TMI Blog2013 (7) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... o J.-These three referred cases under section 256(1) of the Income-tax Act, 1961 ("the Act") are at the instance of the Revenue. The questions referred by the Income-tax Appellate Tribunal, in all the three cases require the consideration of the same point, namely, whether, in the facts and in the circumstances of the cases, the power subsidy received by the assessee-company is taxable as a revenue receipt in the computation of the income. To begin with, we would briefly narrate-in the ensuing paragraph ; the facts and circumstances leading to Referred Case No. 141 of 1996. M/s. Raasi Cements Ltd. (the assessee) filed their tax return declaring nil income duly treating an amount of Rs. 35,57,859 received from the Government as a power rebate as a capital receipt, which was transferred to the reserve account. The Assessing Officer completed the assessment denying the claim and held that the power rebate given by the Electricity Department cannot be capitalized as the same is given as rebate which is in the nature of a revenue receipt and cannot be treated as a capital receipt. The Appellate Commissioner, however, considered the Government Order, being G. O. Ms. No. 455, dated May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to set up industries in the State.The said order was superseded by G. O. Ms. No. 455, dated May 3, 1971, with a similar object. Again in 1976 by their order in G. O. Ms. No. 224, dated March 9, 1976, the Government of Andhra Pradesh offered financial incentives to persons who set up new industries or going for substantial expansion of the existing industries. The incentives offered (with minor changes from time to time) are-(i) investment subsidy on the fixed cost at 10 per cent. of the fixed capital cost of the project subject to certain ceiling ;(ii) refund of sales tax on raw materials, machinery and finished goods subject to a maximum 10 per cent. of the paid up equity capital ;(iii) subsidy and power consumed for production to the extent of 10 per cent. in the case of medium/large scale industries and 12.5 per cent. in the case of small industries ; (iv) exemption from payment of water rates ; and (v) concession in the land revenue or taxes on land. In addition to these, additional incentives are also allowed in certain areas with which we are not concerned. The referred cases of Raasi Cements relate to the assessment year 1983-84 and those of Deccan Cements relate to 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of subsidy is given for each item separately and it would not be open to the assessee to appropriate the subsidy for the purpose other than that for which it was given to him. Even if the assessee wrongly maintains the account books and utilized the entire subsidy against the value of the amount to reduce its cost, the Income-tax Officer would overlook the matter and would appropriate in reducing the cost of the machinery, plant and building for which the subsidy was specifically granted (CIT v. Jindal Brothers and Mills [1989] 179 ITR 470 (P H)). This was approved by the Supreme Court in CIT v. P. J. Chemicals [1994] 210 ITR 830 (SC). Their Lordships also observed that : "the Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets for quantifying as are geared to percentage of such costs". In Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC), the apex court ruled that : "the character of the subsidy in the hands of the recipient . will have to be determined having regard to the purpose for which the subsidy is given . if the purpose is to help the assessee to set up its business or complete a project the mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case, the Supreme Court held that as there was a change of opinion rectifying the mistake under section 154 is not permissible. On making a reference to Sahney Steel, the Supreme Court observed as under (page 215): "Sahney Steel and Press Works Ltd. [1997] 228 ITR 253 (SC) was a case which dealt with production subsidy, Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) dealt with subsidy linked to loan repayment whereas the present case deals with a subsidy for setting up an industry in the backward area. Therefore, in each case, one has to examine the nature of the subsidy. The judgment of this court in Sahney Steel and Press Works Ltd. was on its own facts ; so also the judgment of this court in Ponni Sugars and Chemicals Ltd. The nature of the subsidies in each of the three cases is separate and distinct. There is no strait jacket principle of distinguishing a capital receipt from a revenue receipt. It depends upon the circumstances of each case. As stated above, in Sahney Steel and Press Works Ltd., this court has observed that the production incentive scheme is different from the scheme giving subsidy for setting up industries in backw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court indeed observed that : "incentives are production incentives in the sense that the company will be entitled to these incentives only after it goes into production ; the scheme was not to make any payment directly or indirectly for setting up of the industries . subsidies were granted year after year only after setting up of the new industry and commencement of production" and, therefore, it is a revenue receipt. In Godavari Plywoods-a decision which was quoted with approval in P. J. Chemicals-this court considered G. O. Ms. No. 224, dated March 9, 1976, which "superseded the incentive scheme covered by the earlier two Government orders dated December 31, 1968, and May 3, 1971". It was a case of financial incentive for industries established in selected backward areas including investment subsidy. The Bench recorded a finding that :"the subsidy is granted more as a recompense for the hardships and inconvenience, whose entrepreneurs may encounter while setting up industries in backward areas. It was not a case of any incentive being granted year after year like in the case of power subsidy". In CIT v. Tirumala Bricks and Tiles Factory [1996] 217 ITR 547 (AP), the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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