TMI Blog2010 (2) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Pvt. Ltd. [2007 (4) TMI 118 - HIGH COURT , DELHI] has held that the liability arising out of contracts had already stood accrued the minute the contract was entered into and the mere postponement of the payment of such liability to a future date would not extinguish the same so as to render it notional or contingent - It was also held that any increase in such liability as a result of fluctuation in the value of foreign currency in relation to Indian currency thus was a fate-accompli and such increase in liability as per the exchange rate prevailing on the last date of the financial year was allowable as deduction being not notional or contingent. Addition to total turnover of excise duty and sales tax for the purposes of computation of deduction under section 80-HHC - Held that:- Respectfully following the case of CIT vs. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court] it is held that the excise duty and sales tax will not form part of total turnover for the purpose of deduction under section 880-HHC of the Act - accordingly set aside the order of the CIT (Appeals) and direct the assessing officer not to include excise duty and sales tax in total turnover - appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Hon'ble Supreme Court in the case of Sahni Steel and Press Works Ltd. and Others vs. CIT 228 ITR 253 (SC). He was of the opinion that the sales tax subsidy was received by the assessee for carrying out business operations and not for setting up of the industry. The sales tax was incidental to the sales and, therefore, it was part of the trading receipts and could not be treated as capital receipt. The assessing officer distinguished the facts of the case from the case of ITAT, Mumbai Special Bench by observing that the facts of the case of the assessee were not similar with that of the case of Reliance Industries in view of the facts that the assessee had admitted that the company had uniform pricing policy called 'dealer price' in the state of U.P. and other States, which was inclusive of Sales-tax. The assessee with an intention to get back investment as allowed by the U.P. Govt. sold the products in the State of U.P. on same dealer price as was for other States. Thus by selling the goods at same dealer price in the State of U.P. and other States, the assessee had received excess price in the State of U.P. as pay-back of investment as allowed by the U.P. Govt. in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.640/641 dated 21/02/1997 issued certificate No.4027 dated 7/03/2003 enabling the Greater Noida unit of the company eligible to get back the investment made for setting up new unit by way of subsidy in the form of sales tax exemption. The total amount of exemption granted by the said certificate is Rs.2,03,73,53,192/- which is to be utilized within the period of 15 years commencing from 27/03/1998 to 26th March, 2013. 4. The company had uniformed pricing policy called 'dealer price' which included sales tax. The assessee with an intention to get back investment as allowed by the U.P. Govt. sold the products in the State of U.P. on the same dealer price as applicable to other States. Thus the selling of goods at the same dealer price in the State of U.P. and other States, the company had received excess price in the State of U.P., as pay back of investment as allowed by the U.P. Govt. in the form of sales tax, which was not required to be paid back to the U.P. Govt. as compared to net price received in other States. It was also submitted that the sales tax incentive was the subsidy given to the company not for assisting it in carrying out the business operations, but the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably linked with the production and sales effected by the industry i.e. after commencement of the business. Therefore, as per the ratio laid down by various courts including Hon'ble Supreme Court of India in the case of Sahney Steel and Press Works Ltd. and Others vs. CIT (supra) the sales tax subsidy was to be treated as revenue receipt. He accordingly rejected the ground raised by the assessee. 5. Before us it has been submitted that the liability to pay sales tax arises on making of a sale and the amount of sales tax is paid by dealer/manufacturer out of total amount recovered by the dealer/manufacturer from its customers. The effect of the grant of exemption from sales tax is that the amount which is otherwise payable out of total amount recovered by the dealer/manufacturer from its customer can instead be retained by him. This amount is known and is in fact precisely quantified. This amount is based on total amount of capital investment made by the assessee. The State Govt. has permitted the manufacturer/dealer to retain and which, but for exemption, would have to be parted with by the dealer/manufacturer. Further the object of exemption is very clear i.e. promotion of ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States the benefit of sales tax exemption is not available, the assessee has to pay sales tax to the State Govt. and hence, it is only the balance amount which is revenue receipt in its hands. However, in the State of U.P. the amount of sales tax has been allowed to be retained by the dealer/manufacturer by grant of sales tax exemption in order to promote the industrial growth and capital investment. Therefore, the amount of sales tax collected as a part of dealers' price is capital receipt in the hands of the assessee. 6. The ld. AR of the assessee further submitted that if instead of granting sales tax exemption to the assessee, the sales tax authorities have instantly recovered sales tax from the assessee then have returned very same amount back to the assessee as sales tax subsidy, then under that situation there would have been no doubt whatsoever that the said subsidy was clearly a capital receipt in the hands of the assessee. The grant of exemption has the very same effect and consequence, financially and otherwise, at the end of the day, because the amount representing sales tax that would otherwise have been payable but for grant of exemption is permitted to be retaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of the assessee there is ample material on record which fully establish that the object of grant of sales tax exemption/deemed sales tax subsidy was for the promotion of industrial growth and development and capital investment in the State of U.P. Therefore, the assessee's case is also supported by the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries Ltd. (supra). 8. On the other hand, the ld. CIT-DR submitted that Uttar Pradesh Govt. under the U.P. State Industrial Policy, 1998 in order to encourage the setting up of new industrial units during a particular period in certain specified areas of Uttar Pradesh has granted sales tax exemption. The company had already set up a manufacturing unit in Greater Noida in earlier years. It had made now additional investment during the financial year 1998-99 to financial year 2000-01. The company had a uniform price called "dealers price" which it follows all over India. Even for Uttar Pradesh, the company continued to follow its "dealers price". Thus by selling the goods on the same "dealers price" in U.P. and other States, the company has received excess price in the State of U.P. as pay bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that where subsidy was given for business after industry had been set up and commenced commercial production, the subsidy was in nature of the trading receipt. On the basis of above arguments it has been submitted that in this case also the assessee had collected sales tax as part of "dealers price" and, therefore, the same is chargeable to tax as revenue receipt. 9. We have heard both the parties and gone through the material available on record. In this case the assessee had collected sales tax as a part of dealers' price. At the year end the sales tax portion, which formed the part of dealers' price had been bifurcated and has been claimed as capital subsidy. We have also gone through the Notification No.1179 dated 31.03.1995 issued by the State Government of Uttar Pradesh. The State Govt. has provided sales tax exemption with an objective to promote the development of certain industries which have been set up or undertaken modernisation, diversification, backward integration by way of fixed capital investment of Rs.50 crores or more. The exemption of from sales tax or benefit of reduced rate of tax is available to those units which have started production or have carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent and next two years 25 per cent. In all exemption from sales tax was provided for 10 years. 10. Neither the certificates issued by Greater Noida Industrial Development Authority nor the Notification issued by the State Govt. authorises the assessee to collect sales tax from its customers. The assessee has been exempted from collecting the sales tax from customers on the sales made with effect from 27th March, 1998. In fact, the ld. counsel for the assessee made a statement at the bar, during the course of hearing, that neither the Notification has authorized the assessee to collect sales tax nor the assessee had collected the sales tax as such. The assessee had included the element of sales tax in the dealers' price as a sale price of the product. In the States other than Uttar Pradesh, the sales tax so collected as a part of dealers' price has been paid to respective State Governments, whereas in the case of the assessee, since the assessee was not liable to pay sales tax, as exemption has been provided to the extent of 200 per cent of fixed capital investment, the sales tax element which is embedded in the sale price have been retained by the assessee as excess sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) that the amount collected by the appellant as sales tax constituted its trading receipt and had to be included in its total income; (iii) that if and when the appellant paid the amount collected to the State Government or refunded any part thereof to the purchaser, the appellant would be entitled to claim deduction of the sum so paid or refunded." From the Notification issued by State Government, as discussed above, it is clear that exemption from Sales tax/trade tax or reduction in sales tax/trade tax has been provided to the industrial units, which have been set up or carried out expansion, modernisation or backward integration. The sales tax exemption is available from the date of first sale of eligible units. In the case of the assessee the production of expended unit started from 9th March, 1998 and the first sale was effected on 27th March, 1998. The assessee had made application for the purpose of exemption on 19/09/1998. It is a undisputed fact that none of the clause of the Notification issued under section 4-A of Trade Tax Act, 1948 had authorised the assessee to collect sales tax/trade tax. It is also a fact that the collection of sales tax/trade tax has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a true and correct interpretation of the scheme under which the subsidy was granted by the Govt. of Uttar Pradesh, read with the provisions of section 28 of the Income-tax Act, the Tribunal was legally correct in holding that the sum of Rs.20,11,000/- receivable from the State Govt. was taxable as revenue receipt?" Hon'ble Allahabad High Court held as under:- "15. So far as the question referred at the instance of the assessee is concerned, we find that under the Govt. order dated 24/08/1984 issued by the State Govt. providing aid was to be given to the extent of the purchase tax paid by the sugar mill on purchase of sugar cane in order to facilitate payment of cane price. It may be mentioned here that the cane price paid by the assessee is a revenue expenditure and, therefore, any amount provided as aid for making revenue expenditure, would partake the nature of revenue receipt." 12.3 Similar view has been taken by Hon'ble Punjab and Haryana High Court in the case of CIT vs. Abhishek Industries Ltd. (supra). The facts of this case were that the assessee initially while filing the return of income treated the sales tax subsidy as a revenue receipt. Even though a revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been set up and commenced commercial production. The subsidy is not in the form of a financial assistance granted to the assessee for setting up of the industry. The endeavour of the State was to provide the newly set up industries, a helping hand for specified period to enable them to be viable and competitive vis-a-vis the industries were already set up and were in production since long. The assessee has failed to establish on record that the kind of subsidy involved in the present case was in the form of a subsidy to enable it to carry out capital investment. In the absence thereof, it cannot possibly be presumed by the authorities that such a subsidy would be in the nature of capital subsidy. The onus to provide the same strongly lay on the assessee, which it had failed to discharge." 12.5 Likewise in the case of Mudit Refrigeration P. Ltd. vs. ACIT (2003) 84 I.T.D. 289 (All.) according to scheme notified by State Govt. the assessee company, a cinema owner was entitled to grants-in-aid or subsidy by way of adjustment of Entertainment Tax, which was treated as paid by way of adjustment and retained by the assessee. The assessee claimed it as a capital receipt, on plea that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity provided in each case, the expansion was located in a city or town or panchayat area other than that in which existing unit was located. The salient features of the scheme formulated by the Andhra Pradesh Govt. were that the incentives were not available unless and until the production had commenced; the availability of incentive would be limited to a period of five years from the date of commencement of production; the incentives were to be given by way of refund of sales tax and also by way of subsidy on power consumed for production to the extent stated in the notification; the exemptions were given from payment of water drawn from Govt. sources. The assessee-company, S, set up a factory at P which went into production in the year 1973. The assessee maintained its accounts according to the calendar year. It was, therefore, entitled to the benefits of the said Government order in the calendar year 1973, which meant the assessment year 1974-75. In the said accounting year, the assessee obtained refund totalling Rs.14,665.70 being refund of sales tax on purchase of machines, purchase of raw materials and sale of finished goods. The Income-tax Officer, while making the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les tax equal to exemption granted in the course of carrying out business. The assessee was not obliged to spend the sales tax collected for any particular purpose. The notification as stated above has neither authorised the assessee to collect the sales tax nor has the assessee collected sales tax as such. The sales tax element is embedded in dealer's price and has been collected as part of dealer's price. Even if it is assumed that the assessee was authorised to collect sales tax and retain with it, the same will be chargeable to tax as trading receipt in view of decision of Hon'ble Supreme Court in the case of Sahney Steel and Press Works (supra). 14. The contention of the assessee that the issue is covered in favour of the assessee by the decision of Special Bench of the Tribunal in the case of Reliance Industries (supra), in our view, is not correct in view of the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries P. Ltd. (supra); the decision of jurisdictional High Court in the case of CIT vs. K. M. Sugar Mills Ltd. (supra) and the decision of Sahney Steel and Press Works (supra). Moreover, the decision of Special Bench of the Tribunal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility, which can be allowed are those which have either been paid during the year or which have been crystalised and became ascertain. There should exist a certainty that it will arise. The assessing officer also noted that the amounts were payable at some future date and there was no certainty as to when the liability would arise nor the time when the payment will be made. Therefore the liability was not quantifiable because the ultimate liability will depend when amount was actually paid and any provision due to exchange rate fluctuation at any intermediate date will be notional liability. The assessing officer after considering the matter in detail treated the liability on account of foreign exchange fluctuation as contingent in nature. On appeal the ld. CIT (Appeals) confirmed the stand taken by the assessing officer on the basis of a decision in preceding year. 16.2 Before us the ld. AR of the assessee submitted that foreign exchange fluctuation is on account of trading bills and hence loss on foreign exchange rate fluctuation is revenue in nature. He placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. 294 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Lakshmi Machine Works 290 ITR 667 (SC) wherein Hon'ble Supreme Court has held as under:- "Section 80-HHC of the Income-tax Act, 1961, is a beneficial section; it was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of 'turnover' for the purposes of section 80-HHC of the Act, Excise Duty and Sales-tax also cannot form part of the turnover. Just as interest, commission etc., do not emanate from the 'turnover' so also excise duty and Sales-tax do not emanate from such turnover. Since the Excise Duty and Sales-tax did not involve any such turnover, such taxes had to be included. Commission, interest, rent, etc. do yield profits, but they do not partake of the character of turnover and, therefore, they are not includible in the 'total turnover'. If so, Excise Duty and Sales-tax also cannot form part of 'total turnover' under section 80-HHC (3)." Respectfully following the precedent, it is held that the interest, commission and bill discounting charges will not form part of the total turnover. Accordingly, we do not find an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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