed and the substantial questions of law are answered against the revenue.
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