TMI Blog2011 (1) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be construed as mere production and trade incentives, as held by the Tribunal - Held that: receipt are capital receipt - Decided in the favour of the assessee - ITA No. 2, 4, 5 OF 2010 - - - Dated:- 31-1-2011 - SINGH J. P., HASNAIN MASSODI, JJ. JUDGMENT J. P. Singh J.- Aggrieved by the orders of the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, on their respective Appeals, against the orders of the Commissioner of Income-tax (Appeals), Bathinda, upholding the orders of the Income-tax Officers, denying them deductions under section 80-IB of the Income-tax Act, 1961, hereinafter to be referred as "the Act", for short, on the Excise Refund and Interest Subsidy, etc., holding that the Excise Refund and Interest Subsidy etc. received by them, in pursuance to the New Industrial Policy and other Concessions announced for the State of Jammu and Kashmir vide Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) s Office Memorandum of 14-6-2002, was, Revenue Receipt, and not Capital Receipt, hence liable to Tax, the appellants-assessees have approached this Court by their Appeals preferred under section 260A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Considering the request of the Government of Jammu and Kashmir for a special package for development of the Industries in the State on the lines for the North East Industrial Policy notified by the Central Government vide Ministry of Industry s OM No. EA/1/2/96-IPD, dated 24-12-1997, discussions were held by the Central Government on Strategy and Action Plan for Development of Industries and generation of employment in the State of Jammu and Kashmir with various related Ministries on the issues, inter alia, of infrastructure development, financial concessions and easy market access, pursuant whereto, the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy Promotion), issued its Office Memorandum dated 14-6-2002 whereby it was provided that keeping in view the fact that the State of Jammu and Kashmir had lagged behind in industrial development, there was need for structured interventionist strategies to accelerate the industrial development of the State boosting investors confidence. The new initiatives, in terms of the Memorandum, were aimed at providing requisite incentives as well as enabling environment for industrial develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of the term Substantial Expansion appearing under para 5(d) of the Scheme may be substituted by the following : "Concessions for substantial expansion should extend to include all new investments by entrepreneurs, which leads to substantial additional employ-ment creation by an existing entrepreneur without insisting on major expan- sion. However, credit under the Industrial Policy Package should not be merely for paying off old debts or for equipment already in place." 7. To implement the new Industrial Policy referred to herein above, requisite notifications for exemption on Excise Duty were issued under section 5A of the Central Excise Act, 1944 prescribing therein the procedure required to be followed by the Industrial Units before claiming incentives. 8. Paragraph No. 3, appearing in the two Notifications i.e., Central Excise Notification Nos. 56/2002 and 57/2002, dated 14-11-2002, which may be relevant to understand the issue raised in the case, needs to be noticed. It reads thus : "...3. The exemption contained in this Notification shall apply only to the following kind of units namely : (a)New industrial units which have commenced their c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production whichever is later." [Emphasis supplied] 9. With the above prelude on the facts necessary for determination of the issues, we proceed to examine the basis on which the Income-tax Appellate Tribunal has recorded its findings on the first issue. Dealing with the issue that the Excise Refund and Interest Subsidy availed of by the assessees was Capital Receipt in their hands and not revenue Receipt, as held by the Commissioner of Income-tax and Income-tax Officers, which the Tribunal had permitted the appellants to raise as additional ground, the Tribunal came to the conclusion that the incentives received by the appellants were Revenue Receipt and not Capital Receipt. 10. In taking the above view treating the incentives as Revenue Receipt, the Appellate Tribunal was influenced by the following factors : (i)The Excise Refund and Interest Subsidy had not been given to the appellants to establish industrial units because the industry stood already established. (ii)The incentives were not available unless and until commercial prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital count. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive/subsidy. The form or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was considering to find the Intent and purpose of the incentives under those Schemes, and not the law laid down as such. 19. The Tribunal has relied upon five factors to hold the incentives in question as Production Incentives but without dealing with that part of the Scheme, whereby unemployment in the State had been intended to be eradicated creating atmosphere for accelerated industrial development to provide employment opportunities to deal with the social problem of unemployment. This in our view is lop-sided interpretation of the New Industrial Policy and Concessions formulated by the Central Government for the State of Jammu and Kashmir vide Office Memorandum of 14-6-2002. 20. Therefore, in view of the clear legal position adumbrated by the Hon ble Supreme Court of India on the issue in question, that to determine the nature and intent of the incentives as to whether those were revenue Receipts or Capital Receipts, the purpose underlying the incentives was the determinative test, there may not be any necessity of referring to the judgments of other High Courts of the Country relied upon by the appellants learned counsel, some of which had been considered by the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y casual or temporary; but was on the other hand, of permanent nature. 25. Considered thus, the paramount consideration of the Central Government in providing the incentives to the New Industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additionally creating opportunities for self-employment, hence a purpose in Public Interest. 26. In this view of the matter, the incentives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve Public Purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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