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2016 (5) TMI 1139 - ITAT KOLKATA

2016 (5) TMI 1139 - ITAT KOLKATA - TMI - Treatment of grant-in-aid towards salary & PF as taxable - received for the payment of arrears of PF of the employees, salary and wages of employees - Held that:- AO made the addition of grant in aid for ₹ 48,22,698/- in the assessment year 2003-04 but the AO in the assessment year 2004-05 has allowed the relief of grant-in-aid for ₹ 44 Lacs. From the facts of the case we find that grant in aid for ₹ 48,22,698/- pertaining to the assessm .....

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to the discretion of the Bench. In view of above and in the interest of justice, we are inclined to treat the grant-in-aid as capital in nature therefore it is not liable to tax. Accordingly we reverse the order of the lower authorities and ground raised by the assessee is allowed.

Disallowance of employees contribution under the PF Act - Held that:- We find that the AO has made the addition of the amount of the employee contribution as there was a delay in payment to PF authorities. .....

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n the late deposit of PF is compensatory in nature therefore it should not be disallowed on the ground of treating the same as penal in nature, therefore, it is entitled for deduction while computing the profit under the business head. In this view of the matter, we reverse the action of Authorities below and ground raised by assessee in appeal is allowed. - ITA No.1281/Kol /2009 - Dated:- 19-4-2016 - Shri Mahavir Singh, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant .....

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wdhury, Ld. Authorized Representative appearing on behalf of assessee and Shri Amitava Bhattacharya, Ld. Departmental Representative appearing on behalf of Revenue. 2. During the course of hearing before us, Ld. AR did not press for the ground No. 4 & 5 so same stand dismissed as not pressed. 3. First issue in relates to ground No. 2 & 3 raised by assessee that Ld. CIT(A) erred in upholding the treatment of grant-in-aid of ₹2,38,41,000/- towards salary & PF as taxable. 4. The f .....

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wages of employees. The assessee treated the above said receipts from the Government of West Bengal as capital in nature and therefore not taxable. However, AO during the assessment proceedings has disregarded with the claim of the assessee and treated the same as revenue receipt which is liable to tax. The AO for treating the grant-in-aid as revenue in nature relied on the decision of Hon ble Apex Court in the case of the M/s Sahney Steel & Press Works Ltd. Vs CIT (1997) 228 ITR 253 (SC) w .....

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In view of above, AO has made the addition of ₹ 2,83,41,000/- to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) where it was submitted that assessee is a sick public sector undertaking and the grant was received from the Government for the payment of salary and PF dues with the purpose to keep workmen in employment. Therefore it is a capital grant-in-aid and not liable to tax. The assessee has relied in the decision of the Hon ble Delhi High .....

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o carry out any capital investment but to meet the revenue expenses of carrying out business. There is a difference between subsidizing the capital out lay and subsidizing the running of business. The Apex Court income Sahney Steel and Press Work 228 ITR 253 has laid down the principles for determining the nature of subsidy/grant. It was held that the grant received for setting up the industry was capital receipts whereas grant received towards running the industry was a revenue receipt exigible .....

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the Learned Commissioner of Income-tax (Appeals) has erred in law as well as in fact in upholding the treatment of Grant-in-aid of ₹ 23841000/- towards salary & PF as taxable, made by the Assessing Officer. 3. That the disallowance of ₹ 23841000/- referred to in Ground No.2 above should be allowed in full. 6. We have heard rival submissions and perused the materials available on record. Before us Ld. AR filed paper book which is running from pages 1 to 119 and submitted that the .....

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by the assessee i.e. handicrafts and handloom export Corporation of India (supra) are different from the instant case as in that case the holding company has given cash assistance to its subsidiary company therefore the same cannot be relied upon. Finally the ld. DR vehemently supported the order of the lower authorities. 6.1 From the aforesaid discussion we find that the assessee has received a grant from the Government of West Bengal which is hundred percent sole shareholder of the assessee co .....

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reme Court in the case of the Sahney Steel & Press Works (supra) for treating the grant in aid as the revenue in nature and therefore liable to tax. 2) Similar addition for grant-in-aid was made by the AO in the own case of the assessee for the assessment year the 2003-04. Now let us see the facts of the aforesaid judgment. The Hon ble Supreme Court has referred to salient features of various schemes formulated by the Central / State Governments and the subsidy received there-under, the purp .....

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subsidies would be revenue in nature and they amount to trading receipts. From the aforesaid decision we observe that that the subsidies were given to the class of industries as per the schemes designed by the respective Governments. The purpose of the aforesaid subsidies was to promote the certain class of industries provided, they meet the eligibility criteria laid down in those schemes. However, in the instant case we find that the grant in aid was given to the assessee exclusively and there .....

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Joint Secretary to the Govt. of West Bengal To: The Treasury Officer, Bidhan Nagar Treasury, Accounts Deptt. Jalsmpad Bhavan, Salt lake, Kolkata-91. Sub: Sanction of a fund worth ₹ 76.77 lakh (Rupees Seventy six lakh and seventy seven thousand only) as Grant-in-aid for the purpose of payment of arrear Provident Fund of the employees of the State Fisheries Development Corporation Ltd. MEMORANDUM In continuation of this Deptt s Memo No.87-Fish(FS)/C-VI dated 16.2.2005, the undersigned is dir .....

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d to authorize the Managing Director, State Fisheries Development Corporation Ltd., to act as the Drawing and Disbursing Officer for the amount sanctioned hereinabove. He is also requested to deposit the amount in the deposit account opened in terms of Finance Deptt. Memo No.1230-F dt. 3.2.84 by transfer of credit under the head 8499-Othere deposits-00-120-Deosits of Government Companies and Corporations the allotted sum of ₹ 76.77 lakh (Rupees seventy six lakh seventy seven thousand) only .....

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1- Inland Fisheries-NP-Non Plan-007-State contribution as Grants to SFDC/WBFC for pisciculture operation 31-Grants-ini-aid-01-Slary grants n the budget for 2004-2005. 5. This order issues with the concurrence of the Finance Deptt., of this Govt. vide their U.O.No.1141 Group A dt. 30.3.05. 6. The Accountant General, West Bengal and others concerned are being informed. Sd/-Illegible Joint Secretary to the Govt. of West Bengal From the above, we find that the grant given by the Government to the as .....

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the subsidiary company therefore the facts of this case are different from the assessee is not tenable. There is no straight jacket principle to distinguish a capital receipt from a revenue receipt. It depends on the facts and circumstances of each case. This view is supported by the decision of Hon'ble Supreme Court in the case of Mepco Industries 319 ITR 208 (SC) wherein the Hon'ble ble Apex Court held that in each case one has to determine the nature of subsidy based on the its own fa .....

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counsel on both sides in regard to this matter and we agree with the conclusion of the Tribunal that the sum of ₹ 11,70,000 stands on no different footing from the amounts received from the STC in earlier years. We have pointed out that what happened in earlier years was that the assessee, having incurred certain losses in its export business, approached the STC for assistance to enable it to meet its liabilities consequent on such losses and the STC agreed to do so by reimbursing the loss .....

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As pointed out by the Tribunal the nature and purpose of the payments by the STC to the assessee is the same in earlier years as well as this years. In all the years the STC has only provided monies to the assessee-corporation with the object of enabling it to offset the losses which it had incurred in the curse of its business. The fact that the contribution which the STC was prepared to make to enable the assessee to do this was measured in terms of a percentage of its export earnings and was .....

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R 590 (Delhi) will equally apply in regard to the assistance received by the assessee from the STC during the current years. The aforesaid findings recorded by the Hon'ble High Court in the earlier decision i.e., Handicrafts and handloom Export Corporation of India v. CIT [1983] 140 ITR 532 (Del) merit acceptance, even when we apply the purpose test applied in the case of Sahney Steel and press Works Ltd. (supra) as explained in Ponni Sugar and Chemicals Ltd. (supra). It cannot be said that .....

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r 2003-04 but the AO in the assessment year 2004-05 has allowed the relief of grant-in-aid for ₹ 44 Lacs. From the facts of the case we find that grant in aid for ₹ 48,22,698/- pertaining to the assessment year 2003-04 was allowed in the immediate subsequent assessment year 2004-05 for ₹ 44 Lacs. The learned AR has produced the copies of the assessment orders for the AYs 2003-04 and 2004- 05 in support of its claim and the same are placed on the record. Similarly, we also find .....

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Next issue raised in ground no. 6 & 7 by the assessee in this appeal is that the ld. CIT(A) erred in confirming the order of assessing officer by disallowing the employees contribution for ₹ 43,34,151 under the PF Act. 8. During the course of assessment proceedings, AO found that the assessee has not deposited the employee s contribution to Provident fund for an amount of ₹ 43,34,151/- within the due date. Therefore the AO has disallowed the same and added to the total income of .....

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admissible only if it is paid within the due date as prescribed in the PF Act. The assessee made the payment even after the grace period as mentioned in the PF Act. Therefore, employees contribution to PF is not admissible to the assessee. The AO is directed to delete the addition made on account of employer s contribution to PF. The addition made on account of employees PF is upheld. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following effective .....

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However, from the assessment order we find that all the payment of employees contribution were made before the due date of filing of Income Tax Return as specified u/s.139(1) of the Act. Now, this issue stands covered in favour of assessee and against the Revenue by the decision of Hon ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited vide ITAT No.245 of 2011 in GA No.2607 of 2011 dated 7th September, 2011, wherein it has been held as under:- After hearing Mr. Sinha, le .....

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f the amount paid by the Employees contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal. From the above, we find that the issue is squarely covered in favour of assessee by the jurisdictional High Court in the case of M/s Vijay Shree Limited (supra). As the issue is covered, hence, we allow assessee s ground o .....

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eved, assessee preferred an appeal to ld. CIT(A) who has upheld the action of the AO by observing as under:- The Assessing Officer observed that the Tax Audit report mentioned the expenses on account of interest for delayed payment of PF as penal in nature. In earlier years, the CIT(A) had upheld not admitting this as a deductable expenditure. The Assessing Officer, therefore disallowed the interest paid towards delayed payment of PF. The assessee in appeal proceedings, has relied on certain dec .....

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mount of interest paid for delayed deposit of PF. 9. That the addition of ₹ 551228/- referred to in Ground No.8 should be deleted. 14. We have heard rival contentions and perused the materials available on record. We find that AO during the course of assessment order found that assessee has paid a sum of ₹ 5,51,228/- as interest for non-payment of PF and this fact has also been mentioned in its Tax Audit Report at column- 17(e)(i) as expenditure by way of penalty or fine for violatio .....

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e following the decision of Hon ble Apex Court, in the case of Prakash Cotton Mills v. CIT (1993) 2174 air 983 (SC) whereas the head-note:- The appellant paid ₹ 19635 in the accounting year for A.Y. 1966-67, on account of interest, under Bombay Sales Tax Act, 1951, for delay in payment of sales tax, and for damages for delayed payment of contribution under Employees State Insurance Act, 1947. The assessee-appellant in the return of income, claimed the amount as allowance under section 37(1 .....

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missible deduction under section 37(2) of I.T. Act, taking the view that the remaining sum of ₹ 2500 was attributable to personal expenses of the Directors of the assessee company and therefore impermissible deduction under section 37(2) of the I.T. Act. The Assessee appellant did not succeed in appeals before the A.A.C. and in the Income Tax Tribunal. Applications under section 256 (1) of the I.T. Act before the Tribunal and under section 256 (2) in Bombay High Court were rejected. The as .....

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