2015 (8) TMI 516 - HC - Income Tax

Deduction u/s 80IC - whether sales tax rebate to be included as profit derived from Industrial Undertaking and eligible as deduction u/s 80IC - Held that - On a parity of reasoning and on an analysis of section 80- IC it must be held that any industrial undertaking or enterprise would be entitled to deduction under sub-section (1) only to the extent of profits derived from such an industrial undertaking and not on account of any rebate or incentive made available to it by the Government. The words derived from industrial undertaking are distinct from the words profits attributable to industrial undertaking . The sales tax rebate falls within the ambit of the latter expression and not the former. What has been held in Liberty India vs. Commissioner of Income Tax (2009 (8) TMI 63 - SUPREME COURT ) in respect of the DEPB incentive applies equally to sales tax rebate in respect of section 80-IC. The sales tax rebate is an incentive which flows from the scheme framed by the Himachal Pradesh Government and is therefore not a profit derived from the business but is an ancillary profit of the business. Question answered in favour of the Revenue. The assessee is not entitled to the benefit of section 80- IC in respect of the sales tax rebate obtained by it. - Decided against assessee. Eligibility for interest on FDRs - Held that - assessee had received interest on FDRs kept with the bank as margin money. He treated the same as income from other sources and not profit derived from industrial undertaking. Accordingly he disallowed the deduction. The Tribunal remanded the issue to the Assessing Officer for fresh adjudication in accordance with law and by keeping in view a decision of this Court referred to therein. As the matter has been kept open no question of law arises

Summary

Issues Involved:

1. Eligibility of freight subsidy for deduction under Section 80IC of the Income Tax Act, 1961.
2. Eligibility of sales tax deferment rebate for deduction under Section 80IC of the Income Tax Act, 1961.
3. Treatment of bank interest for deduction under Section 80IC of the Income Tax Act, 1961.

Detailed Analysis:

1. Eligibility of Freight Subsidy for Deduction under Section 80IC:

The appellant raised three substantial questions of law related to the eligibility of freight subsidy for deduction under Section 80IC. However, it was clarified during the proceedings that the respondents/assessee did not claim that the freight subsidy received from the Himachal Pradesh Government was eligible as a deduction under Section 80IC. The Tribunal's order contained a sentence that may have led to the confusion, but it was clarified that the transport subsidy was to be adjusted against expenses and not eligible for deduction under Section 80IC. Consequently, questions (i), (ii), and (iii) were disposed of without further consideration.

2. Eligibility of Sales Tax Deferment Rebate for Deduction under Section 80IC:

The core issue was whether the sales tax deferment rebate received by the assessee was eligible for deduction under Section 80IC. The assessee argued that the rebate had a direct nexus with the sales and was an integral part of the industrial unit's profits. However, the court held that the rebate was not derived "from" the business but was an incentive provided by the government. The court emphasized that the word "from" indicates a source or origin, and the sales tax rebate originated from the government's policy, not the business itself. The court relied on the Supreme Court's judgment in Liberty India vs. Commissioner of Income Tax, which distinguished between profits "derived from" and "attributable to" a business, concluding that incentives like sales tax rebates do not qualify as profits derived from the business under Section 80IC. Therefore, question (iv) was answered in favor of the revenue, denying the deduction for the sales tax rebate.

3. Treatment of Bank Interest for Deduction under Section 80IC:

The Tribunal had remanded the issue of bank interest received on FDRs kept as margin money to the Assessing Officer for fresh adjudication. The court noted that since the matter was kept open for further consideration, no substantial question of law arose at this stage, and no interference was warranted. Thus, question (v) did not require a detailed judgment.

Conclusion:

The court concluded that the freight subsidy was not eligible for deduction under Section 80IC, and the sales tax deferment rebate was also not eligible as it did not constitute profits derived from the business. The issue of bank interest was remanded for further adjudication, and no substantial question of law was determined at this stage.