In Brief
The Supreme Court dismissed the Revenue's appeals challenging whether state-government subsidies (transport, power, and interest subsidies) received by Meghalaya Steels Ltd. qualified as deductible income under Sections 80-IB and 80-IC of the Income Tax Act, 1961. The Court held that subsidies that reimburse costs directly incidental to manufacture or sale of products constitute "profits and gains derived from business" and thus qualify for tax deductions. Although the immediate source of subsidies is the Government, they are properly classified as business income because they reduce operational costs directly related to the business, not as "other sources" income. The ruling affirms that such operation subsidies, designed to encourage industrial development in backward regions, fall squarely within the scope of the deduction provisions.
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