This Tax Alert summarizes a recent ruling in the case of Meghalaya Steels Ltd. (Taxpayer), wherein the issue before the Supreme Court (SC) was whether subsidies received by the Taxpayer from the Government as reimbursement of certain running costs incurred by the Taxpayer in the business would qualify for a profit-linked incentive deduction (incentive deduction) under the Indian Tax Laws (ITL).
The SC, after considering various earlier rulings, held that the subsidies received by the Taxpayer had a direct nexus with the profits of the eligible Industrial Undertaking (IU) of the Taxpayer. It was noted that, since all the subsidies were towards reimbursement of actual costs of manufacture/sale of the products of the Taxpayer, the same were eligible for incentive deduction.
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