TaxTMI 
TaxTMI 
2011 (5) TMI 23
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssing Officer opined that the assessee received the abovementioned amount as industrial promotion assistance from the Government of West Bengal during the year under consideration, and in its accounts, the assessee had shown this amount as income under the head "other income". It was, however, pointed out that in the notes of accounts, the assessee mentioned that although the amount had been accounted for in the above manner, the company had been legally advised that it was of the nature of capital receipt for the purpose of computation of taxable income and in the return filed by the assessee, it claimed the amount to be in the nature of capital receipt. The Assessing Officer, however, turned down such contention and came to the conclusion that the subsidy had been utilized for meeting revenue disbursements of the assessee and therefore, the said amount of subsidy received from the Government was nothing but supplementary trade receipts and should, therefore, be considered as revenue receipts. In support of such contention, the Assessing Officer relied upon the decision of the Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. CIT, reported in (1997) 228 ITR 253 (S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the CIT (Appeals). According to Mr. Nizamuddin, the following three factors are vital for the purpose of deciding whether a subsidy received by an assessee comes within the purview of revenue receipt or not: (i) Whether the benefit of incentive subsidy was available only to new units or expanded units without any intention to supplement the trade receipts or it was in the nature of a help with an intention to supplement the trade receipts to an existing undertaking. (ii) Whether the benefit is given before the start of production or after the start of production. (iii) Whether the scheme, by which benefit is given, permits the beneficiary to utilize the money according to its wish or whether it restricts or put any limit on the utilization of the amount. Mr. Nizamuddin submits that if subsidy is granted after production had started in that event, it should be treated as revenue receipt and at the same time, if no restriction is put in the scheme for utilization of the subsidy, the same should be treated to be revenue receipt. According to Mr. Nizamuddin, in this case, the assessee has, by virtue of the scheme, got back the sales tax payable by it to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tribunal below was justified in holding that the subsidy received by the assessee was in the nature of capital receipt and consequently, was excluded from the operation of taxation under the Income-tax Act. In order to appreciate the aforesaid question, it will be profitable to refer to the object of the grant of subsidy by the State of West Bengal as reflected from the original resolution as well as the subsequent resolution which was amended with retrospective effect from 27th May; 1994 those are quoted below: "No. 1460-F-T Calcutta, the 27th May, 1994 RESOLUTION WHEREAS certain industries in the State have been passing through an acute financial crisis and it had been considered necessary to extend financial assistance to tide over such crisis for promotion of such industries, it has been decided in the public interest to formulate a scheme to allow financial assistance to the manufacturing units in West Bengal of such industries for industrial promotion : NOW THEREFORE, the Governor is pleased hereby to sanction the implementation of the aforesaid scheme for allowing financial assistance for promotion of industrial units in West Bengal of certain industries in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount of sales tax paid by the Industry concerned, for any quarter under the Sales Tax Act in respect of sales of such goods. We find that the principles laid down in the case of Saheney Steel and Press Works Ltd (supra), relied upon by Mr. Nizamuddin has been explained by the Supreme Court in a subsequent decision in the case of CIT vs. Ponni Sugars and Chemicals Ltd (supra), relied upon by Mr. Poddar in the following terms; "In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in Sahney Steel and Press Works Ltd.1 In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in....