COMMISSIONER OF INCOME TAX versus M/S. MEGHALAYA STEELS LTD.

Citation: [2016] 1 S.C.R. 952 · Decided: 09-03-2016 · Supreme Court of India · Bench: KURIAN JOSEPH · Disposal: Dismissed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
[2016] 1 S.C.R. 952 
COMMISSIONER OF INCOME TAX 
v. 
M/S. MEGHALAYA STEELS LTD. 
(Civil Appeal No.7622 of2014) 
MARCH 09, 2016 
[KURIAN JOSEPH AND ROHINTON FALi NARJMAN, JJ.] 
Income Tax Act; 1961: ss.80IB, 80IC - Deduction under -
Subsidies - Transport/Interest/Power/Insurance subsidy - Held: 
C Eligible for deduction - These subsidies are revenue receipts which 
are reimbursed to the assessee for elements of cost relating to 
manufacture or sale of their products, there can certainly be 
said to be a direct nexus between profits and gains of the industrial 
undertaking or business, and reimbursement of such subsidies. 
D 
E 
F 
G 
H 
Dismissing the appeals, the Court 
HELD: 1. The judgment in *Sterling Foods lays down a 
very important test in order to determine Whether profits and 
gains are derived from business or an industrial undertaking. 
This Court has stated that there should be a direct nexus 
between such profits and gains and the industrial undertaking 
or business. Such nexus cannot be only incidental. It therefore 
found, on the facts before it, that by reason of an export promotion 
scheme, an assessee was entitled to import entitlements which 
it could thereafter sell. Obviously, the sale consideration 
therefrom could not be said to be directly from profits and gains 
by the industrial undertaking but only attributable to such 
industrial undertaking inasmuch as sue!! import entitlements 
did not relate to manufacture or sale of the products of. the 
undertaking, but related only to an event which was post 
manufacture namely, export. On an application of the said test 
to the facts of the present case, it can be said that as all the four 
subsidies in the present case are revenue receipts which are 
reimbursed io the assessee for elements of cost relating to 
manufacture or sale of their products, there can certainly be 
said to be a direct· nexus between profits and gains of the 
industrial undertaking or business, and reimbursement of such 
"· 
952 
COMMISSIONER OF INCOME TAX v. M/S. MEGHALAYA 
953 
STEELS LTD. 
subsidies. The immediate source of the subsidies was the fiict . A 
that the Government gave them and that, therefore, the 
immediate source not being from the business of the assessee, 
the element of directness is missing, is not correct. What is to be 
seen for the applicability of Sections 80-IB and 80-IC is whether 
the profits and gains are derived from the business. So Jong as 
B 
profits and gains emanate directly from the business itself, the 
fact that the immediate source of the subsidies is the Government 
would make no difference, as it cannot be disputed that the said 
subsidies are only in order to reimburse, wholly or partially, costs 
actually incurred by the assessee in the manufacturing and selling 
of its products. The "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 the sale price of an article 
all elements of cost which go into manufacturing or selling it. 
Thus understood, it is clear that profits and gains are derived 
from the business of the assessee, namely profits arrived at 
after deducting manufacturing cost and selling costs reimbursed 
to the assessee by the Government concerned. [Para 18) 
[967-A-H] 
2. It is incorrect to state that assistance by way of subsidies 
which are reimbursed on the incurring of costs relatable to a 
business, are under the head "income from other sources", which 
is a residuary head of income that can be availed only if income 
does not fall under any of the 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 the Government of India, 
will be income chargeable to income tax under the head "profits 
and gains of business or profession". If cash assistance received 
or receivable against exports schemes are included as being 
income under the head "profits and gains of business or 
profession", it is obvious that subsidies which go to 
reimbursement of cost in the production of goods of a particufar 
business would also have to be included under the head "profits 
and gains of business or profession", and not under the head 
"income from other sources". [Para 28) (971-H; 972-A-C] 
*CIT v. Sterling Foods 237 ITR 579 (1999) - relied 
on. 
c 
D 
E 
F 
G 
H 
954 
SUPREME COURT REPORTS 

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