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CBDT Circular On Deductibility Of Subsidies U/s 80-IB And 80-IC

The CBDT has issued Circular No. 39/ 2016 dated 29.11.2016 in which it has stated that in accordance with the judgement of the Supreme Court in Meghalaya Steels Ltd, the subsidies of transport, power and interest given by the Government to the Industrial Undertaking are receipts which have been reimbursed for elements of cost relating to manufacture/sale of the products and there is a direct nexus between profit and gains of the industrial undertaking / business and reimbursement of such business subsidies. The CBDT has directed that such subsidies are part of profits and gains of business derived from the Industrial Undertaking and are not to be included under the head ‘Income from other sources’. Therefore, deduction is admissible under section 80-IB/80-IC of the Act on such revenue receipts derived from the Industrial Undertaking.


CIRCULAR NO. 39/2016
F.No.279/Misc./140/2015/ITJ
Government of India
Ministry of Finance
Central Board of Direct Taxes
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New Delhi, Dated 29th November, 2016

Subject: Transport, Power and Interest subsidies received by an Industrial Undertaking- Eligibility for deduction under sections 80-IB, 80-IC etc., of the Income-tax Act, 1961- Reg.

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The issue whether revenue receipts such as transport, power and interest subsidies received by an Industrial Undertaking/ eligible business are part of profits and gains of business derived from its business activities within the meaning of sections 80-IB/ 80-IC of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) and thus eligible for claim of corresponding deduction under Chapter VI-A of the Act has been a contentious one. Such receipts are often treated as ‘Income from other sources’ by the Assessing Officers.

2. The Hon’ble Supreme Court in its judgment dated 9.3.2016 in the case of Meghalaya Steels Ltd in CA No . 7622 of 2014 (NJRS citation 20 16-LL-0309-15) and other cases has held that the subsidies of transport, power and interest given by the Government to the Industrial Undertaking are receipts which have been reimbursed for elements of cost relating to manufacture/sale of the products. Thus, there is a direct nexus between profit and gains of the industrial undertaking / business and reimbursement of such business subsidies. Accordingly, such subsidies are part of profits and gains of business derived from the Industrial Undertaking and are not to be included under the head ‘Income from other sources’. Therefore, deduction is admissible under section 80-IB/80-IC of the Act on such revenue receipts derived from the Industrial Undertaking.

3. In view of the above, it is a settled position that revenue subsidies received from the Government towards reimbursement of cost of production/manufacture or for sale of the manufactured goods are part of profits and gains of business derived from the Industrial Undertaking/eligible business, and are thus, admissible for applicable deduction under Chapter VI-A of the Act.

4. Accordingly, henceforth, appeals may not be filed by the Department on the above settled issue, and those already filed may be withdrawn/not pressed upon.

5. The above may be brought to the notice of all concerned.

(K. Vamsi Krishna)
ACIT (OSD) (ITJ)
CBDT, New Delhi

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