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Judgment
Balasubrahmanyan, J.—The question of law, which has been referred to us by the Income Tax Appellate Tribunal is as follows :
Whether, on facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amount of cash subsidy received by the
assessee on its exports would be attributable to the priority industry eligible for relief u/s 80E of the Income Tax Act, 1961, and, therefore, relief
under that provision should be granted ?
The assessee in this case is a limited company engaged in the business of manufacture of presses, cutting tools and lapping wheels, which is a
priority industry mentioned as item 8 in Schedule V to the I.T. Act, 1961. Priority industries are entitled to the relief under s. 80E under certain
circumstances. The profits, with respect to which the assessee claimed relief under s. 80E and which the Department denied in the assessment,
related to cash subsidies granted by the Govt. of India to the assessee in order to encourage its exports. Admittedly, the amount in question (was
attributable to) priority industry as profit from the manufacture and sale of the articles. The question, which cropped up in the assessee''s
assessment was, whether the cash subsidy although it was not directly derived from the priority industry, was ""attributable"" to the priority industry.
Following an earlier decision of theirs in another assessee''s case, the Tribunal, disagreeing with the ITO, held that the cash subsidy granted by the
Government to the assessee must be regarded as profits ""attributable"" to the priority industry. The earlier decision, which the Tribunal had followed
in this case, itself was the subject-matter of a reference before this court. The judgment in that case is reported in Shardlow India Ltd. Vs.
Commissioner of Income Tax, Madras, . In that case, the question was whether the profit arising on the sale of import entitlements by an assessee,
who was admittedly carrying on a priority industry, can be regarded as profits ""attributable"" to the priority industry. The expression ""attributable to
occurring in s. 80E was also the subject-matter of a ruling by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. Vs. The
Commissioner of Income Tax, Gujarat-II, Ahmedabad, . The Supreme Court observed that the phrase ""attributable to"" in the section is wider than
the expression ""derived from"". In that case the Supreme Court had to consider whether a balancing charge on the sale of depreciated machinery
used in a priority industry, can be regarded as part of the profits ""attributable"" to the priority industry. The Supreme Court held that although there
might be some doubt whether the balancing charge can be regarded as profits derived from the priority industry, certainly such profits must be
brought within the wider expression ""attributable to"". The judgment of the Supreme Court in the above case was followed by this court in
Shardlow India Ltd. Vs. Commissioner of Income Tax, Madras, . As pointed out earlier, this court held that the profits arising from sale of the
import entitlement which a priority industry had, must themselves be regarded as profits attributable to the priority industry. In the present case, it is
not very clear how the Government granted import subsidy to the assessee, whether it was in return for the surrender by the assessee of the export
entitlement or otherwise. Whatever might be the basis or mode of the payment, it is quite clear from the facts stated by the Tribunal, that but for the
fact that the assessee was carrying on a priority industry of the nature we have earlier described and but for the import entitlement to which they
were entitled, cash subsidy would not have been given by the Government to the assessee. In these circumstances, we think the Tribunal was quite
right in applying the principles enunciated by this court as well as the Supreme Court in the decisions referred to above and in coming to the
conclusion that the cash subsidy must be regarded as ""attributable"" to the priority industry. The present case actually seems to be an a fortiori one,
because as compared to the profits derived from the sale of import entitlement, which figured in the discussion in the earlier case, Shardlow India
Ltd. Vs. Commissioner of Income Tax, Madras, , what happened in the present case was that there was a receipt by the assessee of actual cash
subsidy, which the Government granted to the assessee in lieu of the profits which the assessee might otherwise have obtained by export of goods
manufactured in its factory. In this sense, the cash subsidy is really a profit substitute, and as a profit substitute derived from the priority industry, it
is certainly entitled to be regarded at least as ""profits attributable"" to the priority industry within the meaning of s. 80E of the I.T. Act, 1961. Our
answer to the question, therefore, is in the affirmative and in favour of the assessee. However, there will be no order as to costs.