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DCIT, Circle 9 (1) , New Delhi Versus M/s. Sutlej Textiles and Industries Ltd.

2015 (7) TMI 515 - ITAT DELHI

Treatment to interest subsidy - revenue v/s capital - 3% Central Interest Subsidy under the Central Interest Subsidy Scheme, 2002 of Government of India in favour of Kathua unit; 2.5% interest subsidy under Rajasthan Investment Promotion Scheme, 2003 by Rajasthan Government in favour of Bhawanimandi unit and Interest subsidy under Technology Up-gradation Fund Scheme by Ministry of Textiles, Government of India in favour of all the units of the company - Held that:- With regard to interest subsid .....

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of Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) and also in the light of other judgements, which have considered the schemes, Ld . Commissioner observed that primary consideration of Central Government in granting incentives was to generate employment through acceleration of industrial development and thus each incentive can be said to have been designed to achieve public purpose and therefore, it is not by any stretch of imagination constitute as production incentive for th .....

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5% interest subsidy granted by Ministry of Textiles, Ld. CIT(A) perused the objects of the scheme while coming to the conclusion that it was introduced to promote technological upgradation in the Indian Textile Industry and also noted that the issue is squarely covered by Punjab & Haryana High Court decision in the case of Shyam Lal (2011 (1) TMI 409 - PUNJAB AND HARYANA HIGH COURT ) wherein it was held that such subsidy received under the said scheme is capital in nature. - Decided against rev .....

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expense amounting to ₹ 15,84,215/-. 2. Facts necessary for the disposal of this appeal are stated in brief. The assessee company is engaged in the business of manufacture and trading in yarn and fabrics. On 29.09.2009, the assessee declared a loss of ₹ 49.81 crores for the year under consideration. Thereafter, i.e. on 30.03.2011, the assessee filed revised return declaring loss of ₹ 79.56 crores. The revised return was admittedly filed u/s 139(5) of the Act. Following subsidie .....

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n favour of all the units of the company; - ₹ 25,90,32,252/-. 3. As noticed from the paper book filed by the assessee, copy of Central Interest Subsidy Scheme 2002, Rajasthan Government Promotion Scheme 2003, and Technology Upgradation Scheme of Ministry of Textiles were placed before the A.O., before the completion of assessment proceedings pursuant to revised return filed on 30.03.2011. Pages 6-10 of the paper book contain the revised return and annexures. Pages 236-238 of the paper book .....

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to the purpose for which the subsidy is given; the point of time at which the subsidy is paid, source thereof and the form of subsidy is not material. The Hon ble Court further observed that if the incentive is utilised for repayment of loan taken by the assessee to set up new unit or for substantial expansion of the existing unit, it has to be treated as capital in nature. It was further clarified that only in cases where the object of subsidy scheme was to enable the assessee to make the busin .....

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e case of Balaji Alloys Vs CIT 198 Taxman 122, observed that interest subsidy received under the Central Interest Subsidy Scheme 2002 deserve to be treated as capital in nature in the hands of recipient. 5. The assessee company furnished details of subsidies received under various schemes to highlight that the purpose of subsidies was to assist in setting up of industry / expansion of industrial units and hence it has to be treated as capital subsidy. 6. The A.O. omitted to consider revised retu .....

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d return while completing the assessment without assigning any valid reasons. 9. On merits, Ld. CIT(A) examined each scheme and the mode of receipt of amount by the assessee, in the light of ratio laid down in the following cases: (a) Sahney Steel and Press Works Ltd. and Others Vs CIT 228 ITR 253 (S.C.) (b) Ponni Sugars & Chemicals Ltd. Vs CIT 306 ITR 392 (S.C.) (c) M/s. Shree Balaji Alloys Vs CIT 198 Taxman 122 (J&K H.C.) (d) CITVs Sham Lal Bansal 200 Taxman 14 (P&H H.C.) 9.1 With .....

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ble Apex Court in the case of Ponni Sugars & Chemicals Ltd. (supra) and also in the light of other judgements, which have considered the schemes, Ld . Commissioner observed that primary consideration of Central Government in granting incentives was to generate employment through acceleration of industrial development and thus each incentive can be said to have been designed to achieve public purpose and therefore, it is not by any stretch of imagination constitute as production incentive for .....

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t subsidy granted by Ministry of Textiles, Ld. CIT(A) perused the objects of the scheme while coming to the conclusion that it was introduced to promote technological upgradation in the Indian Textile Industry and also noted that the issue is squarely covered by Punjab & Haryana High Court decision in the case of Shyam Lal (supra) wherein it was held that such subsidy received under the said scheme is capital in nature. 12. Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before us .....

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O for de novo consideration. He further submitted that the scheme for technological upgradation and other schemes were not merely meant for the purpose of business and setting up of new business but also aimed at increasing of employment opportunities etc. which fall under the capital field. 14. On the other hand, Ld. Counsel for the assessee invited our attention to pages 61, 62, 70, 302, 316 and 317 of the paper book to submit that on identical facts and circumstances, the Hon ble Courts have .....

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under which the assessee was enjoying the benefit of subsidies, to appreciate the purpose for which subsidies were granted. In our considered opinion, the subsidies received by the assessee fall in the capital field and Ld. CIT(A) has given exhaustive reasons in coming to the conclusion that the subsidies are in the capital field and it is not necessary for us to reiterate the facts in great detail. However, for the sake of completeness, we extract the relevant observations of Ld. CIT(A) as unde .....

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idy on Working Capital Loans for industrial units in the state of Jammu & Kashmir with a view to accelerating the industrial development in the state". It is also noticed that subsequently another notification dated 28th November, 2003 was issued, a copy whereof is placed at page 59 of the appellant's paper book. The said notification makes it very clear that the purpose of the subsidy being granted was creation of employment opportunities in the State of Jammu & Kashmir. The re .....

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efinition of the term 'substantial expansion' for the purpose of incentives/ subsidies notified as per OM No.1 (13)/2000-NER dated 14.06.2002. 2. The Central Government, therefore, hereby makes amendment in the Central Interest Subsidy Scheme, 2002 notified in the notification of the Government of India in the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion No.1 (11)/2002-NR dated 22nd October, 2002. The definition of the term 'Substantial Expansi .....

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ons, that the appellant had received interest subsidy to the extent of 3% on the working capital advanced by the banks/financial institutions. The amount of subsidy so received is also noticed to have been shown as part of "miscellaneous income" in schedule 15 "other income" of the audited accounts. These facts, in my considered view, clearly lead to the conclusion that the subsidy was granted for industrial development in the State of Jammu & Kashmir and for creating emp .....

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onsidered the taxability of subsidy amount for setting up units in the State of Jammu & Kashmir. The assessee in that case relied upon Office Memorandum dated 14th June, 2002, Notification dated 28th November, 2003 (as referred in the present case) and the two other notifications referred for exemption from payment of excise duty. Based on these notifications, the assessee claimed that excise refund and interest subsidy was in the nature of capital receipt not liable to tax. The Tribunal how .....

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w Industrial Policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz., (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu and Kashmir. Amendment introduced to the Office Memorandum vide Notification of 28- 11-2003 of the Government of India, Ministry of Commerce and Indust .....

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contained in the Notifications would be available only on production of Certificate from General Manager of the concerned District Industry Centre to the Jurisdictional Deputy Commissioner of the Central Excise or the Assistant Commissioner of Central Excise, as the case may be, to the effect that the unit had created Required Additional Regular Employment, which would not, however, include employment provided by the industrial units to Daily wagers or Casual employees engaged in the Units. 24. .....

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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 o .....

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ch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in Industrial development, which is certainly a purpose in the Public Interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appel .....

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e been intended to ensure that the incentives were made available only to the bonafide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved. 29. The other factors, which had weighed with the Tribunal-in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment i .....

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down by Hon'ble Supreme Court of India in Sahney Steel & Press Works Ltd.'s case (supra) and Ponni Sugars & Chemicals Ltd. 's case (supra). 31. The finding of the Tribunal that the incentives were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the assessees. The claim of the appellant in the present case that interest subsidy is in the nature of capital receipt by applying purpose test is thus fully supported and cover .....

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leads to the conclusion that since the subsidy was provided for promoting investment in the state of Rajasthan and was linked to capital investment/additional wages being provided, the same was granted in larger public interests and hence constitute capital receipt not liable to tax. Accordingly, it is held that subsidy of ₹ 44,64,000/- received under the above unit was not liable to tax. (iii) Regarding 5% interest subsidy (TUFS) by Government of India :- On perusal of the aforesaid, it i .....

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