Income from industrial undertaking: Deduction u/s. 80-IB and 80-IC: A. Ys. 2004-05 and 2006-07: Transport subsidy, power subsidy, interest subsidy and insurance subsidy resulting in increase of profits of the undertaking: Such increased profit is income derived from the industrial undertaking and is eligible for deduction u/s. 80-IB/80-IC of the Act:

The assessee’s industrial unit was eligible for deduction u/s. 80-IB/80-IC of the Income-tax Act, 1961. For the relevant years, the Assessing Officer disallowed the claim for deduction in respect of the profit relating to the transport subsidy, power subsidy, interest subsidy and insurance subsidy. The Tribunal held that the subsidies in question would go on to reduce the corresponding expenses incurred and the resultant profit would be the profits and gains of the business of the industrial undertaking, that all these subsidies are interlinked, interlaced and having a direct nexus with the manufacturing activities of the assessee which are inseparable from the expenditure incurred by the assessee on account of transportation of purchase as well as sales, power, interest, insurance cover of the business of the assessee and, therefore, there is a direct nexus between the subsidy received by the asessee’s industrial undertaking and the resulting profits and gains thereof and the assessee is eligible for deduction u/s. 80-IB/80-IC of the Act.

On appeal by the Revenue, the Gauhati High Court upheld the decision of the Tribunal and held as under: “

i) Transport subsidy, power subsidy, interest subsidy and insurance subsidy received under various Government Schemes go to reduce the cost of gains derived by it and there is direct and first degree nexus between the industrial activities of the assessee on one hand, and the subsidies received by it on the other.

ii) The profits and gains earned on the strength of such subsidies are profits and gains derived by, the industrial undertaking and are deductible under the provisions of section 80—IB or section 80-IC as the case may be.”