TMI Blog2011 (1) TMI 1501X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the Assessing Officer to delete the addition. Aggrieved by the said order, now the revenue is in appeals. HELD THAT:- I am of the opinion that the assistance given by way of sales tax remission is in the nature of capital receipt. Accordingly, I direct the A.O. to delete the addition. In this view of the matter and in the absence of any contrary material brought on record by the revenue at the time of hearing before us, we do not find any infirmity in the order of the Ld. CIT(A) and the same is hereby upheld. Therefore, the appeals of revenue for all the years are dismissed. - Sri D. K. Tyagi, JM, And, Sri C. D. Rao , AM For the Appellant : Sri R. Mukherjee For the Respondent : Sri S. P. Choudhury D. K. Sonowal ORDER Per Shri C. D. Rao, AM All these appeals preferred by the Revenue are directed against the separate orders of the Ld. CIT(A), Kolkata for the assessment years 2003-04, 2006-07 and 2007-08 respectively. Since grounds are common and facts are identical, we dispose of all the appeals by this consolidated order for the sake of convenience. 2. In all these appeals the only issue is relating to the deletion of addition on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention for treating such amount as capital receipts does not withstand the test of law. The assessee has received such assistance from the Govt. not for any capital expansion or creation of new asset or setting up any new project. The assistance has been received from the Govt. of West Bengal as per the directive of High Court to overcome the financial crisis which it was undergoing. The Assessee may have purchased new assets or expanded its capacity on its own however that has no relation with the Soles Tax Deferment Scheme as granted by the Govt. and as such the assessee s contention for treating such sum as capital receipts falls flat and such amount is treated as revenue receipts only. This is supported by the Apex Court s decision in Sahney Steel Press Works Ltd. vs. CIT - 228 ITR 253 (SC) wherein it was held that Income-Capital or revenue receipt-Subsidy-Subsidy from public funds granted by Government by way of refund of Sales Tax etc. on purchase of machinery etc. after commencement of production to enable the assessee to run the business more profitably, and not for setting up of the industry, is operational subsidy and hence, a revenue receipt what is materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreneur year by year-Transport subsidy in the instant case went to make up profits and gains of assessee in so far as it recoups the expenditure or transport-Scheme is available not only to a new unit but also to existing units-Scheme is related not only to transport charges but indirectly also to consumption of raw material and ultimate output of final product-Mode of measuring does not decide the character of what is measured-Further, transport subsidies were inseparably connected with assessee s business-Assessee has a unit in backward area and the transport expenditure is an incidental expenditure which the subsidy recoups-Subsidy, therefore, a revenue receipts. C. Commissioner of Income Tax v. Tirumala Bricks Tiles Factory High Court of Andhra Pradesh-(1996) 131 CTR (AP) 211 [1996) 217 ITR 547 (AP) : (1996) 85 TAXMAN 143. Income-Capital or revenue receipt-Investment subsidy granted by Govt. for setting up/expansion of plant in backward area to be qualified at a percentage of fixed capital is capital receipt-The fact that the amount of subsidy would be disbursed on proof of relevant expenditure incurred/taxes paid does not indicate that the amount paid as subsidy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up or expanding an existing project is a capital receipt. In Sahney Steel s case, the Hon ble court treated the subsidy granted to the assessee as operational subsidy, which was given long after the commencement of production, and held it to be a revenue receipt. The principle laid down in this case was applied by the Hon ble apex court in the case of Ponni Sugar and Chemicals Ltd. The importance of the judgment of this Court in Sahney Steel case lies in the fact the it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the bands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one bas to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The from of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized repayment of loans taken by the assessee to set up new units or for substantial expansion of exiting units. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of the Notification No. 580- CI/H dt.22.06.1999 issued by Govt. of West Bengal an incentive scheme called The West Bengal Incentive Scheme, 1999 was introduced, the assessee company applied for registration and grant of benefits under the said scheme in the year 2003 to expand its installed capacity by way of additions to plant and machinery, land and building, and also for repayment of loans. (Paragraph 10 of the said scheme dealt with incentive in the form of the Sales Tax deferment/remission on sale of finished goods from 7 to 13 years.) On being refused by the State Government authorities, the assessee moved both the BIFR and the Hon ble Calcutta High Court. While disposing off the writ petition filed by the assesse, the Hon ble Calcutta High Court, in an order dt. 29.07.2004, directed that the petitioner, viz. the assessee company, should be treated as a pipeline case and all consequential benefits under West Bengal Incentive Scheme, 1999, should be granted to this unit. Accordingly, the Govt, of West Bengal complied with the directions of the Hon ble High Court and granted registration to the assessee company with effect from 31.03.2001 under The West Bangal Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated in the case of Sahney Steel Press Works Ltd. It would be evident from what has been stated in the preceding paragraphs that the principles laid down in Sahney Steel s case were not correctly applied these principles and came to the conclusion that the subsidy received by the assessee was a capital receipt. The Assessing officer also relied on the decision of the Hon ble Calcutta High Court in the case of merino Ply and Chemicals Ltd. vs. CIT (209 ITR 508), in which transport subsidy received from the State Government was recurrent recoupment of profit insufficiency In the present case, no subsidy was received for recoupment of profit insufficiency. The ratio of this judgment is not at all applicable in the assessee s case. The Assessing Officer also relied on the judgment of the Hon ble Andhra Pradesh High Court in the case of CIT vs. Tirumala Bricks and Tiles Factory (217 ITR 547), in which investment subsidy granted by the government for up/expansion of a plant in backward area to be quantified at a percentage of fixed capital, was treated as capital receipt. This decision is more in favour of the present than against it. 5. Before the Ld. CIT(A)-XII, Kolkata, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated that the deferred sales tax of ₹ 1,04,69,000/- exclusively relate to the year under appeal, as against which the assesee company had deposited in the Govt. treasury only a sum of ₹ 43,00,000/-. By stating the sales tax to be trading receipt, the Assessing Officer observed that the unpaid sum of ₹ 61,69,000/- was not included in the income of the assesee and the same was not allowable under section 43B of the said Act and added the said sum of ₹ 61,69,000/- to the income of the assessee as revenue receipt. The Ld. CIT(A) has deleted the addition by observing as under : I have duly considered the A.O. s reliance placed on the judicial decisions and reasons for treating the said subsidy as a revenue receipt. The counter submissions made by the appellant have also been carefully examined and considered. I have also persued the relevant documents related to the Subsidy Scheme. The issue that is to be decided is whether the subsidy is a revenue or a capital receipt. The AO has relied upon the following case laws: Sawhney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) CIT v. Ponni Sugars and Chemicals Ltd. (2003) 260 ITR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of CIT Vs. Ponni Sugars Chemicals Ltd. The Apex Court held as follows : 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 assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit or to make the repayment of loans taken by the assessee to set up new units/ substantial expansion of an existing unit, then the receipt of the subsidy would be on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive/subsidy. The form of mechanism through which the subsidy is given are irrelevant. In the present case, the subsidy in the form of remission of sales tax was given to the appellant subject to the condition that the entire amount of remission shall be utilized by the appellant for the purpose of making fixed capital investment and to repay loans. Accordingly, the appellant has expanded its installed capacity of SSP SA from 1,32,000 TPA and 49,500 TPA to 1,65,000 TPA and 66,000 TPA respectively in 2003- 04. The appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and 1998-99 respectively and further expanded its installed capacity of SSP and SA to 1,65,000 and 66,000 TPA in 2003-04. - That the remission of sales tax was granted subject to the condition that the entire amount of remission shall be utilized by it for the purpose of making fixed capital investment and to repay loans. - That the appellant has utilized the said remission by way of making additions to Land Building , Plant Machinery and other fixed assets, and has also repaid loans. In his order, the AO has also invoked the provision of section 43B of the I. T. Act, wherein he observed as under: In view of the above the amount is treated as revenue receipt only. Even otherwise the sales tax collected by the assessee has not been paid within the due date of filing of return and hence as per the provision of section 43B the amount needs to be added back to the income of the assessee. On the other hand, the appellant company contended that the provision of section 43B of the said Act has no application in the instant case, since no portion of the sales tax was debited by it to its Profit Loss Account and/or claimed by it as a deductible bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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