TMI Blog2007 (6) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... Deleting the addition of Rs. 30,25,135 made by the Assessing Officer under section 40A(9) of the Act on account of employees welfare including payments made to the staff recreation clubs, without appreciating the facts that the orders relied upon by him have not been accepted by the revenue and same are pending before the Hon'ble High Court. 3. Law to allow depreciation on water installation, water works and water distribution system at the rate of 25 per cent as applicable to plant and machinery as against 10 per cent. allowed by the Assessing Officer applicable to 'building' as well and tube wells, the water works and water installation system are part of buildings and not 'plant and machinery'. The CIT(A) failed to appreciate that order relied upon by him have not been accepted by the revenue and same are pending before the Hon'ble High Court. 4. Deleting addition of Rs. 79,69,280 on account of excess price realized under the Sugar Incentive Scheme, without appreciating the fact that the orders relied upon by him have not been accepted by the revenue and appeal has been filed in ITAT against those orders. 5. Directing to allow depreciation on dish antenna system, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposal of the learned DR. It was pointed out that in the case of Popular Jewellers, the quantum appeal was pending before the High Court for the same year for which the penalty proceedings came up before the Tribunal. Even in that case, the application of the assessee was not accepted by the High Court. In this case the revenue has challenged the findings of the Tribunal on quantum in earlier years, but the order of the Tribunal has not been stayed by the High Court. Therefore, it will not be appropriate to keep the appeal pending as each year is a separate year. On merits, reliance was placed on the orders of Hon'ble ITAT in ITA Nos. 4426 (Delhi)/2004, 9 (Delhi)/1999 and 3559 (Delhi)/2000 for assessment years 2001-02, 1993-94 and 1996-97 respectively. In the combined order for assessment years 1993-94 and 1996-97 dated 8-7-2005, a copy of which was placed on record, the issue was decided in favour of the assessee by relying on orders in ITA Nos. 4430 (Delhi)/1991, 5696 (Delhi)/1992 and 3926 (Delhi)/1994 for assessment years 1986-87, 1987-88 and 1988-89. This order was followed in ITA No. 4426 (Delhi)/2004 for assessment year 2001-02, dated22-9-2006. 3. We have considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3 is against deduction of depreciation at the rate of 25 per cent on water installation, water works and water distribution system as against the deduction of 10 per cent allowed by the Assessing Officer by treating these works as 'buildings'. 5.1 The arguments of the learned DR and the learned counsel for keeping the appeal pending on this issue and deciding the appeal respectively are the same as mentioned in ground No. 1. As mentioned in ground No. 1, we proceed to decide the issue on merits. The learned counsel pointed out that this issue is covered in ITA Nos. 909 (Delhi)/99 and 3599 (Delhi)/2000 for assessment years 1993-94 and 1996-97 in favour of the assessee. Paragraph 22 of that order deals with the controversy at hand. It is mentioned that the issue was decided in favour of the assessee in ITA No. 4430 (Delhi)/1991 for assessment year 1986-87 and while passing that order the Tribunal had relied on an earlier order for assessment years 1984-85 and 1985-86. After considering the issue, it was pointed out that the controversy in assessment year 1984-85 was limited only to bore-well, which was held to be the plant. The assessee has given a common name to the whole of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived as incentive for production or running of an industry was of revenue nature. TheHon'ble Courtanswered this question in favour of the revenue and against the assessee. On the basis of this decision, the case of the learned DR was that since the sale proceeds of the sugar related to stock-in-trade of the assessee, therefore, the excess price realized in view of exemption under the Sugar Incentive Scheme was of revenue nature. He referred to the order of Hon'ble Tribunal, Delhi Bench 'G' in the case of Jt. CIT v. Dalmia Cement (Bharat) Ltd. [2005] 97 ITD 78, being the decision in the case of the assessee. In paragraph 35 of the order, it was mentioned that considering the legal position as enumerated above by theHon'ble Apex Court, we are of the view that the learned CIT (Appeals) erred in not determining the further question as to whether and to what extent the view held by him would affect the assessee's tax liability. It was further mentioned that the view of the Assessing Officer was that the amount in question represented trading receipt of the assessee. He was not faced with the question whether the amount of incentive should be deducted from the cost of the asset. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Andhra Pradesh High Court passed an interim order under which the assessee was permitted to sell sugar at the rate prevailing prior to the aforesaid fixation of price. The assessee sold sugar at the rate of Rs. 131 per quintal and thereby collected additional amount of Rs. 14,96,130. The writ petition was finally discussed on18-2-1971and, therefore, the interim order got vacated automatically. However, there was no order that the excess-amount collected by the assessee would be refunded to the purchaser. Thus, the dismissal of the writ petition had the effect that the assessee could not sell sugar at a rate higher than the notified rate as the interim order was vacated. From1-4-1976. The Levy Sugar Price Equalization Fund Act, 1976, came into force which provided that excess amount collected from the purchasers shall be credited to the Fund irrespective of the fact whether such collections were made prior to the enactment or subsequent to it. The ITO treated the impugned amount of Rs. 14,96,130 as the trading receipt for computation of income for assessment year 1972-73. The Tribunal held that the amount was not taxable while the High Court held that the amount was taxable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it was argued that the order should be followed. It was explained that it will be incorrect to say that the aforesaid order was based upon the decisions of High Courts and the orders of the Tribunal only. In this connection, a reference was made to paragraphs 29 and 30 of the order, in which the assessee had relied upon the decision of Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd.; Calcutta High Court in the case of CIT v. Balrampur Chini Mills Ltd. [1999] 238 ITR 445 and the order of the Tribunal, Madras 'A' Bench in the case of Tamil Nadu Sugar Corpn. Ltd. v. ITO [1994] 48 ITD 345. Thus, it was argued that the decision of Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd. was also considered by the Tribunal. 7.1 Further, he referred to the Statement of facts filed before the learned CIT(A), in which it was, inter alia, mentioned that the impugned amount was incentive received by it by way of higher free-sale quota of sugar produced by it in its new industrial unit, Ramgarh Chini Mills, Ramgarh, Uttar Pradesh, in accordance with clause 12 of Sugar Incentive Scheme, 1993, dated 10-2-1993 of the Central Government. This amount was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which could also not be taxed under section 28(iv) as the receipt was not in kind. In view of various averments made in the Statement of facts, it was argued that the receipt was capital in nature. In regard to the decision of Hon'ble Allahabad High Court in the case of Kisan Sehkari Chini Mills Ltd., it was pointed out that it was an ex parte judgment and a review petition was pending before theHon'ble Courtagainst the order. As against the aforesaid, there were a number of cases decided in favour of the assessee after due deliberations from both sides and in all such cases the factories were situated in the State ofUttar Pradesh. In this connection, reliance was placed on the decision of Hon'ble Calcutta High Court in the case of Balrampur Chini Mills Ltd. In that case, the question before theHon'ble Courtwas whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that realization through additional free-sale of sugar quota under the Sampath Incentive Scheme was in the nature of capital receipt? TheHon'ble Courtmentioned that in order to overcome the problem of shortage of sugar for public, the Government had introduced a scheme in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment, the incentive in the form of higher free sale quota of sugar should be treated as capital receipt. In coming to this decision, the cases of Balrampur Chini Mills Ltd., Sahney Steel Press Works Ltd. and Tuticorin Alkali Chemicals Fertilizers Ltd v. CIT [1997] 227 ITR 172 (SC) were referred to. 7.4 He also relied on the decision of Hon'ble Supreme Court in the case of Rajaram Maize Products. The question in that case was whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the power subsidy received by the assessee was a capital receipt, not liable to be taxed within the meaning of section 28(iv) of the Income-tax Act, 1961? TheHon'ble Courtpointed out that power subsidies were of revenue nature, as held in the case of Sahney Steel Press Works Ltd. The terms under which the subsidy was given dearly suggest that it was of revenue nature inasmuch as it went towards the deduction of electricity bill. On the basis of this decision, the case of the learned counsel was that the subsidy could be revenue in nature or capital in nature, depending upon the scheme and intent of the scheme. However, in the case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Financial Institutions and Sugar Development Fund. In the year under consideration, the monetary value of the incentive was Rs. 80 lakh. The assessee had to pay term-loans to the extent of Rs. 18.67 crore. As against the aforesaid, the assessee paid loan and interest amounting to Rs. 7.23 crore. There is no finding from the lower authorities that the impugned sum of Rs. 7.23 crore paid by the assessee the banks and financial institutions contained loans of an amount less than Rs. 80 lakh. Thus, there is no finding that the loan repaid was less than the incentives. The figures in the table also lead to a conclusion that loan exceeding Rs. 80 lakh was repaid in this year. Apart from the decision in the case of Kisan Sehkari Chini Mills Ltd., all other cases have laid down the ratio that the issue whether a particular incentive was in the capital field or the revenue field has to be decided by taking into account the intent of the scheme and the utilization of the incentive. If we do that in this case, it is found that the incentive of about Rs. 80 lakh was utilized for repayment of loan to the banks and financial institutions, which was also a pre-requisite for availing of high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt. Thus it is held that the receipt was in the capital field. 10. Having decided the receipt to be capital in nature, it is a corollary that the amount of such capital receipt should be deducted from the cost of machinery and plant, as provided under Explanation 10 to section 43(1), inserted in the Act with effect from1-4-1999if the receipts are taken as subsidy, grant or reimbursement. However, the receipts are capital in nature because of attached obligation in relation to payment of loan in respect of fixed assets, therefore, the receipts will go to reduce the actual cost even without reference to Explanation 10. Therefore, the Assessing Officer is directed to reduce the cost of fixed assets by the impugned amount for the purpose of deduction of depreciation. In the result, this ground is dismissed. 11. Ground No. 5 is against the finding of the learned CIT (Appeals) in which the Assessing Officer was directed to allow depreciation on Dish Antenna System. It is also mentioned that this matter is pending before the Hon'ble High Court of Delhi. In this connection, it was explained to the Assessing Officer that the assessee had incurred expenditure on installation of Dish A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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