TMI Blog2009 (11) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... .: Mr. Vishal Mohan, Advocate. For the Respondent(s): Mr. Vinay Kuthiala, Advocate. Deepak Gupta, J. These appeals are being disposed of by a single judgment as the question of law involved in all the appeals is the same and reads as follows: "Whether in the facts and circumstances of the case, the learned Tribunal is right to hold the transport subsidy received as income not derived from an Industrial undertaking thereby holding the same not to be entitled to deduction under Section 80 IA of the Income-tax Act. It would be pertinent to mention that we are concerned with the assessment relating to the period 1.4.2000 and therefore Section 80-1A as applicable at the relevant time. The relevant portion of the Section reads as follows: "80-1A. Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases.- (1)where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of Section 80-1B are paramateria with Section 80-1A as they previously existed. In the State of Himachal Pradesh there is scarcity of rail net work. A scheme has been framed by the Central Government whereby freight/transport subsidy is provided to the industries set-up in remote areas where rail facilities are not available and some percentage of the transport expenses incurred by the industrial undertakings to transport raw material to the factory and to transport finished goods from their industries is subsidized by the Central Government. The question which arises is whether this freight subsidy is income derived from the business of the industrial undertaking and can be included in the profits eligible for deduction under Section 80-1A. Learned counsel for the parties have cited a number of authorities before the Court. The basic authority on the point is Cambay Electric Supply Industrial Co. Ltd. vs. Commissioner of Income-Tax, Gujarat-II, (1978) 113 ITR 84. In that case the Apex Court was dealing with the provisions of Section 80-E of the Act prior to its amendment in 1967. The assessee was carrying on the business of generation and distribution of electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mically. We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error." In Ashok Leyland Ltd. vs. Commissioner of Income-Tax, (1997) 224 ITR 122, the industry was carrying out a priority industry and the question which arose before the Apex Court was whether the profits and gains arising from the import and sale of spare parts can be said to be attributable to the priority industry. Relying upon the law laid down in Cambay case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e import entitlements itself or sell the same to others. The assessee sold the import entitlements. The question before the Apex court was whether the amount received for sale of import entitlement was income derived from business. The Apex Court held as follows: "We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government where under the export entitlements become available. There must be, for the application of the words "derived from," a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration there from cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking." It is contended by Sh.Kuthiala that in the present case also the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) SC 571 after considering the legal provisions held as follows: "13. Before analyzing Section 80-IB, as a prefatory note, it needs to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of "profit linked incentives". Therefore, when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract Section 80-IB(6). It is the profits arising from the business of a ship which attracts sub-section (6). In other words, deduction under sub-section (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentives and investment li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of Section 80-IA, so far as may be, applicable to the eligible business under Section 80-IB. Therefore, at the outset, we stated that one needs to read Sections 80I, 80-IA and 80-IB as having a common Scheme. On perusal of sub-section(5) of Section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub- section (5) of Section 80- IA, which are also required to be read into Section 80- IB. [see Section 80-IB(13)]. We may reiterate that Sections 80I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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