Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (8) TMI 516 - PUNJAB & HARYANA HIGH COURT

2015 (8) TMI 516 - PUNJAB & HARYANA HIGH COURT - TMI - 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 i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 mone .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

: Ms Savita Saxena, Adv. For the Respondents : Mr Pankaj Jain, Senior Adv. with Mr Divya Suri, Mr Deepanshu Jain & Madhur Sharma, Advs. JUDGMENT S. J. Vazifdar, Acting Chief Justice This is an appeal against the order of the Income Tax Appellate Tribunal dated 17.06.2013 partly allowing the respondents' appeal against the order of the Commissioner of Income Tax (Appeals). The matter pertains to the Assessment Year 2007-08. 2. The appellant contends that the following substantial questio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

1/3 ITR 84/SC) that the words derived from referred to in the section 80IC has narrower meaning than attributable to and the freight subsidy cannot be treated as profit derived from Industrial Undertaking though it may be attributable to Industrial Undertaking? (ii) Whether in the facts and circumstances of the case, the ITAT was right in law in holding that the freight subsidy was rightly taken into consideration by the assessee in working out the profits and gains of the business undertaking r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and circumstances of the case, the ITAT was right in law in not appreciating the judgment of Hon'ble Himachal Pradesh High Court in its decision in the case of CIT vs. Kiran Enterprises reported in 327 ITR 520 and M/s Mehar Packaging Pvt. Ltd. Vs. CIT reported in 24 Taxman 204 which are applicable in this case wherein it has already been held that the amount of transport/freight subsidy received from the Govt. by the assessee is not a profit derived from business since it is not an operation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ight in law in holding that the income from Sales Tax Deferment Rebate received by the assessee is allowed to be included as profits derived from industrial undertaking and eligible for deduction u/s 80IC of the Income Tax Act, 1961, when the assessee received it from the Himachal Govt. for the benefit of any incentive of Sales Tax leviable on the sale of manufactured goods under Himachal Pradesh General Sales Tax Act, 1968 and the income derived from such rebate is not an income derived from in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s Capsules Pvt. Ltd., ignoring the fact that decision of netting was held to be correct for computing deduction u/s 80HHC in view of the definition of profits of business' in Explanation (baa) to Section 80HHC of the Act and not for section 80IC of the Act which deals with profits derived from the eligible business, and is different from the computation of section 80HHC." 3. The first three questions do not even arise. Mr. Jain, the learned senior counsel appearing on behalf of the resp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n a part of a sentence in the order of the Tribunal. The sentence in the Tribunal's order reads as under:- "However, transport subsidy is to be adjusted against those expenses for which it is given while working out the profit of the industrial undertaking to be eligible for deduction u/s 80IC of the Act." The concluding words "to be eligible for deduction u/s 80IC of the Act" probably led to the appellant raising the first three questions. Transport subsidy is not admiss .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion 80-IC. Under a scheme/policy formulated by the Himachal Pradesh State Government, the industrial undertakings fulfilling certain conditions and situated in the notified areas were entitled for the Sales Tax/VAT Deferment Scheme. The eligible units were given an option either to avail deferment of payment of tax or to opt, by making an application in the prescribed form, to pay 65% of the tax liability for any tax period of the financial year and upon making such payment the unit would be de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of Section 80-IC specifies the undertakings and enterprises to which the section is applicable. It is applicable to the assessee/respondents. 6. Section 80-IC (1) and (3) to (7) reads as under:- 80-IC. Special provisions in respect of certain undertakings or enterprises in certain special category States.-(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in subsection (2), there shall, in accor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ces and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanations 1 and 2 to sub-section (3) of Section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

10-C, as the case may be, exceeds ten assessment years. (7) The provisions contained in sub-section (5) and subsections (7) to (12) of Section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section." 7. The operative words are "profits and gains derived by an undertaking or an enterprise from any business referred to in subsection (2)." The profits and gains must, therefore, be derived "from" the business. The word "from&q .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iness. If the legislature intended including the sales tax rebate within the ambit of section 80-IC, the section it would have included any profits and gains derived not from but in respect of a business. 8. If there was no sales tax liability in respect of any business, there would have been no question of the sales tax being from the business. If sales tax is made applicable to the business, it would not be from the business but in respect of the business. It would follow then that when the sa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

unded. In that case, the Supreme Court considered whether profit from the Duty Entitlement Pass Book Scheme can be said to be the profit from the business of the industrial undertaking eligible for deduction under Section 80-IB of the Act. Section 80-IB is similar to Section 80IC. Section 80IB(1) reads as under:- "80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.-(1) Where the gross total income of an as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pplied) The relevant words are the same, namely, "includes any profits or gains derived from any business". Paragraphs 13 to 16 of the judgment read as follows:- "13. Before analyzing s.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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

from the business of a ship which attracts sub-s. (6). In other words, deduction under sub-s. (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 linked tax incentives. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-ss. (3) to (11A) (as they stood at the relevant time). One more aspec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

we need to examine what these provisions prescribe for "computation of profits of the eligible business". It is evident that s. 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words "derived from" is narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. In th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aid incentives flow from Incentive Schemes enacted by the Government of India or from s. 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, Department places heavy reliance on the judgment of this Court in Sterling Food (supra). Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cheme. On perusal of sub-s. (5) of s. 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-s. (5) of s. 80-IA, which are also required to be read into s. 80-IB. [see s. 80-IB(13)]. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ce, apart from eligibility, subs.(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 16. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import conte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uty 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 s. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under s. 80- IB. They belong to the category of ancillary profits of such Undertakings." (emphasis supplied) 10. On a parity of reasoning and on an analysis of section 80- IC, it must be held that an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the latter expression and not the former. What has been held by the 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. 11. Liberty India vs. Commissioner of Income Tax (supra) followed the judgment of the Supreme Court in Commissi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ustrial undertakings or hotel business in backward areas.-(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof." (emphasis supplied) The material .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

80-I deduction was allowable to income derived from industrial undertaking. Hence, according to the appellant(s) provision of s. 80-IB was much wider in scope than s. 80-I. According to the appellant(s) s. 80- IB was wider than s. 80-I as the Legislature intended to give benefit of deduction not only to profits derived from the undertaking but also to give benefit of deduction in respect of incomes having direct nexus with the profits of the undertaking, hence, all incomes that arose during the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rprises, (2010) 327 ITR 520 is also well founded. The question in that case was whether the freight subsidy received from the Government is allowed to be included as profit derived from the industrial undertaking and eligible for deduction under section 80- IA. Section 80-IA(1) reads as under:- "80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.-(1) Where the gross total income of an assessee includes any .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oted that the provisions of section 80-IB are pari materia with section 80-IA as they previously existed. The Central Government framed a scheme whereby freight/transport subsidy was provided to the industries set up in remote areas where rail facilities were not available and some percentage of the transport expenses was subsidized by the Central Government. The question was whether the freight subsidy is income derived from the business of the industrial undertaking and can be included in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

scheme of the Government. We are in respectful agreement with these observations of the Himachal Pradesh High Court. 13. The two decisions of the Delhi High Court in (2009) 317 ITR 353 and (2010) 324 ITR 283 were delivered before the judgment of the Supreme Court in Liberty India vs. Commissioner of Income Tax (supra). They did not take the judgment into consideration. They must be deemed to have been impliedly overruled. In Commissioner of Income Tax vs. Dharam Pal Prem Chand Ltd., [2009] 317 I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mind. The finding of the authorities below is that the refund of excise duty is pivoted on the manufacturing activity carried on by the assessee. Once such a finding of fact has been returned we need not go further and examine the immediate and proximate source of refund of excise duty. In other words, as to whether there was direct nexus between the refund of excise duty and industrial activity. As a matter of fact, in the questions proposed by the Revenue, there is no specific question, that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hich clearly distinguishes the instant case from the facts of the other cases cited before us is, that the net effect of the accounting methodology employed by the assessee was that it did not, in sum and substance, impact the derivation of profits and gains ascertainable for the purposes of deduction under section 80-IB of the Act. 30. As noted by the Division Bench of this court in Eltek SGS P. Ltd., [2008] 300 ITR 6, the language of section 80-IB is materially different from those obtaining i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the language appearing in section 80-IB of the Act which is "profit and gains derived from any business". We respectfully agree with the view of the Division Bench in Eltek SGS, [2008] 300 ITR 6 (Delhi) which has held that the test of proximity, i.e., direct nexus with the industrial activity is not necessary while claiming deduction under section 80-IB of the Act." The judgment was followed by a Division Bench of the Delhi High Court in Commissioner of Income-Tax vs. Sportking In .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version