TMI Blog2016 (5) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... income may assume cannot exhaustively be enumerated and so in each case the decision of the question as to whether any number of receipt is income or not must depend upon the nature of the receipt and the scope of relevant taxing provision. In the present case, the income earned by the assessee by operation of plant and machinery for treating the effluent water and collected the income from the customer on commercial basis and it cannot be considered as a capital receipt as the assessee operated the plant and machinery without the requisite permission and it is to be revenue receipt to be considered for levying the tax after giving necessary deduction for earning that income. - Decided against revenue Treatment of subsidy received from Government of India as a deduction from cost of fixed asset - Held that:- The subsidy was sanctioned by the Government of India for setting up of common effluent treatment water at Tripur and thus, it amounts to bearing the part of the cost of plant and machinery by Government of India through subsidy and it is not for carrying on the business of the assessee rather than setting up of the industry. Hence, in our opinion the cost of fixed asset to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum addition IN Ita No.805/Mds./2015: The fact of the case is that the assessee is a company formed with the objective to ensure zero liquid discharge of effluent water released by dyeing and bleaching factories owned by the share holders of the company. The assessee company was formed and incorporated in the year 2005 by existing four effluent water treatment companies who were in the business of running effluent water treatment plant. These companies joined together contributing a capital of ₹ 50,00,000/- divided into 50,000 equity shares with the face value of ₹ 100/- each. Five individuals who are the Directors of the assessee company have taken 200 equity shares each and the remaining equity shares were allotted to the four companies. The Individuals, who are allotted equity shares, are Directors in the four companies also. The erstwhile companies have also leased their premises to the assessee company on a nominal rent. The assessee company has installed new plant and machineries in the leased premises: Apart from the capital contribution the assessee has availed secured loan from banks for purchase of plant and rnachinery. The assessee has also received cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quid discharge. While doing so, the company incurred various overheads like trial/experimental run expenditure, administrative expenses, interest and financial charges and depreciation. Collections were made from members towards such overhead and for escalation of project cost. After deducting overheads from such collection the balance representing collections towards escalation of project cost was accounted as non refundable contribution of capital nature from members of promoter companies and shown under the head reserves and surplus. The additional project work and escalation cost are included in fixed asset schedule which is funded by the non refundable contribution as mentioned above. During the period prior to COD, there was, therefore, no surplus or deficit to be considered for assessment purpose. Copies of invoices indicating the fact that amounts collected from members include not only charges for overheads but also towards additional project cost and escalation, in project cost are enclosed. 3.4 It was also submitted by assessee before AO that even if the receipts from trial runs and expenditure incurred from the same are to be treated as revenue, ignoring the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilizing this facility for treating the affluent water on payment of a consideration for the services utilized. The water that came for treatment with the assessee s facilities was the effluent water released while doing the processing work in the textile manufacturing units of the users. The expenses for treating the water was claimed as revenue expenses which was allowed to be deducted from their income. It does not matter who are the contributors for the generation of income, whether they are the share holders of the cornpany, or an outsider. Here, the assessee has done the services of treating the effluent water for which the money has been received at the rate of ₹ 45/- per 1000 litres of effluent water and that money paid to the assessee company has been claimed as revenue expenses with their business income and the minimum quantity has also been fixed for every month for every user. Company and share holders are two different legal entities The transaction between them are merely business transaction. 3.7 It was also noticed by AO that the ossessee has claimed interest payments to banks to the tune of ₹ 13,46,57,665/- and has claimed expense on repairs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the depreciation 100% in respect of plant and machinery which is operative from 01.04.2009 and 50% on plant and machinery which are installed on 21.01.2010. Against this, the assessee was in appeal before the CIT(A). 3.9.2 The same is the position in other appeal also. 4.1 On appeal Ld.CIT(A) observed that the assessee has challenged the addition made by the Assessing Officer on three issues namely: (i) Treatment of capital subsidy received. (ii) The year of capital subsidy received and the claim thereof. (iii) The treatment relating to so called trial run I.e. whether the same is capital receipt or revenue receipt. As regards the capital subsidy received from the Governrnent, the CIT(A) observed that it is evident from the letter submitted by the Tamil Nadu industrial Corporation Limited to the Tamilnadu Water Investment Co Ltd dated 15.12.2006 that the Sanction Of ₹ 1,000 Lakhs is to Part Finance The Project For Setting Up Cetps/Reverse/Evaporator Plants At Tirupur. Therefore, from the above it is clear that the capital subsidy from the Government was granted only to meet out the cost of machinery such a CEPT, Evaporator and Reverse Osmosis and not for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of kilometers. Similarly, even if the assessee has not treated full capacity, even minimum capacity of the plant is sufficient for commencement of the business. Just because the taxi has not run for the minimum kilometer, the taxi owner cannot claim that the car was not put to use. Therefore, it has to be concluded that by paying the minimum amount by each of the persons who availed the water treatment facility, the business of the assessee has commenced and such receipts will have to be taken as revenue receipts. 4.5 For example, in a spinning mill, if yarn is produced during trial period and is sold, the receipt is to be treated as income. If the yarn, produced is not up to the minimum quality, it is to be treated as sale of waste and once sold; It has to be taken as income. In other words, if receipts are for certain services rendered during the trial production, the same will have to be treated as revenue receipts if the customer pays for it. Against this finding of CIT(A) the assessee is in appeal before us. 5.1 Before us, ld.A.R further submitted that the capital subsidy was received during the F.Y 2008-09 in which year also there was trial/experiment operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations. Therefore, reference has to be made to Indian AS.18. He draws our attention to Para 17 (e) of Indian AS-16 states as under:- Cost of testing whether the asset is functioning properly after deducting the net proceeds from selling any Items produced while bringing the asset to that location and condition (such as samples produced when testing equipments). Further the ld.A.R placed reliance on the following judgements. 1. Bogaigaon Refinery Petrochemicals V. CIT [2001] 251 ITR 0329 (SC) 2. Sasisri Extractions Ltd V. ACIT [2008] 119 TTJ 0976 (Vis) 3. CIT Vs. Rasoi Ltd [2014] 40 CCH 0685 (Kol. Trib.) 5.5 Regarding treatment of subsidy, the ld.A.R submitted that the assessee received a sum of ₹ 19.19 crores from Government of India vide Ministry of Commerce letter dated 11.09.2007. According to the ld.A.R , it is a capital receipt cannot be deducted from the cost of machinery. According to the ld.A.R Explanation 10 to Sec.43(i) cannot be applied and the cost of plant and machinery cannot be reduced by a tune of ₹ 19.19 crores so as to reduce the depreciation available to the assessee. For this purpose, he relied on the judgement of Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee.While the plant was run in the said way, the assessee generated surplus income to the tune of ₹ 4,64,47,766/- and gross receipt was Rs. 40,25,08,572/-. According to the assessee, this income is during the trial run as a capital receipt, not liable to tax. However, the AO treated the same as revenue receipt and the same was confirmed by the CIT(A). The contention of the ld.A.R is that the above income should be treated as a capital receipt, not as a revenue receipt. In our opinion for judging the nature of the particular receipt, what is required to be seen is merely whether receipt arose to the assessee on account of treating the effluent water from its customer. The process of treating the effluent water may be un-authorized i.e. without the permission from the PCB. That by itself, however would not detracted of the actual character of the receipt and the receipt will have be treated as a revenue receipt only. More so, the assessee already claimed the expenditure incurred to earn this income as a revenue expenditure as recorded by the AO in his order at para-6, the assessee cannot take two stands , one for expenses, another for the income generated by the same unit, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me may assume cannot exhaustively be enumerated and so in each case the decision of the question as to whether any number of receipt is income or not must depend upon the nature of the receipt and the scope of relevant taxing provision. In the present case, the income earned by the assessee by operation of plant and machinery for treating the effluent water and collected the income from the customer on commercial basis and it cannot be considered as a capital receipt as the assessee operated the plant and machinery without the requisite permission and it is to be revenue receipt to be considered for levying the tax after giving necessary deduction for earning that income. Accordingly, this ground raised by the assessee is dismissed. 9. Regarding the receipt of subsidy, the subsidy was sanctioned by the Government of India for setting up of common effluent treatment water at Tripur and thus, it amounts to bearing the part of the cost of plant and machinery by Government of India through subsidy and it is not for carrying on the business of the assessee rather than setting up of the industry. Hence, in our opinion the cost of fixed asset to be reduced to that extent of subsidy rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of income or furnishing of inaccurate particulars of income. He relied on the judgments of Supreme Court in the case of M/s.Reliance Petro Products Pvt Ltd in [2010]322 ITR 158(SC) wherein held that merely because the assessee claimed deduction of interest expenditure which has not been accepted by the Revenue authorities, penalty u/s.271(1)(c) of the Act is not attracted; mere making of the claim, which is not sustainable in law, by itself, will amount to furnishing inaccurate particulars of income regarding the income of assessee. Further, ld.A.R placed reliance in the decision of Hon ble Delhi High Court in the case of CIT Vs. Nalwa Sons Investments Ltd., reported in [2010] 327 ITR 543 wherein held that when the tax payable on income computed under normal procedure is less than tax payable under the deemed provisions of the section 115JB of the Act, then penalty u/s.271(1)(c) of the Act could not be imposed with reference to additions/disallowances made under the normal provisions. 12. On the other hand, ld.D.R submitted that even assessment resulted in loss, the penalty could be levied. For this purpose he relied on the judgment of Supreme Court in the case of CIT Vs. G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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