TMI Blog2013 (10) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... utable to" the business of the industrial undertaking and not in the category of profits and gains "derived from" its industrial activity - Following decision of Commissioner of Income-tax Versus Meghalaya Steels Ltd. [2010 (9) TMI 679 - GAUHATI HIGH COURT] and Sahney Steel And Press Works Limited And Others Versus Commissioner of Income-Tax [1997 (9) TMI 3 - SUPREME Court] - Decided against the assessee. - ITA.No.371/PN/2012 - - - Dated:- 28-5-2013 - Shri Shailendra Kumar Yadav And Shri R. K. Panda,JJ. For the Petitioner : Shri C. H. Naniwadekar For the Respondent : Smt.Sunita Rai ORDER Per Shailendra Kumar Yadav, JM:- This appeal has been filed by the assessee against the order of the CIT(A) on the following grounds: 1. The Learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the A.O.'s action of treating the amount of Rs.46,66,665 received on sale of Sales Tax Exemption Entitlement, which entitlement was on account of an incentive granted by Government of Maharashtra for setting up a Wind-Mill Power Generation Unit, as chargeable to tax u/s.28(iv) of the Act, as against the assessee's claim of exempt from tax being a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Maharashtra, vide Resolutions dated 12.3.1998 (supra), and 1.10.1999 (supra), the assessee availed of sales-tax benefit of a sum of Rs 63,74,291/-. The assessee claimed that such amount is a capital receipt not subjected to ITA No 575/PN/07,150/PN/08 taxation. On the contrary, as per the Revenue such amount is a revenue receipt chargeable to tax. 9. Before we touch upon the differing stands of the assessee and Revenue on the issue, it would be appropriate to cull out the facts having a bearing on the issue. The appellant is an HUF which is, inter alia, engaged in a range of business activities viz. manufacture and sale of Manickchand Zarda, Pan Masala, construction activities, manufacturing of tiles etc. including generation and sale of power. In the course of its activities, the assessee company set up wind mills in the State of Maharashtra for generation of wind power. The Government of Maharashtra in terms of its policy on wind power generation granted various benefits, including sales-tax benefit. In terms of the procedure for availing sales-tax benefits on nonconventional energy generating projects, such as wind mills, assessee was also entitled to the facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt policy, wind power developers would be given permission to bank the energy generated from wind power plants with MSEB. Banking can be done any time of the day and night. The energy balance at the end of one year shall not be taken into account next year. The balance of energy account will be settled between the MSEB and promoters at the end of the year as per the tariff applicable during that year. (3) Transmission Losses: MSEB shall bear the transmission losses for wind energy transmission for the first three years. Thereafter, transmission losses will be leviable at the rate of 1%.(4) Third Party Sale:Promoters will be permitted to sell exportable power to any two (industrial or commercial) consumers per MW. Wheeling charges for this will be leviable at the rate of 2%. (5) Evacuation Arrangement: MSEB shall initially bear the expenditure for erection of high tension sub-station and transmission infrastructure. MEDA shall recover 50% of this expenditure from wind power project promoters and will give it to MSEB. Developers shall bear the cost of transmission lines from the sub- station to the project and all other related equipment. (6) Approach Roads: MEDA shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, bearing initial expenditure for erection of high tension and sub-station and transmission infrastructure, bearing the cost of construction of roads to project sites, reimbursement of entry tax/octroi to the promoters, capital subsidy upto 30% of the fixed capital investment (limited to Rs 20 lakhs), and sales-tax benefits. Since the primary dispute before us is in relation to the sales-tax benefits available under the Scheme, it would be in the fitness of things that we may look at it in slight detail. The Scheme intended that investments in plant and machinery, new building, land development, technical development and design in a wind power project would constitute qualifying investment and a promoter shall be entitled to sales-tax benefits upto the amount of such qualifying investment. Such sales-tax benefit was to be given in six equal instalments over a period of six years, i.e. 1/6th of the qualifying investment amount every year on the condition that the plant successfully operates every year with a minimum of 12% plant load factor. In terms of such broad framework of the sales-tax benefit, the State Government issued separate detailed instructions about the modus opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For example, if transmission lines availability is 85%, then that years' average Plant Load Factor will be increased proportionately to correspond to 100% availability of transmission lines and the sales tax benefit will be increased proportionately. The availability of the transmission lines during the months from May to September of that financial year will be decided by Maharashtra Energy Development Agency (MEDA), Pune. 3. Sales tax benefit will be available for the promoters from the date of obtaining or 'Entitlement Certificate', for a period of continuous 6 years. And for every year, such benefit will be limited to 1/6th of the qualifying investment. However, in any one year, Plant Load Factor of 12% is not achieved then that years' sales tax benefit will get cancelled and that unit will have to lose sales tax benefit for that year forever. Any two years' sales tax benefit will not be allowed to deduct together to claim in one year. To avail the sales tax benefits the period will be counted for continuous 6(six) years. The financial year period will be from 1st April to 31st March. 4. The facility of transferring the sales tax benefit to the third party The promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of electricity, sales tax benefit determined on qualifying investment in the project. For that purpose "Entitlement Certificate" will be given by Energy Department of Government of Maharashtra and "Eligibility Certificate" will be issued by Maharashtra energy Development Agency. 7. If the promoters do not abide by terms and conditions of Maharashtra Energy Development Agency and Sales tax Department, then the Director of Maharashtra Energy Development Agency and Commissioner of Sales Tax reserve the right to cancel the 'Entitlement Certificate" and the "Eligibility Certificate". 8. Sales tax benefit can be availed on the finished product as well as on the raw materials used and its procedure shall be as per Package Scheme of Incentive (PSI), 1993 and amendment thereon from time to time. 9. The promoter will not be eligible for sales tax benefit for use of second hand machinery and on old wind electric generator. If such cases are noticed, then the Director, Maharashtra Energy Development Agency has right to cancel "Entitlement certificate" and "Eligible Certificate". 10. The sites approved by Ministry of Non-conventional Energy Sources, Government of India, New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oter will not be eligible for sales-tax benefit for use of second hand machinery and on old wind electric generator. The policy further provided that there was no restriction for expansion of project. However, the minimum capacity of wind mill generation was stated to be 200 Kw. In terms of the aforesaid Scheme, the assessee obtained the "Entitlement Certificate" and transferred the sales-tax benefit to a third party. The assessee availed the sales-tax benefit for its wind power project installed at village Kushi (Vankusawade) Tal. Satara, Dist. Satara and such benefit amounting to Rs 63,74,291/- pertaining to the year under consideration has been claimed as a capital receipt. Factually speaking, on the aspect of the assessee having received the said amount in terms of the Scheme of the State Government as sales-tax benefit under the aforesaid Government Resolutions, is not in dispute. 12. In order to examine the taxability of such amount, it would be appropriate to refer to the propositions based on the case laws referred to us. In the case of Sahney Steels (supra), the question before the Hon'ble Supreme Court was whether the subsidy received by the assessee therein from Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose is to help the assessee to set up its business or complete a project as in Seaham Harbour Dock Co.'s case (1931) 16 TC 333 (HL), the monies must be treated as having been received for a capital purpose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistant for the purpose of the trade.............." "In the case before us, the subsidies have not been granted for production or for bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant............... One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the ground raised by the assessee is dismissed. 4. The second issue is with regard to deduction u/s.80-IA in respect of Sales Tax receipts. The CIT(A) has decided this issue following the decision of his predecessor in A.Y. 2006-07. We find that the Tribunal in A.Y. 2006-07 has dealt and decided the issue in paras 7 to 9 wherein following the precedent discussed therein, held that assessee was not eligible for claiming deduction u/s.80-IA of the Act with regard to the income of Rs.53,78,966/- on account of sale of Sales Tax entitlement, by observing as under: "7. In so far as Ground of Appeal No. 3 is concerned, the same is a fall out of the action of the income-tax authorities in treating the receipt of RS. 53,78,966/- on sale of sales tax exemption entitlement as business income. The contention of the assessee is that the said business income be treated to have been derived from the eligible business so as to qualify for deduction u/s.80-IA of the Act. On this aspect the CIT(A) has denied claim on the ground that the aforesaid receipt cannot be considered as "derived from" the business of power generation and in coming to such conclusion reliance was placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 22nd August, 2008 before the judgment in the case of Liberty India (supra) came to be delivered by the Hon'ble Supreme Court on 31st August, 2009. The benefit of the decision of the Hon'ble Supreme Court in the case of Liberty India, therefore, was not available to the Special Bench of ITAT while deciding the case of MIRC Electronics Ltd., (supra). The learned counsel for the assessee has also relied on the decision of coordinate bench of the Tribunal in the case of The Total Packaging Services (supra). He has contended that the Tribunal in the said decision has relied on the decisions of Hon'ble Guwahati High Court in the case of Meghalaya Steels Ltd.,332 ITR 91 wherein the decision of Hon'ble Supreme Court in the case of Liberty India (supra) was considered by the Hon'ble Guwahati High Court. We have carefully perused the decision of Hon'ble Guwahati High Court in the case of Meghalaya Steels Ltd., (supra). In the said case, the following two substantial questions of law had arisen for the consideration of the Hon'ble Guwahati High Court :- (i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified and correct in law in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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