Section 80-IB(11A) – Profits derived from the business of the industrial undertaking – Subsidies – Eligible for deduction u/s. 80-IB – Liberty India 317 ITR 218 (SC) is distinguishable on facts

[Pioneer Foods & Agro Industries vs. ITO-18(3)(4);
dated 20^th July, 2016; A.Y.: 2009-10; ITA No. 6088 &
6089/Mum/2013, Mum. ITAT]

Section 80-IB(11A) – Profits derived from the business
of the industrial undertaking – Subsidies – Eligible for deduction u/s. 80-IB –
Liberty India 317 ITR 218 (SC) is distinguishable on facts

The assessee is a partnership firm engaged in the business
of manufacturing and exporting honey. The assessee had filed return of income
for the A.Y. 2009-10. In relation to the export of the said product, the
assessee had claimed deduction u/s. 80IB(11A) of the Act in relation to benefit
received by the assessee for the export under the Vishesh Krishi and Gram Udyog
Yojana (“VKGUY” for short).

The AO having disallowed the claim, the issue eventually
reached the Tribunal. The Tribunal, by the impugned judgement, upheld the
addition. On appeal before the High Court, the assessee had confined its
grievance in relation to the benefits received under the VKGUY scheme.

The
assessee submitted that the Supreme Court in the case of CIT vs.
Meghalaya Steels Ltd. [2016] 383 ITR 217 (SC) had an occasion to
examine a case where the assessee was engaged in the business of manufacture of
steel and ferro silicon and had claimed similar subsidies. The assessee had
claimed deduction u/s. 80IB(4) of the Act in relation to such subsidies. The AO
had disallowed the claim. The issue reached the Supreme Court.

The
Supreme Court noted the speech of the Finance Minister while presenting the
budget for the assessment year 1999-2000 in relation to the Government of
India’s Industrial Development Policy for the North-Eastern region. It also
noted the distinction between the expressions “attributable to” and “derived
from” as discussed in various earlier judgements. The Supreme Court
distinguished the judgement in the case of Liberty India (supra),
observing that in the said case the Court was concerned with the export
incentive which is far remote from the activity of export. The profit,
therefore, cannot be said to have been derived from such activity. In the
opinion of the Court, the case on hand was one where the transport and interest
subsidy had a direct nexus with the manufacturing activity inasmuch as these
subsidies go to reduce the cost of production.

In the present case, the Court observed that the objective
of the VKGUY scheme was to promote the export of agricultural produce and their
value-added products, minor forest produce and their value-added variants, gram
udyog products, forest-based products and other produces as may be notified. In
relation to the exports of such products, benefits in the form of incentives
would be granted at the prescribed rate. The objective behind granting such
benefits was to compensate the high transport cost and to offset other
disadvantages. In order to make the export of such products viable, the
Government of India decided to grant certain incentives under the said scheme.
Clearly, thus, the case was covered by the decision of the Supreme Court in the
case of Meghalaya Steels Ltd. (supra). This was not a case akin
to export incentives such as DEPB which the Supreme Court in the case of Liberty
India (supra) held was a benefit far remote from the assessee’s
business of export. In the result, the assessee’s appeal was allowed.