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2016 (5) TMI 765 - ITAT KOLKATA

2016 (5) TMI 765 - ITAT KOLKATA - TMI - Treatment of subsidy receipt - capital or revenue subsidy - Held that:- It is clear from the reading of the objective of the scheme is to was to enable the assessee to set up a new unit. The object of the Scheme in the present case was to promotion of' industries in the state of West Bengal. It was available to a "New Unit" which has been defined under the scheme to mean an industrial unit in the large medium/small scale sector having investment in capital .....

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erely because subsidy received was equivalent to a substantial percentage of the sales tax paid, it cannot be construed that the same was in form of refund of sales tax paid and exigible to tax. Hence one time subsidy received from the State Government under the scheme of industrial promotion for expansion of its facilities and for modernization purposes is capital receipt and cannot be brought into tax net.

Depreciation on moulds - Held that:- We are of the view that the issue requir .....

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s of such general observations as done by the CIT(A). Therefore we set aside the order of the CIT(A) on this issue and direct the AO to examine the claim of the Assessee in the light of the observations made above. - I.T.A No. 1517/Kol/2013 - Dated:- 6-4-2016 - Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM For The Appellant : David Z.Chowngthu, JCIT For The Respondent : Shri Ashoke Mukherjee, FCA ORDER Per N.V.Vasudevan, JM This is an appeal by the Revenue against the order dated 15.02.2013 .....

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Ld. CIT(A) failed to take into account the fact that the assessee claimed depreciation not on the reduced W.O.V. after adjusting the impugned capital investment subsidy but on the full amount of b/f W.O.V. of Plant & Machinery which itself shows the intention of the assessee that the said amount of subsidy was revenue in nature and not of capital nature. This fact, brought on record by the AO was not disputed by the Ld. CIT(A). 3. The Assessee is a company. It is engaged in the business of .....

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oned that depreciation was claimed without reducing the value of the subsidy from WBIDC. In these circumstances AO came to the conclusion that the subsidy in question was neither offered to tax as revenue subsidy nor was it reduced from the WBIDC of plant and machinery for the purpose of claiming depreciation. AO further came to the conclusion that subsidy in question was a revenue subsidy and ultimately brought the subsidy to tax. 4. Before CIT(A) the Assessee submitted the sum of ₹ 31.15 .....

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mmencement of production is allowed. The Assessee pointed out that the Assessee submitted the eligibility certificate dated 31.01.2003, final sanction letter copy of West Bengal Government Incentive Scheme 2000, certificate of Registration under the above scheme, and other allied documents to justify that subsidy in question was capital in nature. The Assessee pointed out that the basic scheme of Govt. of West Bengal, Commerce & Industries Department, Group H, Notification No. 91/CI/4F- 54/2 .....

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state. The Scheme shall come into effect on and from 1st day of January, 2000 in the whole of West' Bengal and shall remain valid for a period of five years ending on 31st December, 2004. As per the scheme "New Unit" means an industrial unit in the large medium/small scale sector having investment in capital assets which is established and commissioned by the entrepreneur for the manufacture of goods in West Bengal, for the first time on or after the 1st January, 2000 and is regist .....

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after the 1st April, 1999 subject to other conditions laid down in paragraph 6 of 2000 Scheme. Eligibility Criteria for incentive under the 2000 Schemeis : Large, medium and small sector industrial projects are eligible for securing eligibility certificate after fulfilling certain conditions. Classification of development areas and backward areas: For the purpose of determination of types and quantum of incentive available under the scheme for the approved projects, according to their location, .....

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s. The above scheme is applicable to the Assessee and accordingly eligibility certificate was granted and state capital investment subsidy amounting to ₹ 31.15 lakhs was disbursed. 5. The Assessee pointed out that the sole purpose behind the grant of the assistance to develop certain industries in backward areas of the state. Both these activities relates to capital field and cannot be considered to be linked up with the day-to-day operation of the assessee in any manner. Incentive/subsidy .....

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y in question was capital receipt not chargeable to tax:- (a)PJ Chemicals Ltd (1994) 210 ITR 830 (SC) wherein the .Apex Court held that where the Govt subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries the specified percentage which is the percentage, of fixed capital cost which is the basis of determining the subsidy being only a measure adopted under the scheme to qualifying the financial aid is not payment directly or indirectly t .....

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order enclosed) wherein it was held that subsidy received on identical facts was held to be capital subsidy. (d) It was further submitted that the reliance placed by the Ld. A.O. on the decision of the Hon ble Supreme Court in the case of Sahney Steel & Press Works Ltd and others 228 ITR 253 (SC), to come to a conclusion that the subsidy in question was revenue subsidy chargeable to tax is not correct. The following table was given by the Assessee before CIT(A) in this regard:- Sahney Steel .....

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)Amount received was capital Incentive towards setting up certain industry in backward areas. 6. The CIT(A) agreed with the contentions put forth by the Assessee and held that the subsidy in question was capital subsidy not chargeable to tax. The following were the relevant observations of the CIT(A) in this regard: 6.2. I have perused the assessment order and considered the submission of the appellant. The fact of the case is that the appellant company received as sum of ₹ 31.15 lacs from .....

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circumstances of the case, I find merit in the argument, by the appellant. The subsidy was granted by the Govt. of West Bengal before commencement of the production which was for the purpose of fixed capital investment. Therefore, the receipt are certainly in the nature of capital receipt. The facts of the judgment relied upon by the A.O. in the case of Sahney Steel & Press Works Ltd. and others 228 ITR 253 (SC) are different from the facts of the present case. Under these circumstances and .....

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d DR, who relied on the order of AO and the learned counsel for the assessee relied on the order of CIT(A). 9. We have considered the rival submissions. The tests to be applied to decide the question whether a subsidy received by an Assessee has to be regarded as capital or revenue subsidy has been laid down in several decisions of Hon ble Supreme Court and Hon ble High Courts. The Hon ble Supreme in CIT , Madras vs. Ponni Sugars & Chemicals Limited, Civil Appeal No.5694 to 5715 of 2008, [20 .....

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e was to enable the assessee to run the business more profitably, then the receipt was 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 its existing units, 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 incentive subsidy. The form of the mechanism through which the subsidy is given .....

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rnization and expansion purposes would constitute a capital receipt not subject to the rigours of tax under the Income Tax Act, 1961. The Hon ble Calcutta High Court further held that merely because subsidy received was equivalent to a substantial percentage of the sales tax paid, it cannot be construed that the same was in form of refund of sales tax paid and exigible to tax. Hence one time subsidy received from the State Government under the scheme of industrial promotion for expansion of its .....

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assessee to set up a new unit. The object of the Scheme in the present case was to promotion of' industries in the state of West Bengal. It was available to a "New Unit" which has been defined under the scheme to mean an industrial unit in the large medium/small scale sector having investment in capital assets which is established and commissioned by the entrepreneur for the manufacture of goods in West Bengal, for the first time on or after the 1st January, 2000 and is registered .....

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:- 03. Whether on facts and circumstances of the case the Ld. CIT(A) is correct in allowing depreciation on moulds @ 30% when there is no such provision in the I.T. Rules I Act. Moreover, it is also not mentioned by Ld. CIT(A) whether Moulds and Rolling Mill Rolls (for which depreciation is available @ 80%) are technically same item. 13. On perusal of the depreciation chart AO noticed that the assessee had claimed depreciation of 30% on account of moulds. According to the AO the moulds were to b .....

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dix I in case of Iron & Steel Industry - rolling mills (moulds) depreciation is allowable at the rate of 80% p.a. However the appellant company had claimed depreciation on moulds (rolling mills - rolls) at the rate of 30% p.a. (instead of allowable depreciation of 80%). The Ld. A/.O. without considering the above facts arbitraril7y and on estimated basis disallowed 15% of the depreciation on moulds, treating moulds as plant & machinery. Your goodself is requested to delete the addition m .....

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