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Pr. Commissioner of Income Tax-Central, Jaipur (Raj.) Versus M/s. Deepak Vegpro Pvt. Ltd.

2018 (1) TMI 515 - RAJASTHAN HIGH COURT

Addition on account of disallowance of claim of VAT reimbursement - character of the subsidy in the hands of the assessee - nature of income - Revenue or capital receipt - Held that:- Any subsidy given by the Central Government or a State Government or any authority etc. for any purpose, except where it is taken into account for determination of the actual cost of the asset under Explanation 10 section 43(1), has become chargeable to tax. Even if a subsidy is given to attract industrial investme .....

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discussions and in the entirety of the facts and circumstances of the case, VAT subsidy received by the assessee from the Government of Bihar is a capital receipt and accordingly not chargeable to tax - Decided in favour of assessee. - D. B. Income Tax Appeal No. 300 -301 / 2017 - Dated:- 2-1-2018 - K. S. Jhaveri And Vijay Kumar Vyas, JJ. For the Appellant : Mr. Siddarth Bapna for Mr. Anil Mehta For the Respondent : Mr. Sanjay Jhanwar with Ms. Archana Mr. Amol Vyas JUDGMENT 1. In both these appe .....

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TAT is justified deleting the addition of ₹ 5,40,69,558/- made by the AO on accout of disallowance of claim of VAT reimbursement. In appeal No.301/2017 (I) Whether on the facts and in the circumstances of the case the learned ITAT is justified deleting the addition of ₹ 3,24,17,009/- made by the AO on account of disallowance of claim of VAT reimbursement. 4. Counsel for the appellant has taken us through the judgment of the Tribunal and contended that the Tribunal has seriously commi .....

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case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee .....

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subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the c .....

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t the character of the receipt in the hands 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 has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form 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 for repayment of loans taken by the assesse .....

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bsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. 15. In the decision of House of Lords in the case of Seaham Harbour Dock Co. v. Crook (1931) 16 TC 333 the Harbour Dock Co. had applied for grants from the Unemployment Grants Committee from funds appropriated by Parliament. The said grants were paid as the work progressed the payments were made several times for some years. The Dock Co. had .....

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form of a grant was made by the Government with the object that by its use men might be kept in employment and, therefore, its receipt was capital in nature. The importance of the judgment lies in the fact that the company had applied for financial assistance to the Unemployment Grants Committee. The Committee gave financial assistance from time to time as the work progressed and the payments were equivalent to half the interest for two years on approved expenditure met out of loans. Even though .....

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ccount but since the purpose of the payment was to curtail/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature. 16. One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. (supra) this Court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. (supra) assessee .....

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tives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment generation to achieve a social object. Such incentives, design .....

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y notifications issued in this behalf, to the Appellants-assesses, cannot be construed as mere Production and Trade Incentives, as held by the Tribunal. 28. Making of additional provision in the Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the .....

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demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30. For all what has been said above, the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence Revenue Receip .....

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Hon ble Supreme Court in case of Ponni Sugar and Chemical Ltd, the character of the subsidy in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is not relevant. The source is immaterial. The form or the mechanism through which the subsidy is given is immaterial. If the object of the subsidy scheme was to enable the assessee to run business more profitably, then the receipt is on revenue account. On .....

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har and to create favorable environment to attract the investors of state and from abroad. The thrust of the policy was growth in the per capita income of the state and industrial growth as well as accelerated employment opportunities. Under this Industrial Incentive Policies-2006, there are provisions for granting pre-production incentive of subsidy/exemption from stamp duty and registration fee and post production incentive of grant/exemption for preparation of project reports, purchase of lan .....

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% of the capital employed. Applying the purpose test, the objective and the purpose of providing the VAT subsidy (to the extent of 300% of capital employed) is clearly related to encouraging setting up of the new units which commences production within five years from 1.4.2006 and to generate fresh employment opportunities in the state. It is noted that even the ld CIT(A) has given a similar finding where he states that the purpose of the industrial incentive scheme is to encourage all round dev .....

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y starts production. From a monitoring and implementation stand point, it is essential that subsidy is provided to genuine industries setting up new units, making capital investment, building infrastructure, actually commences production and generate employment opportunities in the state of Bihar. To this effect, the quantum of subsidy is linked to capital invested and also the disbursement thereof is linked to VAT which is collected and deposited on goods actually produced and sold. By its very .....

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ordinate Bench in case of Harinagar Sugar Mills (supra) while examining the reimbursement of VAT on molasses under the Bihar Incentive Package 2006. 5.19 Further, we have noticed that the Finance Act, 2015 w.e.f. 1-4- 2016, has enlarged the definition of income given u/s 2(24) by inserting sub-clause (xviii), which reads as under:- (xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Cent .....

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