Taxpayer eligible for Sec 80IE Deduction on income of VAT remission under State Government scheme: ITAT

In this case Taxpayer had miscellaneous Income amounting to Rs. 24,63,071/- represented by VAT remission in pursuance to Scheme of State Government under Meghalaya Industries (Tax Remission) Scheme, 2006. Under the said scheme the industrial unit under the remission scheme is required to charge tax as per applicable rates of tax to ensure smooth and seamless operation of VAT system and remission of 99% of the tax so charged is allowed to the assessee and thus 1% is required to be paid to the Government Treasury.

Contention of Taxpayer:

• The Ld. A.R. submitted that the said remission is arising out the business activity of assessee and therefore eligible for the deduction u/s 80IE. The Ld. A.R. referred the decision of Hon’ble Apex Court in the case of CIT vs. Meghalaya Steels Ltd. reported in [2016] 67 taxmann.com 158 (SC) wherein it has been held that the transport subsidy, interest subsidy, power subsidy and insurance subsidy are part of the income derived from business as there was certainly direct nexus of profits of assessee’s business and reimbursement of such subsidies.
• The Ld. A.R. submitted that the similarly applying the same analogy in the present context the remission which is a kind of incentive to the assessee arising from the said Industrial unit by virtue of its manufacturing activity carried on in the backward area is certainly a part of the eligible profit u/s 80IE of the act and thus the finding of the PCIT that there should not form the eligible part u/s 80IE of Income Tax is not contrary to the decision of the Hon’ble Apex Court.

ITAT Order:

The VAT remission is part of and arising because of the business activity of the assessee. The assessee has collected sales on the applicable rates on the sales made by it availed 99% of VAT remission under the scheme of Meghalaya State Government in pursuance of Meghalaya Industries (Tax Remission) Scheme, 2006 and paid only 1% to the tax to the Govt. In our view, the said remission has direct nexus with the business of the assessee and therefore has to form a part of the eligible unit and deduction u/s 80IE of the Act has to be allowed.