COMMISSIONER OF INCOME TAX Vs. KIRAN ENTERPRISES

JUDGEMENT

(1.) THESE appeals are being disposed of by a single judgment as the question of law involved in all the appeals is the same and reads as follows:

(2.) IT would not be out of place to mention that after the amendment made in Section 80 -1A by the Finance Act, 1999 w. e.f. 1.4.2000, Section 80 -1A was split into two parts and now Section 80 -1A applies to undertakings and enterprises engaged in infrastructure development and Section 80 -1B applies to other eligible business. The provisions of Section 80 -1B are paramateria with Section 80 -1A as they previously existed. In the State of Himachal Pradesh there is scarcity of rail net work. A scheme has been framed by the Central Government whereby freight/transport subsidy is provided to the industries set -up in remote areas where rail facilities are not available and some percentage of the transport expenses incurred by the industrial undertakings to transport raw material to the factory and to transport finished goods from their industries is subsidized by the Central Government. The question which arises is whether this freight subsidy is income derived from the business of the industrial undertaking and can be included in the profits eligible for deduction under Section 80 -1A. Learned Counsel for the parties have cited a number of authorities before the Court. The basic authority on the point is Cambay Electric Supply Industrial Co. Ltd. v. Commissioner of Income Tax, Gujarat -II (1978) 113 ITR 84. In that case the Apex Court was dealing with the provisions of Section 80 - E of the Act prior to its amendment in 1967. The assessee was carrying on the business of generation and distribution of electricity. It sold out some of its machinery and building. The question which arose was whether the amount earned from the sale of the machines and buildings was attributable to the business of the Industry. The Apex court held as follows:

(3.) RELYING on these observations of the Apex court it is contended on behalf of the Revenue that since in Section 80 - 1A the word 'derived ' has been used, the transport subsidy cannot be said to be derived from the business of the industrial undertakings. A Division Bench of the Calcutta High Court dealt with a similar question in Merinoply and Chemicals ltd. v. Commissioner of Income Tax (1994) 209 ITR 508. One of the questions before the Calcutta High Court was whether transport subsidies were inseparably connected with the business carried on by the assessee or not. In that case 50% of the transportation cost of raw material and finished goods was paid to the new Units set up in the backward areas. The Court held as follows: