Graphite India Limited Vs Commissioner of Income Tax, -Iv, Kolkata — Calcutta HC (2026) — LawSathi Research

Graphite India Limited Vs Commissioner of Income Tax, -Iv, Kolkata — Calcutta HC (2026) — LawSathi Research

What the court decided

AI extract

Outcome

Both admitted substantial questions of law answered in the negative, in favour of the assessee; appeals ITA/72/2018 and ITA/16/2021, together with connected application IA No.GA/1/2017 (Old No.GA/43/2017), disposed of.

Issue for consideration

Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that deduction allowed under Section 80IA of the Act needs to be reduced while computing profits of the business eligible for deduction under section 80HHC. +1 more

Court's answer

In view of the Supreme Court judgment in Shital Fibers Ltd., this Court holds the substantial question of law (a) to be answered in the negative and in favour of the assessee, i.e., deduction under Section 80IA is not to be reduced while computing profits of the business eligible for deduction under Section 80HHC.

Ratio / Principle

The nature of such subsidy must be determined by applying the well-settled 'purpose test': where the object of the subsidy is to enable setting up or expansion of an industrial unit, the receipt is capital in nature irrespective of the mechanism through which it is granted.

Key takeaways

On a perusal of the West Bengal Incentive Scheme, 1993, the remission was intended to induce fresh capital investment and expansion of industrial capacity, and was not a subsidy to assist the assessee in carrying on its trade more profitably.ratio¶28
The Tribunal erred in treating the sales-tax remission subsidy as revenue in nature; the subsidy is capital in nature.ratio¶29
Substantial question of law (b) is answered in the negative, i.e., in favour of the assessee and against the revenue.

Detailed headnote1 paragraphs

High Court at Calcutta (Special Jurisdiction – Income Tax, Original Side), ITA/72/2018 and ITA/16/2021 (with connected application IA No.GA/1/2017, Old No.GA/43/2017), Graphite India Limited v. Commissioner of Income Tax-IV, Kolkata; coram Rajarshi Bharadwaj and Chaitali Chatterjee (Das), JJ.; decided 18th May, 2026. Both admitted substantial questions of law answered in the negative, in favour of the assessee: (a) in view of Shital Fibers Ltd. [2025] 476 ITR 309 (SC), deduction under Section 80IA is not to be reduced while computing profits of the business eligible for deduction under Section 80HHC; (b) applying the purpose test (CIT v. Ponni Sugars and Chemicals Ltd., 306 ITR 392; CIT v. Shree Balaji Alloys, 333 ITR 335; PCIT v. Ankit Metal & Power Ltd., 416 ITR 591), the sales-tax remission under the West Bengal Incentive Scheme, 1993 — intended to induce fresh capital investment and expansion of industrial capacity — is capital, not revenue, in nature; the Tribunal erred in treating it as a revenue receipt. Appeals disposed of.

OD 5 & 6

ORDER SHEET

IN THE HIGH COURT AT CALCUTTA SPECIAL JURISDICTION (INCOME TAX) ORIGINAL SIDE

ITA/72/2018

GRAPHITE INDIA LIMITED

VS COMMISSIONER OF INCOME TAX, -IV, KOLKATA

WITH

ITA/16/2021 IA NO: GA/1/2017(Old No:GA/43/2017) GRAPHITE INDIA LIMITED

VS

COMMISSIONER OF INCOME TAX-IV, KOLKATA

BEFORE:

The Hon’ble JUSTICE RAJARSHI BHARADWAJ

AND The Hon’ble JUSTICE CHAITALI CHATTERJEE (DAS) Date: 18^th May, 2026.

Appearance: Mr. Somak Basu, Adv. Mr. Swagato Kabiraj, Adv. …for the appellant

Mr. Prithu Dudhoria, Adv. Mr. Madhu Jana, Adv. Mr. Wahed Reja, Adv. …for the respondent

The Court: Learned counsel appearing for the appellant refers to the substantial questions of law that were admitted on 7^th June, 2018 in respect of ITA/72/2018 as well as on 8^th May, 2018 in respect of ITA/16/2021 by the

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orders passed by their Lordships Hon’ble Justice Aniruddha Bose and Hon’ble Justice Amitabha Chatterjee. The substantial questions of law are as follows:

“(a) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that deduction allowed under Section 80IA of the Act needs to be reduced while computing profits of the business eligible for deduction under section 80HHC of the Act ?”

Learned counsel submits that the issue is already covered by the judgment of the Hon’ble Supreme Court of India in Shital Fibers Ltd. versus Commissioner of Income Tax, reported in [2025] 476 ITR 309 (SC).

Learned counsel appearing for the respondent/department on instruction agrees with the submission made by the appellant.

As such, in view of the judgment of the Supreme Court in Shital Fibers Ltd. (supra), this Court holds that the substantial question of law to be in negative and in favour of the assessee.

The next substantial question of law is-

“(b) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that incentive/subsidy received by the appellant in the form of remission of sales tax is not capital but revenue in nature ?”

The assessee received sales-tax remission under the West Bengal Incentive Scheme, 1993, which was granted to encourage expansion and modernization of industrial units located in backward areas and was directly linked to investment fixed capital.

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The nature of such subsidy must be determined by applying the wellsettled “purpose test”. In CIT v. Ponni Sugars and Chemicals Ltd. (306 ITR 392), the Supreme Court held that where the object of the subsidy is to enable setting up or expansion of an industrial unit, the receipt is capital nature irrespective of the mechanism through which it is granted. The principle was reiterated in CIT v. Shree Balaji Alloys (333 ITR 335), where incentive aimed at promoting industrialization in backward regions were held to be capital receipts. This Court in PCIT v. Ankit Metal & Power Ltd. (416 ITR 591) applied the aforesaid test and held that subsidies linked to capital investment for industrial development cannot be treated as revenue receipts.

A perusal of the West Bengal Incentive Scheme, 1993 clearly demonstrates that the remission was intended to induce fresh capital investment and expansion of industrial capacity. It was not a subsidy to assist the assessee in carrying on its trade more profitably.

The Tribunal, therefore, erred in treating the said subsidy as revenue in nature. We accordingly answer substantial question of law (b) in the negative, i.e., in favour of the assessee and against the revenue.

The appeal, being ITA/72/2018 and the appeal, being ITA/16/2021 along with connected application [IA No.GA/1/2017 (Old No.GA/43/2017)] are disposed of.

(RAJARSHI BHARADWAJ, J.)

(CHAITALI CHATTERJEE (DAS), J.)

B.Pal