REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.7622 OF 2014 COMMISSIONER OF INCOME TAX APPELLANT VERSUS M/S. MEGHALAYA STEELS LTD. RESPONDENT WITH CIVIL APPEAL NO.8493 OF 2012 CIVIL APPEAL NO.8494 OF 2012 CIVIL APPEAL NO.8496 OF 2012 CIVIL APPEAL NO.2560 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.36578 OF 2013) CIVIL APPEAL NO.2561 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.36579 OF 2013) CIVIL APPEAL NO.2562 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.36581 OF 2013) CIVIL APPEAL NO.2563 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.37831 OF 2013) CIVIL APPEAL NO.2564 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.37833 OF 2013) CIVIL APPEAL NO.2565 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.37834 OF 2013) CIVIL APPEAL NO.2566 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.6867 (CC 224/2014) Signature Not Verified CIVIL APPEAL NO.2567 OF 2016 Digitally signed by Sukhbir Paul Kaur Date: 2016.03.10 (ARISING OUT OF SLP (CIVIL) NO.6869 (CC 1543/2014) 14:53:35 IST Reason: 1 CIVIL APPEAL NO.2568 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.11094 OF 2014) CIVIL APPEAL NO.2569 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.11095 OF 2014) CIVIL APPEAL NO.2570 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.12710 OF 2014) CIVIL APPEAL NO.3624 OF 2015 CIVIL APPEAL NO.2571 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.24620 OF 2014) CIVIL APPEAL NO.2572 OF 2016 (ARISING OUT OF SLP (CIVIL) NO.11319 OF 2015) CIVIL APPEAL NO.3623 OF 2015 CIVIL APPEAL NO.5238 OF 2015 CIVIL APPEAL NO.5239 OF 2015 CIVIL APPEAL NO.5236 OF 2015 CIVIL APPEAL NO.6040 OF 2015 CIVIL APPEAL NO.6039 OF 2015 CIVIL APPEAL NO.7623 OF 2014 CIVIL APPEAL NO.7624 OF 2014 JUDGMENT R.F. Nariman, J. 1. Delay condoned in filing special leave petitions. 2. Leave granted in SLP (C) Nos. 36578/2013, 36579/2013, 36581/2013, 37831/2013, 37833/2013, 37834/2013, SLP(C) No. CC No.224/2014), SLP(C) No. CC No.1543/2014), SLP(C) Nos.11094/2014, 11095/2014, 12710/2014, 24620/2014, 11319/2015. 2 3. This group of appeals arises from State of Meghalaya and concerns deductions to be made under Sections 80-IB and 80-IC of Income Tax Act, 1961. Civil Appeal No.7622 of 2014 has been treated as lead matter in which judgment of Gauhati High Court dated 29.5.2013 has been delivered, which has been followed in all other appeals. 4. Civil Appeal No.7622 of 2014 concerns itself with two income tax appeals filed by Revenue against judgment of Income Tax Appellate Tribunal, ITA No.7/2010 arising out of applicability of Section 80-IB, and ITA No.16/2011 arising out of applicability of Section 80-IC. For purpose of these matters, facts in ITA No.7/2010 are narrated hereinbelow. 5. respondent is engaged in business of manufacture of Steel and Ferro Silicon. On 9.10.2014, Respondent submitted its return of income for year 2004-2005 disclosing income of Rs.2,06,970/- after claiming deduction under Section 80-IB of Income Tax Act on profits and gains of business of respondent s industrial undertaking. respondent had received following amounts on account of subsidies:- 3 Transport subsidy - Rs.2,64,94,817.00 Interest subsidy - Rs.2,14,569.00 Power subsidy - Rs.7,00,000.00 Total - Rs.2,74,09,386.00 6. Assessing Officer, in assessment order dated 7.12.2006, held that amounts received by assessee as subsidies were revenue receipts and did not qualify for deduction under Section 80-IB(4) of Act and, accordingly, respondent s claim for deduction of amount of Rs.2,74,09,386/- on account of three subsidies afore-mentioned were disallowed. respondent-assessee preferred appeal before Commissioner of Income Tax (Appeals), Guwahati, who, vide his order dated 8.3.2007, dismissed appeal of respondent. Aggrieved by aforesaid order, respondent preferred appeal before ITAT which, by its order dated 19.3.2010, allowed appeal of respondent. Revenue carried matter thereafter to High Court, under Section 260A of Act, which resulted in impugned judgment dated 29.5.2013, which decided matter against Revenue. Revenue is therefore before us in appeal against this judgment. 4 7. Shri Radhakrishnan, learned senior advocate appearing on behalf of Revenue, argued before us that any amount received by way of subsidy was amount whose source was Government and not business of assessee. He further argued that there is world of difference between expression profits and gains derived from any business, and profits attributable to any business, and that since section speaks of profits and gains derived from any business, such profits and gains must have close and direct nexus with business of assessee. Subsidies that are allowed to assessee have no close and direct nexus with business of assessee but have close and direct nexus with grants from Government. This being case, according to him, respondent did not qualify for deductions under Sections 80-IB and 80-IC of Act. In course of his lengthy submissions, he made reference to number of judgments including judgment reported as Liberty India v. Commissioner of Income Tax reported in 2009 (9) SCC 328, which has been followed by Himachal Pradesh High Court in Supriya Gill v. CIT (2010) 193 Taxman 12 (Himachal 5 Pradesh). He submitted that aforesaid judgment of Himachal Pradesh High Court has taken diametrically opposite view to judgment of Gauhati High Court, impugned in present appeals, and deserves to be followed, as it, in turn, has followed Liberty India s judgment and another Supreme Court judgment reported as CIT v. Sterling Foods, 237 ITR 579 (1999). He also relied upon Sections 80-A and 80-AB in order to demonstrate scheme of deductions allowable under Part-VI-A of Income Tax Act. He also referred us to Sections 56 and 57 (iii) of Act to buttress his submission that subsidies being in nature of income from other sources could not be allowed to be deducted from profits and gains of business, which fell under different sub-heading in Section 14 of Act. According to him, there is one interpretation and one interpretation alone of Sections 80-IB and 80-IC, which cannot be deviated from with reference to any so-called object of said sections. 8. Countering these submissions, Shri P. Chidambaram Learned Senior Counsel appearing on behalf of assessee, referred to Budget Speech of Minister of Finance for 6 1999-2000 to buttress his submission that idea of giving these subsidies was to give 10 year tax holiday to those who come from outside Meghalaya to set up industries in that State, which is backward area. He referred to several judgments, including judgment reported in Jai Bhagwan Oil and Flour Mills v. Union of India and Others (2009) 14 SCC 63 and Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. - I, Hyderabad, (1997) 7 SCC 764 to buttress his submission that subsidies were given only in order that items which would go into cost of manufacture of products made by respondent should be reduced, as these subsidies were reimbursement for either entire or partial costs incurred by respondent towards transporting raw materials to its factory and transporting its finished products to dealers, who then sell finished products. Further, power subsidy, interest subsidy and insurance subsidy were also reimbursed, either wholly or partially, power being necessary element of cost of manufacture of respondent s products, and insurance subsidy being necessary to defray costs for both manufacture and sale of said products. 7 Further, interest subsidy would also go towards reducing interest element relatable to cost, and therefore all four subsidies being directly relatable to cost of manufacture and/or sale would therefore necessarily fall within language of Sections 80-IB and 80-IC, as they are components of cost of running business from which profits and gains are derived. He sought to distinguish judgments cited by Shri Radhakrishnan, in particular judgment of this Court in Liberty India, on ground that said judgment did not deal with subsidy relatable to cost of manufacture but dealt with DEPB drawback scheme, which related to export of goods and not manufacture of goods, thereby rendering said decision inapplicable to facts of present case. Shri S. Ganesh, learned senior counsel appearing on behalf of some of respondent-assessees, reiterated submissions made by Shri P. Chidambaram and added that as all subsidies went towards cost of manufacture or sale of products of respondent, such subsidies being amounts of cost which were actually incurred by respondent and thereafter reimbursed by State, principle of netting off recognized in several 8 decisions of this Court ought to be applied, and on application of said principle, it is clear that subsidy received by respondent was only to depress cost of manufacture and/or sale and would therefore be derived from profits and gains made from business of assessee. He also relied upon judgment of Calcutta High Court dated 15.1.2015, in C.I.T. v. Cement Manufacturing Company Limited, which has followed Gauhati High Court, and judgment of Delhi High Court in CIT v. Dharampal Premchand Ltd., 317 ITR 353. 9. We have heard learned counsel for parties. Before embarking on discussion of relevant case law, we think it is necessary to set out Sections 80-IB and 80-IC insofar as they are relevant for determination of present case. 80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings (1) Where gross total income of assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as eligible business), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income 9 of assessee, deduction from such profits and gains of amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all following conditions, namely:- (i) it is not formed by splitting up, or reconstruction, of business already in existence: Provided that this condition shall not apply in respect of industrial undertaking which is formed as result of re-establishment, reconstruction or revival by assessee of business of any such industrial undertaking as is referred to in section 33B, in circumstances and within period specified in that section; (ii) it is not formed by transfer to new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in list in Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that condition in this clause shall, in relation to small scale industrial undertaking or industrial undertaking referred to in sub-section (4) shall apply as if words "not being any article or thing specified in list in Eleventh Schedule" had been omitted. Explanation 1- For purposes of clause (ii), any machinery or plant which was used outside India by any person other than assessee shall not be regarded as machinery or plant previously used for any purpose, if following conditions are fulfilled, namely:- (a) such machinery or plant was not, at any time previous to date of installation by assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and 10 (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under provisions of this Act in computing total income of any person for any period prior to date of installation of machinery or plant by assessee. Explanation 2- Where in case of industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to new business and total value of machinery or plant or part so transferred does not exceed twenty per cent of total value of machinery or plant used in business, then, for purposes of clause (ii) of this sub-section, condition specified therein shall be deemed to have been complied with; (iv) in case where industrial undertaking manufactures or produces articles or things, undertaking employs ten or more workers in manufacturing process carried on with aid of power, or employs twenty or more workers in manufacturing process carried on without aid of power. (4) amount of deduction in case of industrial undertaking in industrially backward State specified in Eighth Schedule shall be hundred per cent of profits and gains derived from such industrial undertaking for five assessment years beginning with initial assessment year and thereafter twenty-five per cent (or thirty per cent where assessee is company) of profits and gains derived from such industrial undertaking: Provided that total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where assessee is co-operative society) subject to fulfillment of condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during 11 period beginning on 1st day of April, 1993 and ending on 31st day of March, 2004: Provided further that in case of such industries in North-Eastern Region, as may be notified by Central Government, amount of deduction shall be hundred per cent of profits and gains for period of ten assessment years, and total period of deduction shall in such case not exceed ten assessment years. Provided also that no deduction under this sub-section shall be allowed for assessment year beginning on 1st day of April, 2004 or any subsequent year to any undertaking or enterprise referred to in sub-section (2) of section 80-IC. Provided also that in case of industrial undertaking in State of Jammu and Kashmir, provisions of first proviso shall have effect as if for figures, letters and words 31st day of March, 2004, figures, letters and words 31st day of March, 2012 had been substituted: Provided also that no deduction under this sub-section shall be allowed to industrial undertaking in State of Jammu and Kashmir which is engaged in manufacture or production of any article or thing specified in Part C of Thirteenth Schedule. 80-IC Special provisions in respect of certain undertakings or enterprises in certain special category States (1) Where gross total income of assessee includes any profits and gains derived by undertaking or enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains, as specified in sub-section (3). 12 10. There is no dispute between parties that businesses referred to in Section 80-IB are businesses which are eligible businesses under both aforesaid Sections. parties have only locked horns on meaning of expression any profits and gains derived from any business . 11. aforesaid provisions were inserted by Finance Act 1999 with effect from 1.4.2000. Finance Minister in his budget speech for year 1999-2000 spoke about industrial development in North Eastern Region as follows:- Mr. Speaker, Sir, I am conscious of fact that, despite all our announcements, industrial development in North Eastern Region has not come up to our expectations. To give industrialisation fillip in this area of country, I propose 10 year tax holiday for all industries set up in Growth Centres, Industrial Infrastructure Development Corporations, and for other specified industries, in North Eastern Region. I would urge industrial entrepreneurs from this part of country to seize opportunity and set up modern, high value added manufacturing units in region. 12. reference to 10 year tax holiday for industries set up in North Eastern Region is obvious reference to second proviso to sub-section (4) of Section 80-IB set out hereinabove. speech of Minister is relevant insofar it 13 gives background for introduction of particular provision in Income Tax Act. It is not determinative of construction of said provision, but gives reader idea as to what was in Minister s mind when he sought to introduce said provision. As external aid to construction, this Court has, in K.P. Varghese v. Income Tax Officer, Ernakulam and Anr., (1982) 1 SCR 629, referring to Minister s speech piloting Finance Bill, stated as under:- Now it is true that speeches made by Members of Legislature on floor of House when Bill for enacting statutory provision is being debated are inadmissible for purpose of interpreting statutory provision but speech made by Mover of Bill explaining reason for introduction of Bill can certainly be referred to for purpose of ascertaining mischief sought to be remedied by legislation and object and purpose for which legislation is enacted. This is in accord with recent trend in juristic thought not only in Western countries but also in India that interpretation of statute being exercise in ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this Court, one in Loka Shikshana Trust v. Commissioner of Income-Tax [1975] 101 ITR 234(SC) other in Indian Chamber of Commerce v. Commissioner of Income-tax [1975] 101 ITR 796(SC) and third in Additional Commissioner of Income-tax v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1(SC) where speech 14 made by Finance Minister while introducing exclusionary clause in Section 2 Clause (15) of Act was relied upon by Court for purpose of ascertaining what was reason for introducing that clause. speech made by Finance Minister while moving amendment introducing Sub-section (2) clearly states what were circumstances in which Sub-section (2) came to be passed, what was mischief for which Section 52 as it then stood did not provide and which was sought to be remedied by enactment of Sub-section (2) and why enactment of Sub-section (2) was found necessary. It is apparent from speech of Finance Minister that Sub-section(2) was enacted for purpose of reaching those cases where there was under-statement of consideration in respect of transfer or to put it differently, actual consideration received for transfer was 'considerably more' than that declared or shown by assessee, but which were not covered by Sub-section (1) because transferee was not directly or indirectly connected with assessee. object and purpose of Sub-section (2), as explicated from speech of Finance Minister, was not to strike at honest and bonafide transactions where consideration for transfer was correctly disclosed by assessee but to bring within net of taxation those transactions where consideration in respect of transfer was shown at lesser figure than that actually received by assessee, so that they do not escape charge of tax on capital gains by under-statement of consideration. This was real object and purpose of enactment of Sub-section (2) and interpretation of this sub-section must fall in line with advancement of that object and purpose. We must therefore accept as underlying assumption of Sub-section (2) that there is under-statement of consideration in respect of transfer and 15 Sub-section (2) applies only where actual consideration received by assessee is not disclosed and consideration declared in respect of transfer is shown at lesser figure than that actually received. 13. series of decisions have made distinction between profit attributable to and profit derived from business. In one of early judgments, namely, Cambay Electric Supply Industrial Company Limited v. Commissioner of Income Tax, Gujarat II, (1978) 2 SCC 644, this Court had to construe Section 80-E of Income Tax Act, which referred to profits and gains attributable to business of generation or distribution of electricity. This Court held: As regards aspect emerging from expression "attributable to" occurring in phrase "profits and gains attributable to business of" specified industry (here generation and distribution of electricity) on which learned Solicitor General relied, it will be pertinent to observe that Legislature has deliberately used expression "attributable to" and not expression "derived from". It cannot be disputed that expression "attributable to" is certainly wider in import than expression "derived from". Had expression "derived from" been used it could have with some force been contended that balancing charge arising from sale of old machinery and buildings cannot be regarded as profits and gains derived from conduct of business of generation and distribution of electricity. In this connection it may be 16 pointed out that whenever Legislature wanted to give restricted meaning in manner suggested by learned Solicitor General it has used expression "derived from", as for instance in s. 80J. In our view since expression of wider import, namely, "attributable to has been used, Legislature intended to cover receipts from sources other than actual conduct of business of generation and distribution of electricity. (Para 8) 14. In Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore, (1999) 4 SCC 98, this Court had to decide whether income derived by assessee by sale of import entitlements on export being made, was profit and gain derived from respondent s industrial undertaking under Section 80HH of Indian Income Tax Act. This Court referred to judgment in Cambay Electric Supply (supra) and emphasized difference between wider expression attributable to as contrasted with derived from . In course of judgment, this Court stated that industrial undertaking itself had to be source of profit. business of industrial undertaking had directly to yield that profit. Having said this, this Court finally held:- We do not think that source of import entitlements can be said to be industrial undertaking of assessee. source of 17 import entitlements can, in circumstances, only be said to be Export Promotion Scheme of Central Govt. whereunder export entitlements become available. There must be for application of words "derived from", direct nexus between profits and gains and industrial undertaking. In instant case nexus is not direct but only incidental. industrial undertaking exports processed sea food. By reason of such export, Export Promotion Scheme applies. Thereunder, assessee is entitled to import entitlements, which it can sell. sale consideration therefrom cannot, in our view, be held to constitute profit and gain derived from assessees' industrial undertaking. (Para 13) 15. Similarly, in Pandian Chemicals Limited v Commissioner of Income Tax, 262 ITR 278, this Court dealt with claim for deduction under Section 80HH of Act. question before Court was as to whether interest earned on deposit made with Electricity Board for supply of electricity to appellant s industrial undertaking should be treated as income derived from industrial undertaking under Section 80HH. This Court held that although electricity may be required for purposes of industrial undertaking, deposit required for its supply is step removed from business of industrial undertaking. derivation of profits on deposit made with Electricity 18 Board could not be said to flow directly from industrial undertaking itself. On this basis, appeal was decided in favour of Revenue. 16. sheet anchor of Shri Radhakrishnan s submissions is judgment of this Court in Liberty India v. Commissioner of Income Tax, (2009) 9 SCC 328. This was case referring directly to Section 80-IB in which question was whether DEPB credit or Duty drawback receipt could be said to be in respect of profits and gains derived from eligible business. This Court first made distinction between attributable to and derived from stating that latter expression is narrower in connotation as compared to former. This court further went on to state that by using expression derived from Parliament intended to cover sources not beyond first degree. This Court went on to hold:- 34. On analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section(2), would be entitled to deduction under sub-section (1) only to extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict quantum of deduction to specified percentage of profits. This is importance of 19 words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 35. DEPB is incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is export incentive. No doubt, object behind DEPB is to neutralize incidence of customs duty payment on import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under Scheme has to be calculated by taking into account deemed import content of export product as per basic customs duty and special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from Schemes framed by Central Government or from S. 75 of Customs Act, 1962, hence, incentives profits are not profits derived from eligible business under Section 80-IB. They belong to category of ancillary profits of such Undertakings. (Paras 34,35 and 36) 17. analysis of all aforesaid decisions cited on behalf of Revenue becomes necessary at this stage. In first decision, that is in Cambay Electric Supply Industrial Company Limited v Commissioner of Income Tax, Gujarat II, this Court held that since expression of wider import had 20 been used, namely attributable to instead of derived from , legislature intended to cover receipts from sources other than actual conduct of business of generation and distribution of electricity. In short, step removed from business of industrial undertaking would also be subsumed within meaning of expression attributable to . Since we are directly concerned with expression derived from , this judgment is relevant only insofar as it makes distinction between expression derived from , as being something directly from, as opposed to attributable to , which can be said to include something which is indirect as well. 18. judgment in Sterling Foods lays down very important test in order to determine whether profits and gains are derived from business or industrial undertaking. This Court has stated that there should be direct nexus between such profits and gains and industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on facts before it, that by reason of export promotion scheme, assessee was entitled to import entitlements which it could thereafter sell. Obviously, sale 21 consideration therefrom could not be said to be directly from profits and gains by industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of products of undertaking, but related only to event which was post manufacture namely, export. On application of aforesaid test to facts of present case, it can be said that as all four subsidies in present case are revenue receipts which are reimbursed to assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be direct nexus between profits and gains of industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed fact that immediate source of subsidies was fact that Government gave them and that, therefore, immediate source not being from business of assessee, element of directness is missing. We are afraid we cannot agree. What is to be seen for applicability of Sections 80-IB and 80-IC is whether profits and gains are derived from business. So long as profits and gains emanate directly from 22 business itself, fact that immediate source of subsidies is Government would make no difference, as it cannot be disputed that said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by assessee in manufacturing and selling of its products. profits and gains spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from sale price of article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from business of assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to assessee by Government concerned. 19. Similarly, judgment in Pandian Chemicals Limited v Commissioner of Income Tax is also distinguishable, as interest on deposit made for supply of electricity is not element of cost at all, and this being so, is therefore step removed from business of industrial undertaking. derivation of profits on such deposit made with Electricity Board could not therefore be said to flow directly from 23 industrial undertaking itself, unlike facts of present case, in which, as has been held above, all subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of products of business of assessee. 20. Liberty India being fourth judgment in this line also does not help Revenue. What this Court was concerned with was export incentive, which is very far removed from reimbursement of element of cost. DEPB drawback scheme is not related to business of industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when undertaking goes on to export said product, that is after it manufactures or produces same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of product and/or sale within India is not proximate or direct but is one step removed. Also, object behind DEPB entitlement, as has been held by this Court, is to neutralize incidence of customs duty payment on import content of export product which is provided for by credit to customs duty against 24 export product. In such scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by industrial undertaking or business itself. 21. Calcutta High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994], held that transport subsidies were inseparably connected with business carried on by assessee. In that case, Division Bench held:- We do not find any perversity in Tribunal s finding that scheme of transport subsidies is inseparably connected with business carried on by assessee. It is fact that assessee was manufacturer of plywood, it is also fact that assessee has its unit in backward area and is entitled to benefit of scheme. Further is fact that transport expenditure is incidental expenditure of assessee s business and it is that expenditure which subsidy recoups and that purpose of recoupment is to make up possible profit deficit for operating in backward area. Therefore, it is beyond all manner of doubt that subsidies were inseparably connected with profitable conduct of business and in arriving at such decision on facts Tribunal committed no error. 22. However, in CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], same High Court arrived at opposite conclusion in considering whether deduction was allowable under Section 80HH of Act in respect of transport subsidy 25 without noticing aforesaid earlier judgment of Division Bench of that very court. Division Bench of Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by judgment dated 15.1.2015, distinguished judgment in CIT v. Andaman Timber Industries Ltd. and followed impugned judgment of Gauhati High Court in present case. In pithy discussion of law on subject, Calcutta High Court held: Mr. Bandhyopadhyay, learned Advocate appearing for appellant, submitted that impugned judgment is contrary to judgment of this Court in case of CIT v. Andaman Timber Industries Ltd. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not immediate source and does not have direct nexus with activity of industrial undertaking. Therefore, amount representing such subsidy cannot be treated as profit derived from industrial undertaking. Mr. Bandhypadhyay submitted that it is not profit derived from undertaking. benefit under section 80IC could not therefore have been granted. He also relied on judgment of Supreme court in case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as profit derived from industrial undertaking. We have not been impressed by submissions advanced by Mr. Bandhyopadhyay. judgment 26 of Apex Court in case of Liberty India (supra) was in relation to subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both incentives considered by Apex Court in case of Liberty India could be availed after manufacturing activity was over and exports were made. But, we are concerned in this case with transport and interest subsidy which has direct nexus with manufacturing activity inasmuch as these subsidies go to reduce cost of production. Therefore, judgment in case of Liberty India v. Commissioner of Income Tax has no manner of application. Supreme Court in case of Sahney Steel and Press Works Ltd. & Others versus Commissioner of Income Tax, reported in [1997] 228 ITR at page 257 expressed following views:- . Similarly, subsidy on power was confined to power consumed for production . In other words, if power is consumed for any other purpose like setting up plant and machinery, incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to period of five years from date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in State of Andhra Pradesh by making business of production and sale of goods in State more profitable. 23. We are of view that judgment in Merino Ply & Chemicals Ltd. and recent judgment of Calcutta High Court have correctly appreciated legal position. 27 24. We do not find it necessary to refer in detail to any of other judgments that have been placed before us. judgment in Jai Bhagwan case (supra) is helpful on nature of transport subsidy scheme, which is described as under: object of Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. object of Scheme is to improve trade and commerce between remote parts of country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them level playing field so that they could compete with their counterparts in central (non-remote) areas. huge transportation cost for getting raw materials to industrial unit and finished goods to existing market outside state, was making it unviable for industries in remote parts of country to compete with industries in central areas. Therefore, industrial units in remote areas were extended benefit of subsidized transportation. For industrial units in Assam and other north-eastern States, benefit was given in form of subsidy in respect of percentage of cost of transportation between point in central area (Siliguri in West Bengal) and actual location of industrial unit in remote area, so that industry could become competitive and economically viable. (Paras 14 and 15) 28 25. decision in Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. - I, Hyderabad (1997) 7 SCC 764, dealt with subsidy received from State Government in form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consumed by industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for purpose of carrying on business of assessee. 26. We do not find it necessary to further encumber this judgment with judgments which Shri Ganesh cited on netting principle. We find it unnecessary to further substantiate reasoning in our judgment based on said principle. 27. Delhi High Court judgment was also cited before us being CIT v. Dharampal Premchand Ltd., 317 ITR 353 from which SLP preferred in Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of Act, in which it was held that refund of excise duty should not be excluded in arriving at profit derived from business for purpose of claiming deduction under Section 80-IB of Act. 29 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as subsidies that are received by respondent, would be income from other sources referable to Section 56 of Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is separate and distinct head as recognised by Section 14 of Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on incurring of costs relatable to business, are under head income from other sources , which is residuary head of income that can be availed only if income does not fall under any of other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of Government of India, will be income chargeable to income tax under head profits and gains of business or profession . If cash assistance received or receivable against exports schemes are included as being income under head profits 30 and gains of business or profession , it is obvious that subsidies which go to reimbursement of cost in production of goods of particular business would also have to be included under head profits and gains of business or profession , and not under head income from other sources . 29. For reasons given by us, we are of view that Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB and 80-IC. Himachal Pradesh High Court, having wrongly interpreted judgments in Sterling Foods and Liberty India to arrive at opposite conclusion, is held to be wrongly decided for reasons given by us hereinabove. 30. All aforesaid appeals are, therefore, dismissed with no order as to costs. J. (Kurian Joseph) J. (R.F. Nariman) New Delhi; March 09, 2016. 31 ITEM NO.1A COURT NO.10 SECTION IIIA (For Judgment) S U P R E M E C O U R T O F I N D I RECORD OF PROCEEDINGS Civil Appeal No(s). 7622/2014 CIT Appellant(s) VERSUS M/S MEGHALAYA STEELS LTD Respondent(s) With Civil Appeal No. 8493 of 2012 Civil Appeal No. 8494 of 2012 Civil Appeal No. 8496 of 2012 Civil Appeal No. 2560 of 2016 @ S.L.P.(C) No. 36578 of 2013 Civil Appeal No. 2561 pf 2016 @ S.L.P.(C) No. 36579 of 2013 Civil Appeal No. 2562 of 2016 @ S.L.P.(C) No. 36581 of 2013 Civil Appeal No. 2563 of 2016 @ S.L.P.(C) No. 37831 of 2013 Civil Appeal No. 2564 of 2016 @ S.L.P.(C) No. 37833 of 2013 Civil Appeal No. 2565 of 2016 @ S.L.P.(C) No. 37834 of 2013 Civil Appeal No. 2566 of 2016 @ S.L.P.(C) No. 6867 of 2016 (CC No. 224 of 2014 Civil Appeal No. 2567 of 2016 @ S.L.P.(C) No. 6869 of 2016 (CC No. 1543 of 2014 Civil Appeal No. 2568 of 2016 @ S.L.P.(C) No. 11094 of 2014 Civil Appeal No. 2569 of 2016 @ S.L.P.(C) No. 11095 of 2014 Civil Appeal No. 2570 of 2016 @ S.L.P.(C) No. 12710 of 2014 Civil Appeal No. 3624 of 2015 Civil Appeal No. 2571 of 2016 @ S.L.P.(C) No. 24620 of 2014 32 -2- Civil Appeal No. 2572 of 2016 @ S.L.P.(C) No. 11319 of 2015 Civil Appeal No. 3623 of 2015 Civil Appeal No. 5238 of 2015 Civil Appeal No. 5239 of 2015 Civil Appeal No. 5236 of 2015 Civil Appeal No. 6040 of 2015 Civil Appeal No. 6039 of 2015 Civil Appeal No. 7623 of 2014 Civil Appeal No. 7624 of 2014 Date : 09/03/2016 These appeals were called on for pronouncement of judgment today. For Appellant(s) Mrs. Anil Katiyar,Adv. Ms. Sadhna Sandhu, Adv. Mr. Arijit Prasad, Adv. Mr. Rupesh Kumar, Adv. For Mr. B. V. Balaram Das,Adv. For Respondent(s) Ms. Kavita Jha,Adv. Mr. K. V. Mohan,Adv. Mr. Vijay Kumar,Adv. Mrs Rani Chhabra,Adv. Mr. Rajinder Mathur,Adv. Mr. Kunal Chatterji,Adv. Hon'ble Mr. Justice Rohinton Fali Nariman pronounced judgment of Bench comprising Hon'ble Mr. Justice Kurian Joseph and His Lordship. 33 -3- Delay condoned. Leave granted in all special leave petitions. appeals are dismissed in terms of signed reportable judgment. No order as to costs. Pending applications, if any, stand disposed of. [RENU DIWAN] [SUKHBIR PAUL KAUR] COURT MASTER A.R.-CUM-P.S. (Signed reportable judgment is placed on file) 34 Commissioner of Income-tax v. M/s. Meghalaya Steel Ltd