Is 'additional subsidy' received from the State Government eligible for deduction u/s 80IA of the Income Tax Act?

IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH : BANGALORE

BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND
SHRI B. R. BASKARAN, ACCOUNTANT MEMBER

ITA No.570/Bang/2017
Assessment Year :2012-13

The Assistant Commissioner of
Income Tax,
Circle – 1(1),
Hubballi.
PAN : AABCH3176 J
APPELLANT 

Vs. 

Hubli Electricity Supply Co. Ltd.,
Navanagar,
Hubballi – 580 025.
RESPONDENT

Revenue by : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru
Assessee by : Smt. Prathibha, Advocate

Date of hearing : 24.06.2021
Date of Pronouncement : 30.06.2021

O R D E R

Per N. V. Vasudevan, Vice President

This is an appeal by the Revenue against the final order dated 11.11.2016 of CIT, Hubli, relating to Assessment Year 2012-13. The grounds of appeal raised by the Revenue reads as follows:

1. The order of CIT(A) is opposed to law and facts of the case.

2. whether the Ld. CIT(A) was correct in law in holding that 'additional subsidy' received from the State Government by the assessee is allowed to be included as profit derived from the industrial undertaking and eligible for deduction u/s 80IA of the Income Tax Act 1961, when it has been clearly held by the Hon'ble Supreme— Court in its decision in the case Cambay Electrical Supply Company Limited Vs. CIT 1978 CTR (SC) 50 that the words 'derived from' referred to in the section 80IA has narrow meaning than 'attributable to' and the additional subsidy cannot be treated as profits 'derived' from industrial undertaking though it may be 'attributable' to industrial undertaking. 

3. Whether the Ld. CIT(A) was correct in law in holding that 'additional subsidy' received from the State Government by the assessee is allowed to be included as profit derived from the industrial undertaking and eligible for deduction u/s8OIA of the Income Tax Act 1961, oblivious to the decision rendered by the Hon'ble Supreme Court in the case CIT Vs. Sterling Foods 237 ITR 53 (SC) & Liberty India Ltd Vs. CIT 183 Taxman 349 (SC)

4. Any other ground that may be taken during the appeal.

5. The appellant craves leave to add, alter, amend and delete any of the grounds of leave.

2. The assessee is a company which is engaged in the business of distribution of electricity in 7 districts of Karnataka. The assessee claimed deduction under section 80IA(4)(iv)(c) of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The AO in para 12 of the Assessment Order has accepted that the assessee is entitled to claim deduction under the aforesaid provisions. The AO, however, noticed that the aforesaid deduction also included a sum of Rs.412.67 Crores received as additional subsidy by the assessee pursuant to the order of the Karnataka Electricity Regulatory Commission (KERC). The AO did not dispute the fact that the aforesaid additional subsidy which was offered as income by the assessee and on which the deduction was claimed by the assessee had accrued to the assessee during the previous year relevant to Assessment Year 2012-13. The only dispute which the AO raised was that the additional subsidy cannot be considered as “profits derived from the eligible business”. In this regard, the AO has made a reference to the provisions of section 80IA of the Act which reads as follows:

“[(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 sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in computing the total income of the assessee, a deduction of an amount equal to hundred percent of the profits and gains derived from such business for ten consecutive assessment years.]” 

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