TMI Blog2016 (5) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain, along-with Sunil Agarwal ORDER Per Pramod Kumar, AM 1. These cross appeals are directed against the order dated 26th September 2012 passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2006-07. 2. We will first take up the appeal filed by the Assessing Officer. 3. Grievances raised by the Assessing Officer are as follows: 1. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 4,36,57,867/- treating sales tax incentive as revenue receipt by the Assessing Officer without appreciating facts that incentive granted after commencement of production by the industry is a revenue receipt. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 3,21,35,417/- treating excise incentive as revenue receipt by the Assessing Officer without appreciating facts that the assessee is free to utilise the money as it feels to do so and there is no stipulation of it being used. 4. The relevant material facts, as culled out from material on record, are like this. The assessee before us is a company engaged in the business of manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs CIT (228 ITR 253). He then concluded that there is no doubt that if an incentive is granted after the commencement of production by the industry, then it will be of revenue nature . Referring to Ponni Sugar Chemicals decision (supra) by Hon ble Supreme Court, the Assessing Officer opined that subsidy cam be capital if it has obligation on the part of the recipient to utilize it wither to expand its capital structure or towards acquisition of the same or repayment of its capital liability only . He inferred that if there is no such stipulation and the assessee is free to use the money in its business entirely as he likes it, it will be of revenue nature . The Assessing Offcer noted that the sales tax benefit is given to the assessee only after commencement of production, that the assessee is under no stipulation to apply the incentive amount towards repayment of capital asset- unlike in the case of Ponni Sugar, that the nature of assistance was for trade and that in effect sales tax subsidy reduced the cost and increased the profits of the assessee, and that, for all these reasons, the sales tax subsidy is required to be treated as revenue in nature. As regards Central Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, neither the incentives were given for meeting the cost of the investment nor were given for assisting the appellant in carrying out the business operations. Thus, the subsidy in the form of exemption from the liability to pay sales tax is on capital account and not on revenue account. 3.8 The facts of the appellant s case are similar. It is evident from the scheme itself that the sales tax subsidy/incentives were not given to the appellant for assisting it in carrying out the business operations. The object of the subsidy was to encourage large scale investment by attracting entrepreneurs for setting up of industries in the notified area of Kutch district where the economic activities came to a standstill on account of the devastating earthquake in the State on 26th January, 2001. The scheme was formulated and the incentives were given to entrepreneurs to attract the large scale investment to generate new employment and for making the economic environment of Kutch district of Gujarat before the specified date as per the scheme of incentive. The limit of the incentive was fixed. The appellant s case is covered by the decision of Hon ble Special Bench of Mumbai Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g it set aside by Hon ble Supreme Court- as argued by learned DR. 3. Hon ble Delhi bench analysed the decision of Supreme Court in the case of Ponni Sugar and Chemicals Ltd 306 ITR 392 ad Sahni Steel Press Works Ltd 228 ITR 253, and held them to be complimentary to each other. The amount of subsidy was held to be revenue in nature. 4. In the present case also, the subsidy has been granted for the conduct of business more efficiently after the industry commenced the production. 5. It is further seen that the decision of the ITAT Delhi is later in point of time and it analysed the issue after considering different decisions of Supreme Court and Tribunals, and so the same is required to be followed. 6. In the alternative, it is prayed that considering the conflicting decisions of ITAT Rajkot, on the issue of nature of subsidy, the matter may kindly be referred to Special Bench and accordingly be adjourned. 7. Learned counsel, on the other hand, submitted that the issue in appeal is squarely covered by the coordinate bench decision in the case of DCIT Vs Ajanta Manufacturing Ltd (ITA No. 793/Rjt/2010; order dated 23th September 2010, as rightly pointed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up of businesses, the subsidy will be on capital account. Learned counsel then invites our attention to the judgment dated 12th February 2013 passed by Hon ble jurisdictional High Court, in the case of CIT Vs Birla VXL Ltd (Tax Appeal Nos 316,317 and 318 of 2012), wherein Their Lordships declined to interfere in the Tribunal decision, which had granted similar relief following the Rajkot bench decision relied upon by the assessee, and thus upheld the view of sales tax subsidy being capital in nature. We were urged to hold, as according to the learned counsel was glaring from the facts of this case, that the decision in the case of Colourman Dyechem (supra), does not apply to the facts of this case inasmuch as that was a case in which the subsidy was dependent on increase in the capacity as against the present case in which the subsidy is for setting up the business. 10. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 11. We find that so far as the Special Bench decision of this Tribunal in the case of Reliance Industries (supra) is concerned, it still holds the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd (supra). As for learned Commissioner (DR) s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain from making any further detailed observations on this issue, as we are alive to the fact that Hon ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal against the decision of this Tribunal in Ajanta s case (supra) and all these issues will now come up for consideration of Their Lordships. The fact that appeal is admitted does not, as we have stated earlier as well, does not affect the binding nature of the judicial precedents. There is no dispute before us that the scheme under which the sales tax and excise duty subsidy are given to this assesse are the same as in the case of Ajanta Manufacturing Ltd (supra). All the material facts being the same, there is no reason to take any other view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia by (b) the amounts carried to any reserves by whatever name called . Part III of Schedule VI to the Companies Act, 1956 provides inter alia in Clause 7(1)(b) that, the expression reserve shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability . 3. The nature of a Debenture Redemption Reserve (DRR) has been considered by the judgment of the Supreme Court in National Rayon Corporation Ltd. Vs. Commissioner of Income Tax [(1997) 227 ITR 764]. The Supreme Court after adverting to the provisions of Clause 7 of Part III to Schedule VI of the Companies Act, 1956 held that the basic principle is that an amount set apart to meet a known liability cannot be regarded as reserve . Where a company issues debentures, the liability to repay arises the moment the money is borrowed. By issuing debentures a company takes a loan against the security of its assets. Though the loan may not be repayable in the year of account, the obligation to repay is a present obligation. Hence any money set apart in the accounts of the company to redeem the debenture h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. We, therefore, uphold the plea of the assessee, and direct the Assessing Officer to grant the relief accordingly. 19. Ground no. 3 is thus allowed. 20. Ground no. 4 is general and does not call for any adjudication. 21. In ground no. 5 and 6, the assessee has raised a new issue with respect to treating the sales tax subsidy and excise subsidy being capital in nature and as such not liable to be taken into account for computing the book profits under section 115JB. 22. We find that, in the light of the law laid down by Hon ble Supreme Court in the case of National Thermal Power Corp Ltd Vs CIT [(1998) 229 ITR 383(SC)}, there cannot indeed be any objection to an assessee raising a new legal plea at this stage. We, therefore, admit this new issue for adjudication. 23. On merits, we find that this issue is squarely covered, in favour of the assessee, by coordinate bench decision in the case of ACIT Vs Shree Cements Ltd (ITA No 614,615 and 635/Jpr/2010; order dated 9th September 2011), and no judicial precedent to the contrary has been brought to our notice. There were no specific arguments of the revenue on this issue. We, therefore, uphold this plea of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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