The issue of deductibility of Subsidies as profits derived from undertaking stands resolved by Supreme Court in its Landmark Judgment in Meghalya Steels on 09-03-2016

Exemption available under Chapter VI-A in respect of profits of industrial undertakings is available only in respect of income qualifying the litmus test of “profits or gain derived from undertaking”. The revenue and assessees have been locking their horns over the issue of Subsidies for years together as to whether or not they are covered by term ““profits or gain derived from undertaking”

                             In this article while an attempt has been made to construe real meaning of words “profit derived from”, it also deals with purpose test of subsidy and its relevance after recent amendments in Finance Act 2015 and Finance Bill 2016.

Interest on TDS refund, interest from lessees, interest on FDRs and Tender fees are all “derived” from the undertaking and are eligible for deduction. If items of income are not eligible, it should be netted off against expenditure and only balance can be disallowed ITO vs. Hiranandani Builders (ITAT Mumbai) [28-10-2015]

Division Bench of Supreme Court splits on the issue of simultaneous deduction u/s 80IB rws 80IA(9) and 80HHC. Where assessee is carrying export business as well as domestic business and is eligible for deduction both u/s 80HHC as well as 80IB, the issue is whether amount of eligible deduction computed u/s 80IB rws 80IA(9) shall be deducted in computing profits of business u/s 80HHC. An example will make position clear. Supposing an assessee has gross total income of Rs. 1,000/- and is entitled to deduction under Sections 80IA and 80HHC and the deduction under Section 80IA is Rs. 300/-, then the department says that gross total income of which deduction under Section 80HHC is to be computed would be Rs. 700/-, and not Rs. 1,000/-. On the other hand, the case of the assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80HHC [Extracted from Para 15 and 16 of Judgment. The issue has arisen due to language of section 80IA(9). Which reads as “ Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of (undertaking) or enterprise, as the case may beSection 80-IA(9) consists of three parts. The second part of section 80-IA(9) provided that the deduction to the extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that are allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading C of Chatper VI-A of the Act. Matter now referred to larger bench Micro Labs Ltd. [2015] 64 taxmann.com 199 (SC) DECEMBER 10, 2015

The assessee claiming deduction u/s 80IB. The observation of AO that GP ratio for subsequent years was lower can not be ground for rejection of the books. Swastik Food Products [2015] 61 taxmann.com 83 (Himachal Pradesh) JUNE 25, 2014

Where assessee had violated provisions of section 80-IB(10)(C) in respect of two units of housing project, denial of deduction under section 80-IB would be limited only to said two units and for balance units assessee would be entitled to deduction

Paras Builders[2015] 58 taxmann.com 286 (Pune - Trib.)MARCH  31, 2015 
Assessing Officer disallowed deduction on ground that assessee had violated provisions of section 80-IB(10)(c) by amalgamating two row houses, covered area of which was more than 1500 sq. ft. which is condition stipulated in section 80-IB(10)(c) - Whether merely because assessee had violated provisions of section 80-IB(10)(c) in respect of two units, deduction under section 80-IB(10) could not be denied in entirety and assessee was entitled to said deduction in respect of balance units which had been constructed as per conditions laid down in section 80-IB(10)(c) - Held, yes [Para 11] [In favour of assessee]

Where deduction under section 10A was denied on ground that assessee-firm was formed by splitting up of an existing business, but nothing was there on record to suggest that business of assessee-firm was carried on by other entity including partners in individual capacity and subsequently business of said entity was split or there was a reconstruction, it could not be said that assessee had violated any of conditions of clause (ii) or (iii) in section 10A(2)

APS Technologies [2015] 58 taxmann.com 104 (Pune - Trib.)

Section 15C of the Indian Income-tax Act, 1922 [corresponding to section 80J of the Income-tax Act, 1961] - Deductions - Profits & gains of newly established industrial undertakings - Whether assessee was entitled to deduction under section 15C on profits and gains derived from an industrial undertaking established in a building taken on lease which was used previously for other business - Held, yes

Bajaj Tempo Ltd [1992] 62 TAXMAN 480 (SC)

Transport Subsidy is not eligible for Deduction u/s 80IB

Maken Cement Industries 7-11-2012 ITAT ASR ITA 63/2011
Followed: Sterling Foods(SC) 237 ITR 579 and Pandian Chemicals Ltd 262 ITR 278 (SC)

80IB is allowable for disallowance u/s 40(a)(ia) also

 M/s. Kashmir Udyog I.T.A. No.124(Asr)/2011 21-8-2012
M/s. Singla Cabales, Jammu, in ITA No.147(Asr)/2012 1-6-2012
M/s. Sun Pharmaceuticals, in ITA No.184(Asr)/2009, dated 11.06.2010
Sunandan Aggaral ITA 166/2012 dated 26-7-2012