9911796707
TMI Blog2002 (9) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... st the Revenue in two decisions of this court as also in the decision of the Calcutta High Court in the case of CIT v. Balarampur Chini Mills Ltd. [1999] 238 ITR 445, decided on March 30, 1999. The two decisions of this court relied on by counsel were rendered in T.C. Nos. 777 and 778 of 1995, decided on September 11, 2001, and T.C. Nos. 582 and 583 of 1995, decided on October 15, 2001. The scheme under consideration here is one for providing for incentives to new sugar factories licensed during the sixth five year plan period and expansion of existing units. That scheme is a revised scheme which had been preceded by the scheme of 1980 and which scheme in turn had been framed with the object of augmenting indigenous sugar production and to provide incentives to new sugar factories and expansion projects. In the scheme formulated in the year 1980, which offers incentives which are similar to that in the revised scheme of the year 1987 except for the difference in the amount of capital invested and number of years for which the incentives are to be enjoyed, it is stated that the scheme is meant for ensuring that the new factories and expansion projects should, over a period of a sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. A certificate from a chartered accountant or a cost accountant was required to be produced in respect of each sugar season to show that the monies had been so utilised. Failure to submit such certificates would result in penalties being imposed by way of termination of release of incentive free sale quota and also recovery of the incentive free sale release already made by resorting to adjustment from the free sale releases of future years. The judgment of the Calcutta High Court in CIT v. Balarampur Chini Mills Ltd. [1999] 238 ITR 445 interpreting the scheme of the year 1980, wherein it was held that the amount of the incentive so accrued to the mill did not constitute a trading receipt, but was a revenue receipt, has apparently been accepted by the Revenue. It is apparently on the basis of that judgment that counsel had made submissions before this court in the decisions of this court referred to earlier but by referring to the decision rendered by the Supreme Court in the case of K.C.P. Limited v. CIT [2000] 245 ITR 421, wherein it had, inter alia, been observed that in a case where the receipt of the amount by the assessee was clearly associated with a liability to refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, was wholly intended to meet the capital cost incurred by the assessee in setting up the unit. The intention of the Government was not to provide the assessee with additional disposable sums to be disposed of in the manner of its liking after the commencement of production but to place in the hands of the assessee the means to meet a part of the capital cost, which the assessee had been enabled to meet by securing loans from the public financial institutions. The nature of the receipt of the incentive, therefore, has to be examined in the light of that object. Law has to keep up with the newer devices and methods adopted in the world of business as also in the several schemes that policy makers draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the scheme for discharging such loans, it cannot be said that the incentive given being post product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see which had received the subsidy to apply that amount for a specific purpose, or, within any specified time frame, held that the monies which the assessee had received therein was for the purpose of operating the business or running the same and was not a receipt which could be regarded as falling within the capital field. After considering the scheme before it, the court noted that the scheme was not to make any payment directly or indirectly for the setting up of the industries. The court clearly recognised the possibility of the payments being made not directly but indirectly for the setting up of the industries. As the payments in that case had been made post-production and were in no way linked to the steps that had been taken by the assessee therein in setting up the industry, it was observed that the incentives had been given only after production had commenced. Such receipts were held to be taxable. In the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 the apex court held that interest received by an assessee from the borrowed funds invested in short-term deposits in the bank, at a time when the factory was in the process of being set up and production had not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Government in the form of higher free sale quota of sugar and the excise duty are concerned is in favour of the assessee. In so far as the subsidy linked to the purchase tax extended by the State Government is concerned the answer is in favour of the Revenue and against the assessee. Coming to the first question, section 37(4) of the Income-tax Act, as it stood in the relevant assessment year, reads thus: "(4) Notwithstanding anything contained in sub-section (1) or subsection (3),-- (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest house (such residential accommodation being hereafter in this sub-section referred to as 'guest house'), (ii) in relation to the assessment year commencing on the first day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest house or depreciation of any assets in a guest house." Clause (ii) under sub-section (4) is unambiguous and does not admit of any doubt. It clearly denies to the assessee any depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1970, till April 1, 1998, in clause (ii) provides that in relation to the assessment year commencing on the first day of April, 1971, or any subsequent year, "...no allowance shall be made in respect of the depreciation of any building used as a guest house or depreciation of any assets in a guest house, provided..." Section 37(1) allows expenditure laid out wholly and exclusively for the purpose of the business or profession, if such expenditure is not personal expenses of the assessee, is not an expenditure of a capital nature, and is not expenditure of the nature described in sections 30 to 36. A claim for depreciation cannot, therefore, be made under section 37(1). Sub-section (4) of section 37 overrides sub-section (1) of section 37 as also sub-section (3) thereof. The object of overriding section 37(1), inter alia, is to make known the legislative intention of dealing in section 37(4) with the topic of depreciation which had been dealt with in section 32 and which section along with other sections 30 to 36 had been excluded from the scope of section 37(1). The absence of any reference to section 32 in section 37(4), therefore, does not imply that the prohibition against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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