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2016 (7) TMI 608 - ITAT KOLKATA

2016 (7) TMI 608 - ITAT KOLKATA - TMI - Capital investment subsidy ,Interest subsidy and Electricity subsidy received from Govt. of West Bengal under Incentive Scheme 2000 - Whether such receipt could be brought to tax as a capital or revenue receipt with corresponding impact on the allowance of depreciation? - Held that:- Keeping in view the objects of the West Bengal Incentive Scheme 2000 we hold that the capital subsidy is to be treated as capital receipt. Consequentially the assessee need no .....

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For The Assessee: Shri V.N.Purohit, CA & Shri H.N. Bharwadaj, ACA For The Revenue: Shri Arun Kanti Sinha, JCIT, Sr. DR ORDER Per Shri M. Balaganesh, AM: These cross appeals by assessee and revenue are arising out of order of CIT(A), Asansol vide appeal No.198/CIT(A)/Asl/ACIT/Cir-1/Asl/2009-10 dated 11.06.2014. Assessment was framed by DCIT, Cir-1, Kolkata u/s. 143(3) & 115WE(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2007-08 vide his order dated 30.12.20 .....

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8,005/-, made by the AO on account of interest subsidy received as revenue receipt. 3. That the Ld. CIT(A), Asansol has erred in law and on facts by allowing the disallowance of ₹ 11,14,841/-, made by the AO on account of Revenue receipt. The assessee has raised the following grounds:- (1) For that the Id. CIT (A) erred in law in not accepting the claim of the assessee about normal depreciation at ₹ 1,00,41,737/- calculated on total amount of actual cost of fixed asset before deducti .....

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reduced by the assessee from the Interest Paid Account be considered for computation of total income, by reducing the total income computed to that extent. (3) For that the Ld. CIT (A) has further erred in not allowing the additional depreciation of ₹ 1,50,89,699/- as claimed by the assessee. 3. The issue to be decided is as to whether, the capital investment subsidy of ₹ 1,09,73,000/- ; Interest subsidy of ₹ 10,38,005/- and Electricity subsidy of ₹ 11,14,841/- received f .....

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assessee was incorporated for setting up of this plant. Immediately after the incorporation, the assessee company applied for an eligibility certificate in terms of the abovesaid incentive scheme. By letter no. INC-2000(386)/II/GENCS/3285 dated 16-12-2004, the West Bengal Industrial Development Corporation Limited (a Government of West Bengal Undertaking), being the "Authorised Agent" of the Government of West Bengal in terms of the said incentive scheme, informed the company that the .....

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rtificate, the company was eligible for the subsidies which were to be computed on different criteria. For easy consideration, the subsidies were given following nomenclature: (a) State Capital Incentive Subsidy (b) Interest Subsidy (c) Waiver of Electricity Duty (d) Employment Generation Subsidy (e) Remission of Stamp Duty & Registration Fees State Capital Incentive Subsidy The Government of West Bengal sanctioned, in terms of the aforesaid Incentive Scheme, a capital subsidy of ₹ 1,0 .....

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the Fixed Capital Investment subject to a limit of ₹ 150.00 lakhs. This amount of subsidy was not relatable to any specific asset. The said amount of ₹ 1,09,73,000/- was reduced from the cost of Plant & Machineries due to inadvertence, and the Depreciation in the Return of Income was claimed accordingly. The assessee made a claim before the Ld. AO for setting right the matter and requested him to grant depreciation on the full value of cost prior to deduction of State Capital Su .....

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ate Capital Incentive Subsidy, that may be received by it based on the criteria laid down in the scheme. The assessee arrived at the following figures of the subsidies: Sl. No. Account Head Amount 1. Subsidy on Interest on Term Loan - 1 ₹ 40,30,061 2. Subsidy on Interest on Term Loan - 2 ₹ 10,38,005 3. Subsidy on Electricity Duty ₹ 11,14,841 The assessee company, thereafter, inadvertently credited the above amount of the subsidies to the account heads of Interest and Electricit .....

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,016 74,75,932 Total net expenditure under the head Interest - ₹ 54,55,459 As a result of such adjustment of subsidies, the expenditure under the above heads was reduced. Based on the above said net figures, the accounts of the company were finalized and a loss of Rs. ₹ 1,64,02,636/-, which should have been higher by the sum of ₹ 61,82,907/- i.e. the actual loss of the company would be ₹ 2,25,85,543/-. The Return of Income was finalized on the basis of the loss of ₹ .....

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n on the Plant & Machineries. This additional depreciation was claimed on the Plant & Machineries installed during the year only. In doing so, the assessee did not consider the Plant & Machineries installed in the earlier year but after the mandated date of 31-03-2005. Non receipt of Subsidy on Term Loan II : It has been already submitted in the preceding paras that the assessee has considered the Interest Subsidy receivable from the Government of West Bengal on the amount of Interes .....

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ved by the assessee at any at any future date. In other words, the said subsidy of ₹ 10,38,005/- has not accrued to the assessee at all at any point of time. Revised Return During the course of hearing for assessment, the assessee submitted a letter before the ld. AO explaining the different queries raised by him during the course of hearing. In the said letter, the assessee also explained the reasons for filing the Revised Return. In the said letter, the assessee also submitted before the .....

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m of ₹ 10,38,005/- based on Interest on Term Loan II and c) exclusion of subsidy of 11,14,841/- received being based on Electricity Charges from the Total Income as made in the Revised Return. The Ld. AO, further, did not accept the claim of the assessee, a) excluding the sum of ₹ 40,30,061/- being subsidy based on Interest on Term Loan I from total income being capital in nature and b) reversal of the deduction of State Incentive Subsidy from the Cost of Plant & Machineries, as .....

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The Learned CITA however by placing reliance on the decision of the Hon ble Apex Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC) did not consider the revised return of income wherein the depreciation was claimed without subtracting the capital subsidy from the cost of the asset, among others. The Learned CITA treated the interest subsidy and Electricity Subsidy as a capital receipt and allowed the grounds of the assessee. The Learned CITA upheld the version of the Learned AO w .....

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clear in the foreword attached to the Scheme itself. In the Foreword, the Government of West Bengal stated that as there is strong need for fiscal support for the promotion of industry in the State Government decided to introduce the West Bengal Incentive Scheme, 2000 . Thereafter, it went on to divide the entire State into 3 (three) categories for the purpose of the incentives. Districts have been grouped as 'A' (Calcutta Municipal Corporation). B (Howrah. Hooghly, North 24- Parganas, .....

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of the unit, but to help in recovering the cost of the project. Had it not been so, the wording would have been different. This is more clear from the fact that the incentive are payable for a limited period but not over the entire period of the life of the industry. Moreover, these subsidies are recoverable by the Government of West Bengal in the case of the failure of the assessee company to comply with the terms and conditions attached with the gram or such subsidies. Under these circumstanc .....

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AO and specifically argued that the interest and electricity subsidy should be treated only as revenue receipts as it reduces the total expenditure of the assessee which in turn increases the profitability of the assessee. 8. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find that the Objects of the scheme could be understood from the foreword of West Bengal Incentive Scheme, 2000 issued by the Commerce & .....

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industry in the State, the State Govt. decided to introduce the West Bengal Incentive Scheme, 2000, with different and new features, quite attractive for industries in large, medium, small scale and tourism sectors. For the purpose of the incentives, districts have been grouped as A (Calcutta Municipal Corporation), B (Howrah, Hooghly, North 24 Parganas, South 24 Parganas, Burdwan, Nadia & Midnapore districts) and C (Murshidabad, Birbhum, Purulia, Bankura, Malda, Cooch Behar, North Dinajpur, .....

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he state and the incentive was given for setting up of industries in West Bengal and for the purpose of determining the amount of subsidy to be given, cost of eligible investment was taken as the basis, though it was not specifically intended to subsidise the cost of the capital. Under these circumstances, we are of the view that incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it falls outside the ken of Ex .....

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as to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existin .....

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Government recommended that five possible incentives for making a sugar plant economically viable could be provided for, viz., capital subsidy, larger percentage of free sale of sugar, higher levy sugar price, allowing rebate on excise duty and remission of purchase tax. Following that report, schemes were formulated giving the following benefits : (i) incentive subsidy available only in new units and to substantially expanded units ; (ii) minimum investment for new units and expansion of exist .....

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the assessee to set up new units or for substantial expansion of an existing unit. The subsidy received by the assessee was not in the course of a trade but was of a capital nature. 8.3. We also find that the Hon ble Calcutta High Court in the case of CIT vs Rasoi Ltd reported in (2011) 335 ITR 438 (Cal) had held as under:- If the object of a subsidy scheme is to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the as .....

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unt. Merely because the amount of subsidy was equivalent to 90 per cent. of the sales tax paid by the beneficiary that did not imply that it was in the form of refund of sales tax paid. The subsidy was a capital receipt. 8.4. It is not in dispute that the West Bengal Indsutrial Development Corporation Ltd had acknowledged the fact of assessee setting up a new unit for the production of Sponge Iron located at Village-Ikrah, P.O - Jamuria Hat, P.S.-Jamuria in the district of Burdwan covered under .....

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M/s Strassenburg Pharmaceuticals Ltd in ITA No. 1131 - 1133 /Kol/2009 dated 27.1.2011 wherein it was held that :- 6. We have heard both the parties, perused the material placed before us and the decision of the ITAT and also the decision of the Hon ble jurisdictional High Court cited supra. We find that the issue is covered by the aforesaid decisions cited supra and the Ld. CIT(A) following the said decisions treated the WBIPA receipt as a capital receipt and directed the Assessing Officer to de .....

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r as under : 6.3 I have duly considered the A.O s reliance placed on the judicial decisions and reasons for treating the WBIPA as a revenue receipt. The counter submissions made by the appellant have also been carefully examined and considered. The issue that is to be decided is whether the WBIPA receipt is a revenue or a capital receipt. The A.O placed reliance on the following case laws: Sahney Steel & Press Works Ltd. (1997) 228 hR 253 (SC) CIT Vs. Chindwara Fuels 245 ITR 9 (Cal) East Ind .....

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s been relying on the Hon ble Supreme Court decision in the case of Sahney Steel and Press Works Ltd.(supra). The Calcutta High Court in the case of CIT vs. Chindwara Fuels (supra) has followed the Apex Court decision. This decision has also been followed by Hon ble ITAT, Kolkata in the case of East India Pharmaceuticals Works Ltd. (supra). The A.O in his assessment order simply quoted the case laws and held that WBIPA receipt is a capital receipt. The A.O has not analysed the facts nor compared .....

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ue in nature. The Apex Court deeply examined the salient features of the scheme formulated by the Andhra Pradesh Government. It noticed the following conditions to be fulfilled for getting incentives: - Incentive is conditional upon commencement of production - Incentive is limited to 5 years from the date of commencement of production - Incentives are to be given by way of refund of Sales Tax and also subsidy as power consumed and other exemptions. After analyzing the above features, the Apex C .....

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191 ITR 518 (Cal) wherein the subsidy received by way of refund of Sales Tax levied on raw materials, machinery, finished goods etc. Thus these two judicial decisions are mainly based on two factors : First, subsidy for carrying on business (conditional), secondly the incentive by way of refund of Sales Tax etc. The facts of the present case are different and are very similar to the case laws relied on by the appellant especially cases decided by ITAT, Kolkata. In the present case the subsidy ca .....

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e thread bear distinguishing the Sahney Steel & Press works Ltd. case and held as a capital receipt. This decision has been followed in other cases dealt by Kolkata ITAT bench including the case of KIar Sehen P. Ltd. (supra) which was later upheld by the Kolkata High Court. It is very much relevant to reproduce the relevant extract from the ITAT ( - r in the case of Rasoi Ltd. Vs. DCIT in ITA No. 1080/Cal/98 dt. 18.5.01: 7. So far as the present case before us is concerned, the notification .....

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preamble to the Resolution that the scheme for allowing assistance to industries is to help them to tide over the financial crisis faced by the industries and for promotion of the industries themselves. The Scheme of the Govt. of West Bengal does not relate to new industries alone and rather allows benefit under the scheme to new as well as existing units pertaining to certain industries . The purpose of the Scheme is definitely to remote the specified industries and to help the units under suc .....

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poor financial conditions being faced by the industries. The scheme of the Govt. of West Bengal does not at all envisage giving any subsidy in respect of specific items of expenses like sales-tax, power, water etc. Hence, we are of the opinion that the facts of the present case not only differ greatly from those in the cases of either Kesoram Industries & Cotton Mills Ltd. or Sahney Steel & Press Works Ltd. As decided earlier, but the assistance, in the instant case, being unrelated to .....

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the sole purpose behind the grant of the assistance seems to be to tide over the financial crises and promotion of industries. Both these activities relate to capital field and cannot be considered to be linked up with the day to day operations of the assessee in any manner. Hence, we are of too view that the incentive received by the assessee, although dependent upon certain conditionalities, is actually gratuitous in nature and forms capital receipt in its hands. The incentive cannot again be .....

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d the order passed by the Tribunal. We have found that the Tribunal has extensively dealt with the matter including the facts, materials and evidence placed before the Tribunal or adjudication. We do not find any reason to interfere with the order so passed by the learned Tribunal nor the order so passed by he learned Tribunal suffers from any legal infirmity nor we find any substantial question of law is involved in the appeal. 6.4 Decision: The facts of the case and the issue involved in the p .....

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apital field and cannot be linked up with day to day operations of the appellant in any manner. Respectfully following the jurisdictional Kolkata ITAT and High Court decisions discussed earlier I treat WBIPA as a capital receipt and direct the A.O to delete the addition of ₹ 23,12,430/-. This ground of appeal of the revenue for all the three assessment years are dismissed. We also find that this decision of the tribunal has been duly approved by the Hon ble Calcutta High Court in G.A. No. .....

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Ltd , supra, wherein the Hon ble Apex Court observed that revised return though filed belatedly could be considered by the Appellate Authority and hence we hold that the assessee is entitled to make its claim by way of revised return. 8.7. With regard to the issue of claim of additional depreciation, we find that the lower authorities had clearly misunderstood the scheme of the Act and the purpose of giving the benefit of additional depreciation to the assessee. The provisions of section 32(1) ( .....

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r plant shall be allowed as deduction under clause (ii) : 35[Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) f .....

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was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business o .....

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