TMI Blog2011 (3) TMI 1619X X X X Extracts X X X X X X X X Extracts X X X X ..... and that too for only six continuous years. If a unit which is otherwise eligible for incentive, does not achieve the plant load factor of 12% or above, it would not be entitled to receive the sales tax benefit. Therefore, it could not be said that the sales-tax benefit is available merely on commencement of generation. in our considered opinion, though the object of the Scheme is to promote generation of energy through non conventional sources but the same is sought to be achieved by the Government in the form of supporting the units to perform more efficiently and profitably. Thus, applying the purpose test to the facts of the present case and keeping in mind the objects behind the payment of incentive subsidy, we are satisfied that the sales-tax benefits received by the assessee under the instant Scheme are in the course of carrying on its trade more profitably and therefore such receipt cannot be characterized as capital in nature. Thus, the assessee fails on this Ground. - I. C. Sudhir (Judicial Member) And G. S. Pannu (Accountant Member) For the Petitioner : Nitesh S. Joshi For the Respondent : Shishir Dhamesh ORDER G. S. Pannu (Accountant Member) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee HUF decided to transfer the entitlement to a third party in terms of the procedure laid down in the G.R dated 01.10.1999 (supra). It was further submitted by the assessee that it had in fact installed and commissioned a total of three wind-mills and first full financial year of generation of electricity was 2000-01 and during the assessment year 2003-04, the Sales-tax entitlement was transferred to Liberty Oil Mills Ltd. for ₹ 63,74,201/- vide Eligibility Certificate received from MEDA dated 13.6.2002 and Sales-tax department dated 26.6.2002. According to the assessee, Sales-tax entitlement was not available from the date of manufacture or the date of generation of electricity, but from the subsequent year after the commissioning of Wind-mills project, and the incentives had nothing to do with the profitability or otherwise of the Wind-mill project. The assessee further explained that in the case of the assessee Sales-tax incentive was given by the State Government not for assisting them in carrying out the business operation of the Wind-mills, but for the purpose of entering into the project of Wind-mills, i.e. generation of electricity with Non-conventional Energy Sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of 17% was to be achieved, which according to the Assessing Officer showed that the sales-tax incentive is indeed related to the operational efficiency and not to setting up of Wind-mills alone. After considering the submissions of the assessee, the Assessing Officer further observed that the assessee has not directly addressed the issue of chargeability of receipt on account of sales-tax deferral. According to the Assessing Officer, the argument of the assessee related to the aspect of legal sanctity of Sales-tax exemption eligibility transfer, genuineness of Wind- mill installation, options available under Sales-tax benefit, whether the benefit is in the form of an incentive or grant of subsidy etc. and none of these issues had a direct bearing on the taxability of the said receipt. Drawing support from the decision of the Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd 228 ITR 253 (SC), the Assessing Officer held that looking to the dominant purpose of the subsidy, the subsidy received by the assessee has to be treated as of revenue nature and taxed accordingly. For all these reasons, amongst others, the Assessing Officer treated the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He, therefore, held that such subsidies would bear the character of revenue receipt and are chargeable to tax. The Commissioner of Income-tax (Appeals) accordingly affirmed the decision of the Assessing Officer. Aggrieved with the order of the Commissioner of Income-tax (Appeals), the assessee is in further appeal before us. 5. Before us, the learned Counsel for the appellant has vehemently submitted that the lower authorities have failed to appreciate the claim of the assessee in its proper perspective. According to him, the authorities below have erred in law as well as on facts in rejecting the claim of the assessee that the amount received on transfer of sales-tax eligibility of ₹ 63,74,291/- is not liable for taxation, being receipts of capital nature. It has been explained that the amount has been received in terms of a Scheme formulated by the State Government for the purposes of promoting wind energy generation at selected sites. It has been pointed out with reference to the relevant resolutions of the State Government of Maharashtra that the amounts received were under a sales-tax incentive scheme with the object of promoting the wind energy generation. It was exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance, the claim of the assessee is that the impugned receipt is a capital receipt not chargeable to tax, because the object of the Scheme of the State Government was to promote generation of energy through non- conventional sources to supplement the ever increasing demand of electricity in the State implying that the incentive was to set up new wind mill projects and not to merely support the profitability of the manufacturing/generating activities of the wind mills set up by the assessee. 7. On the other hand, the learned Departmental Representative, appearing for the Revenue has assailed the stand of the appellant by referring to the discussion made by the lower authorities in their respective orders. It has been pointed out that the conditions attached with the sales- tax incentives availed by the assessee clearly show that the dominant purpose of granting such incentives was not only the operation of the wind mills but such operations were required to be operated at desired levels of efficiency. In this connection, it was pointed out that on achieving a plant load factor of 12% only, 50% of the total incentive was available and it was only on achieving the plant load fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 non- conventional energy generating projects, such as wind mills, assessee was also entitled to the facility of transferring the sales-tax benefit to the third party. The assessee after obtaining the requisite permission from the State Government transferred the sales-tax benefit entitlements to a third party and the consideration thereof amounting to ₹ 63,74,291/- was claimed as a capital receipt. At this stage, it would be appropriate to briefly touch upon the Resolution of the State Government dated 12.3.1998 (supra), the relevant portion of which is reproduced as under: PREAMBLE The State Government has a policy to promote generation of energy through non- conventional sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses 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 bear the cost of construction of roads to the project sites. MEDA would be entitle to Government grants for this expenditure. (7) Capital Subsidy : Wind Power Projects will be granted status of small scale industries. MEDA shall give a subsidy upto 30% or the fixed capital investment (limited to ₹ 20 lakhs) to the Promoters subject to a condition that wind power plant has successfully operated with a minimum 12% Plant Load Factor for at least one year. (8) Entry Tax/Octroi Refund: Entry Tax/Octro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 operandi to avail such benefits, by way of Government Resolution dated 1.10.1999 (supra)s. The relevant portion of the said Resolution dated 1.10.1999 is as under: Preamble: With a view to encourage installation of wind energy generator units, State Government has published a policy vide above mentioned Government Resolution. According to the said policy sales tax benefit is available, equivalent to the qualifying investment on wind energy generation projects. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;, for a period of continuous 6 years. And for every year, th such benefit will be limited to 1/6 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 st st (six) years. The financial year period will be from 1 April to 31 March. 4. The facility of transferring the sales tax benefit to the third party The promoters of the project, if sell electricity to the third party, for such third party, transferring of sales tax benefit will be permitted. The promoters of the project can choose the third party for this facility and it will be applicable for that year only. However, no permission will be given during that period to change the name of the third party. Third party units can avail the benefit upto the amount mentioned in paragraph 1. For this, Eligibility Certificate will be given by Director, Maharashtra Energy Developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 Delhi will be eligible for sales tax benefit. The 'No Objection Certificate' will be issued by Maharashtra Energy Development Agency only after submission of undertaking from the concerned manufacturer and promoter that the machinery used for wind generation project is new. 11. There is no restriction for expansion of projects. However, capacity of the wind energy generator should be minimum 200 Kw 12. Procedure for availing the sales tax benefit will be applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x benefit for its wind power project installed at village Kushi (Vankusawade) Tal. Satara, Dist. Satara and such benefit amounting to ₹ 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 Pradesh Government was taxable as a revenue receipt or not. The Andhra Pradesh Government had notified certain facilities and incentives for all the new industrial undertakings commencing production on or after 1.9.1969 with investment capital (excluding working capital) not exceeding ₹ 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production and such concession was also availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or complete a project as in Seaham Harbour Dock Co.'s case (1931) 16 TC 333 (HL), the monies must e 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 given for the purpose of carrying on of the business of the assessee. Applying the test of Viscount Simon in the case of Ostime (1946) 14 ITR (Suppl) 45 (HL), it must be held that these subsidies are of revenue character and will have to be taxed accordingly. 13. Another decision which has been referred to is the judgment of the Hon'ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra). In this case also, the issue related to the character of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. 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 repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of the incentive subsidy, we are satisfied that such payment received by the assessee under the scheme was not in the course of a trade but was of capital nature. 14. Another decision relied upon by the appellant is in the case of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales-tax benefit. In the present case, as noted earlier, the State Government vide its Resolution dated 12.3.1998 modified its existing policy for the purposes of promoting wind energy generation in the State of Maharashtra. This policy has been formulated in the background of the fact that the earlier policy of the State Government on generation through non conventional sources in January, 1996 did not achieve the desired results. In the said policy, nine different incentives have been laid out, which have been extracted by us in earlier part of this order. The dispute before us is in relation to the sales-tax benefits. The Preamble of the policy itself reflects the area which is sought to be addressed by the policy which is the problems being faced by promoters of wind energy generation . It is quite clear that the sales-tax benefit is not intended to be granted for creation of or bringing into existence any new asset. It is also clear that there is no prescribed criteria as to the manner in which such incentives are to be utilized. The claim of the assessee is that the sales-tax benefit is granted having regard to the qualifying investment, which is stated to be towards in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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