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TMI Blog2018 (4) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... -96 3. The only effective ground raised by the assessee reads as under:- "On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in treating the sales tax exemption availed of Rs. 1,14,51,012, from the State Government for setting up industry in the notified area as operational subsidy instead of capital receipt and the learned Commissioner (Appeals) has erred in confirming the order of the Assessing Officer. The Assessing Officer be directed to treat the sales tax subsidy of Rs. 1,14,51,012 as capital and to 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 modernizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the quantity or goods manufactured in excess of the production. On comparison of the U.P. Government scheme and Maharashtra Government scheme the Assessing Officer found that incentive declared under the U.P. Government scheme are production incentives and is an assistance to the assessee to enable it to run the business more profitable. Thus, he concluded that the sales tax incentive granted under the U.P. Government scheme being operational subsidy has to be treated as revenue receipt. Accordingly, he distinguished the Special Bench decision of the 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not only for encouraging industrialization in the backward areas of the State but also enabling the industries to expand, modernize and diversify the existing unit with the receipt of subsidy. Further, he relied upon the decision of the Hon'ble Supreme Court in CIT v/s Chaphalkar Brothers, [2018] 400 ITR 279, wherein the Hon'ble Supreme Court has held that if the object of granting subsidy was for attracting setting-up of industry then it is to be treated as capital in nature. In support of his contention, the learned Sr. Counsel also 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 submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's claim that the sales tax incentive is capital in nature cannot be allowed. 8. We have heard rival submissions and perused material on record. We have also applied our mind carefully to the decisions placed before us. It is evident, assessee's claim that the sales tax subsidy received by it is a capital receipt has been rejected by the Departmental Authorities on the ground that sales tax subsidy granted by the U.P. government being intended for assessee's business and its profitability is an operational subsidy, hence, is a revenue 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 quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy was granted. Perusal of the scheme of U.P. Government issued vide notification dated 27th July 1991, a copy of which is at Page-217 of the paper book, it is seen that for promoting development of certain areas of the State as specified in the said notification the Government thought it appropriate to grant exemption from payment of sales tax to new units as well as existing units which have undertaken expansion, diversification or modernization by making investment in fixed capital exceeding Rs. 50 crore. The said notification further 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orward and construct multiplex theaters which are highly capital intensive industries. It is relevant to note, while coming to such conclusion, the Hon'ble Court relied upon its own decision in case of Ponni Sugars (supra). Keeping in perspective the principle laid down by the Hon'ble Supreme Court in case referred to above, if we examine the U.P. Government subsidy scheme under which the assessee has received the sales tax incentive it is to be noted that the purpose of the subsidy scheme is to attract people to invest 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed material on record. As could be seen, 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. However, the learned 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation. 29. In ground no.3, the assessee has challenged the disallowance of expenditure incurred of Rs. 1,08,06,154, for allowing transmission line and construction of access road in factory premises at Vizag. 30. Brief facts are, in the appeal for the impugned assessment year arising out of original assessment order, the assessee raised an additional ground on the issue of allowability of expenditure incurred on laying of 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 Rs. 59,24,250. Being aggrieved of the computation of depreciation made by the Assessing Officer, the assessee preferred appeal before the first a ..... 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