TMI Blog2013 (7) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes - Following decision of Sahney Steel and Press Works Limited & Ors. vs. Commissioner of Income Tax [1997 (9) TMI 3 - SUPREME Court] - Decided against Revenue. - Tax Appeal No.316,317,318 of 2012 - - - Dated:- 12-2-2013 - Akil Kureshi and Sonia Gokani, JJ. For the Appellant : Mr Pranv G Desai, Adv. For the Respondent : None ORDER:- These Tax Appeals filed by the Revenue arise out of the common background. We may notice facts as arising in Tax Appeal No. 316 of 2012. For the Assessment Year 1991-92, Revenue challenged the judgment and order of the Income Tax Appellate Tribunal dated 4th November 2011. Following question has been presented for our consideration :- Whether in the circumstances and the facts of the case and in law, the Appellate Tribunal has erred in holding that the Sales Tax exemption of Rs. 30940235/= granted to the assessee company by the State Government was in the nature of Capital Receipt not chargeable to tax ? The respondent-assessee had received incentives under the scheme framed by the Government of Gujarat under resolution dated 2nd January 1991 in the form of Sales Tax Waiver/Deferment scheme. For the A.Y 1991-92, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the payment is in the nature of subsidy to assist the assessee in carrying on its trade or business, it a trade receipt. However, if the purpose is to help assessee to set-up its business or complete the project, the monies must be treated as having been received for capital purposes. Such decision in case of Sahney Steel Press Works Limited [Supra] came up for consideration before the Supreme Court in case of Ponni Sugars Chemicals Limited [Supra] wherein, the Apex Court observed as under :- 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). 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 that case was dismissed by the Tribunal and, therefore, the assessee had com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsidy. The form of the mechanism through which the subsidy is given is irrelevant. We may apply the above ratio to the cases on hand. We may take note of the incentive scheme in question. The same was named, Incentive for modernization by Existing Industrial Units : 1990-95. It was announced by the Government as a part of new industrial policy, to accelerate the industrial development, to disperse industries to under-developed areas as well as to provide additional employment. Preamble to the resolution dated 2nd January 1991 under which the scheme was framed records that it was represented to the State Government that on account of rapid changes in technology and need to upgrade technology in industries, it is necessary to encourage modernization and evolve a scheme for incentives towards modernization. With these purposes in mind, the said scheme was framed. Term, modernisation was defined in clause 2{i} as under :- Modernisation means adoption of a new and upgraded process by an existing industrial unit under the same management which leads to savings in energy or reduction in pollution and improvement in production capacity by installation of new machinery, balancing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the fixed capital investment For a period of 8 years from the date of commencement of commercial production. II. 60% of the fixed capital investment For a period of 6 years from the date of commencement of commercial production. II. 50% of the fixed capital investment For a period of 5 year from the date of commencement of commercial production Note : 1. If a unit reaches admissible amount stated in the col.2 above before the expiry of the time limit mentioned in col.3 above, it will not be eligible for incentives thereafter. In respect of Sales Tax Deferment, the amount so deferred will be recovered in six annual installments beginning from the next financial year to the year in which unit reaches the maximum limit of incentive granted to the unit under the Scheme of after the inquiry. 3. Units claiming the incentive under this Scheme will not be eligible for sales tax incentives under any other Scheme. From the above provisions contained in the said Scheme, it can be immediately noticed that the scheme was framed as a part of Governments initiative to encourage modernization of existing industries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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