TMI Blog2018 (4) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee being a capital receipt is not taxable. This ground is allowed. Disallowance of depreciation on payment made to MSEB for allowing 132KV electric transmission line - Held that:- Initially assessee had claimed expenditure incurred towards payment made to MSEB as revenue expenditure which was disallowed by the Assessing Officer holding it as capital expenditure Commissioner (Appeals) allowed the claim of the assessee. While deciding Revenue’s appeal against the order of the learned Commissioner (Appeals), the Tribunal restored the order of the Assessing Officer on the issue. The learned Commissioner (Appeals) has rejected assessee’s claim of depreciation simply on the reasoning that Tribunal has not issued any such direction. In our view, there is no necessity of Tribunal in directing the Assessing Officer to allow depreciation. Once a particular expenditure is held as capital, consequential benefits attached to such expenditure should automatically follow. That being the case, we direct the Assessing Officer to consider assessee’s claim of depreciation on the payments made to MSEB. Grant of interest under section 244A - Held that:- We find that the learned Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce the total income of the appellant accordingly? 4. Brief facts relating to this issue are, the assessee had set up an unit viz. Hightech Carbon at Nurdava Industrial Area, Renukoot, District Sonbhadra, U.P. The Government of U.P. vide notification dated 27th July 1991, promised sales tax incentives / exemption to new units and as well as to units which have undertaken expansion, diversification or modernization by making fresh investment in fixed capital in certain areas of U.P. as notified in the notification. Since, the assessee made additional investment in fixed capital for expansion, diversification or modernization of the existing unit, the State Government in terms of the promise made in the notification referred to above, allowed sales tax exemption to the assessee to the extent provided in the said notification. In the return of income filed for the impugned assessment year, the assessee had treated the sales tax incentive as revenue receipt and offered it to tax. The assessment in case of the assessee was completed vide order dated 27th March 1998, after making various additions / disallowance. The assessee challenged the assessment order so passed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal rendered in DCIT v/s Reliance Industries Ltd., (88 ITD 273), which was relied upon by the assessee. Being aggrieved of the aforesaid decision of the Assessing Officer assessee preferred appeal before the first appellate authority. 5. The learned Commissioner (Appeals) after considering the submissions of the assessee, however, upheld the view of the Assessing Officer. 6. Shri J.D. Mistry, learned Sr. Counsel, appearing for the assessee submitted that the Departmental Authorities have completely misconceived the facts and misinterpreted the U.P. Government sales tax incentive scheme while coming to the conclusion that the subsidy / incentive granted under the said scheme is for enabling the assessee to make its business more profitable. The learned Sr. Counsel taking us through the sales tax incentive scheme of the U.P. Government under which the assessee received sales tax incentive / subsidy submitted that the incentive scheme is not applicable generally to the industries set up in the state but is applicable to industries set up in certain backward areas of the State. He submitted, the conditions imposed under the U.P. incentive scheme required the industries to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon a number of other decisions as well. 7. The learned Departmental Representative submitted, the assessee while claiming the sales tax subsidy received as capital in nature has relied upon the decision of the Tribunal, Mumbai Special Bench, in Reliance Industries Ltd. (supra). It is submitted, the Special Bench decision in case of CIT v/s Reliance Industries Ltd., wherein, the sales tax subsidy was held as capital in nature was contested by the Department before the Hon ble High Court and the Hon ble High Court held that as the object of the subsidy was to set up a new unit in a backward area it is capital in nature. It is submitted, the decision of the Hon'ble Jurisdictional High Court was challenged before the Hon'ble Supreme Court by the Department and the Hon'ble Supreme Court has set aside the decision of the Hon'ble Jurisdictional High Court with a direction to re adjudicate the issue regarding the nature of subsidy. The learned Departmental Representative submitted, as per the decision of the Hon'ble Supreme Court in U.P. Rashtriya Chini Mill Sahakari Parishad, AIR 1995 SC 2148, if any judgment is set aside or its correctness is doubted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt. The elaborate reasoning on which the learned Commissioner (Appeals) has held the sales tax subsidy received by assessee to be of revenue nature is contained in his order passed in assessment year 1998 99 which is also under appeal before us. As could be seen from the reading of the said order of the learned Commissioner (Appeals), after examining the sales tax subsidy scheme of the U.P. government, the learned Commissioner (Appeals) was of the view that the primary purpose of the scheme was to give incentive to industrial units to increase production of goods in the existing unit in notified Districts. He further observed that the quantification of incentive is linked to production of goods, turnover of sale of goods and the maximum exemption was limited to certain percentage of fixed capital investment. He observed, as per the U.P. Government scheme the benefit of sales tax exemption was availed by the assessee at source of purchase and sale under the notification issued by the U.P. Government Central Sales Tax Act. The learned Commissioner (Appeals) comparing the incentive scheme of U.P. Government with that of Maharashtra Government observed that while the benefit under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther provided that the sales tax exemption / incentive will be allowed to a small scale unit at 150% of the fixed capital investment and in case of other unit @ 125% of the fixed capital investment. However, in case of certain areas including the area where the assessee s unit is located, the sales tax incentive allowable for the total period of exemption will not exceed 125% of the fixed capital investment in the case of small scale industries and 100% of the fixed capital investment in case of other units. Thus, on a careful reading of the subsidy scheme the following facts emerge: i) The subsidy scheme is not applicable to the entire State but is applicable to certain areas as notified in the said notification; ii) The incentive is allowable to a new unit or an existing unit which has made additional fixed capital investment exceeding ₹ 50 crore; and iii) The exemption allowable is related to the fixed capital investment. 9. Undisputedly, the high-tech carbon unit of the assessee is situated in the District of Sonbhadra which is a notified area under the subsidy scheme. Further, as per the eligibility certificate issued by the director of Industries, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvest and take part in industrialization of certain areas in the State. The subsidy scheme nowhere states that it is for the benefit of generating product purchase from the town / district of U.P. As held by the Hon'ble Supreme Court in case of Ponni Sugars (supra), if the object scheme was to enable the assessee to set up a new unit or to expand the unit then the receipt of subsidy was on capital account. The same is the case with the assessee as the U.P. Government subsidy scheme was for enabling the assessee to expand / modernize its existing unit. Therefore, the ratio laid down by the Hon'ble Supreme Court in Ponni Sugars (supra) will squarely apply to assessee s case. In view of the aforesaid, we hold that the sales tax subsidy received by the assessee being a capital receipt is not taxable. This ground is allowed. 10. In the result, assessee s appeal is allowed. ITA no.2197/Mum./2014 11. Ground no.1 relates to assessee s claim of sales tax subsidy as capital receipt. 12. This ground is identical to ground raised in ITA no.3938/Mum./ 2013. In view of our decision in Para 8 and 9 of this order, we allow assessee s claim. This ground is allowed. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) has rejected assessee s claim of depreciation simply on the reasoning that Tribunal has not issued any such direction. In our view, there is no necessity of Tribunal in directing the Assessing Officer to allow depreciation. Once a particular expenditure is held as capital, consequential benefits attached to such expenditure should automatically follow. That being the case, we direct the Assessing Officer to consider assessee s claim of depreciation on the payments made to MSEB. 18. In the result, assessee s appeal is partly allowed. ITA no.2198/Mum./2014 Assessee s Appeal 19. Ground no.1 is identical to ground no.1 of ITA no.3938/Mum./ 2013. Following our decision in Para 8 and 9 of this order, we allow the ground raised. 20. Ground no.2 is identical to ground no.2 of ITA no.2197/Mum./ 2014. In view of our decision in Para 17 of this order, we direct the Assessing Officer to consider assessee s claim of depreciation. 21. In ground no.3, the assessee has raised the issue of grant of interest under section 244A of the Act. 22. The learned Sr. Counsel submitted, on the original assessment, the Assessing Officer had granted interest of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transmission line and construction of access road at Vizag factory and an alternative claim was also made by the assessee that in the event the expenditure is held as capital in nature, depreciation should be allowed. The Tribunal having found that while deciding similar issue in assessment year 1995 96, the Tribunal has held the expenditure incurred as capital in nature, restore the issue of allowability of depreciation to the Assessing Officer. Following the same Tribunal restored the issue to the Assessing Officer. While giving effect to the direction of the Tribunal, the Assessing Officer allowed depreciation of ₹ 59,24,250. Being aggrieved of the computation of depreciation made by the Assessing Officer, the assessee preferred appeal before the first appellate authority. 31. The learned Commissioner (Appeals) after examining the facts on record found that the assessee while giving effect to the direction of the Tribunal has not examined the admissibility of deprecation in respect of capital expenditure of ₹ 1,19,94,984 as directed by the Tribunal. Therefore, the learned Commissioner (Appeals) directed the Assessing Officer to examine the issue in terms of Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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