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TMI Blog2015 (6) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Subsidy received by the assessee is revenue in nature and dismissed the appeals of the assessee. 4. The assessees preferred appeals before Hon'ble Punjab & Haryana High Court in all the matters and Hon'ble High Court decided the appeals vide order dated 18.12.2014 in the light of order in the Income Tax Appeal No. 146 of 2014 dated 18.12.2014 decided in the case of M/s Vardhman Acrylics Ltd. Vs CIT, Ludhiana & others. The order of the Hon'ble High Court alongwith decision in the case of M/s Vardhman Acrylics Ltd. (supra) were forwarded to the Tribunal to adjudicate the nature and purpose of the Sales Tax Subsidy and the matters were remanded to the Tribunal accordingly. The office fixed all the above appeals as per directions of the Hon'ble Punjab & Haryana High Court. 5. We have heard ld. Representatives of both the parties, perused the material on record in the light of the directions of the Hon'ble Punjab & Haryana High Court. 6. It may be noted here that while passing the orders in the appeals of the present assessees, Hon'ble High Court took the same view as was taken in the case of M/s Vardhman Acrylics Ltd. Vs CIT of even dated 18.12.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessees is situated in State of West Bengal and therefore, filed copy of the West Bengal Incentive Scheme, 1999 and submitted that this scheme is applicable in the case of the assessee, copy of the same is also supplied to the ld. DR. It is, therefore, admitted facts that the West Bengal Incentive Scheme, 1999 is applicable in the case of assessee which shall have to be considered while considering the issue of Sales Tax Subsidy under consideration in controversy. It is also admitted facts that same scheme is applicable in all the remaining appeals. Both the parties mainly argued in ITA 744 of 2006 and stated that the issue is same in the remaining appeals and order in that case may be followed in other cases in assessment year in appeals. 8. In the background of these facts, now we proceed to decide the issue whether Sales Tax Subsidy received by the assessee is a capital or revenue receipt in the hands of the assessee and the issue shall have to be considered in the light of the directions given by the Hon'ble Punjab & Haryana High Court after taking into consideration the judgement of the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra). 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or establishment of the aforesaid project within the prescribed period. 10. The ld. counsel for the assessee submitted that project was set up within the time period and assessees started commercial production on 13.05.2000. The ld. counsel for the assessee submitted that the above scheme is for setting up and promotion of the industry and negative list is maintained that some other industry shall not get benefit in the same Scheme. Running and setting up of industry is necessary so that fake industry do not take undue benefit and eligible industry is entitled for subsidy which will reduce cost of the asset by repaying the loans. The ld. counsel for the assessee submitted that the case of the assessee thus, squarely fall within the parameters of judgement of Hon'ble Supreme Court in the case of CIT Vs Ponni Sugars & Chemicals Ltd. (supra) in which it was held as under : The character of the receipt of a subsidy in the hands of the assesses, under a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immateria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT Vs Rasoi Ltd. 375 ITR 438 in which it was held as under : "If the object of a subsidy scheme is to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set-up a new unit or to expand the existing unit, the receipt of the subsidy is on capital account. It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure. Held, dismissing the appeal , that the object of the subsidy was the expansion of business capacities, modernization, and improving marketing capabilities and thus, those were for assistance on capital account. Merely because the amount of subsidy was equivalent to 90 per cent, of the sales tax paid by the beneficiary that did not imply that it was in the form of refund of sales tax paid. The subsidy was a capital receipt." 13. He has relied upon decision of the Hon'ble Supreme Court in the case of Mepco Industries Ltd. Vs CIT 319 ITR 208, on the proposition that, "The nature of the subsidies in each of the three cases is separate and distinct. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch would be sanctioned as prescribed under rule 6.1. However, in case of Export oriented units in Large & Medium Sector the quantum of investment incentive shall be as per rule 6.1(b)." Further the assessee is admittedly a registered small scale industry and was registered as export oriented unit on 8.6.1999 which becomes clear from the certificate of registration placed at page 871 of paper book. Page 878 gives list of machinery installed by the assessee. Thus it becomes clear that subsidy was provided to the export oriented unit under which category the assessee became eligible and subsidy was for installation of plant & Machinery which has been installed by the assessee, 14 Though recently we have held in case of Vardhman Acrylics Ltd (supra) where the assessee has received sales tax subsidy from the Government of Gujarat that same is in the nature of Revenue subsidy but that decision is distinguishable because firstly nature of the subsidy defined as capital subsidy which was granted against the installation of plant & Machinery. In case of Vardhman Acrylics Ltd (supra) the nature of subsidy was sales fax subsidy which is payable from year lo year by way of exemption from sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Government of Punjab is in nature of capital receipt." 15. The ld. counsel for the assessee also relied upon order of ITAT Calcutta Bench in the case of JCIT Vs M/s Keventer Agro Ltd. in ITA No. 1663/2011, 1664/2011 and 1665/2011 dated 30.06.2014 in which the Tribunal considered the same sales tax subsidy given under West Bengal Incentive Scheme, 1993 and 1999 and decided the issue against the revenue. The findings of the Tribunal in para 26 reads as under : "26. We have heard rival submissions and gone through facts and circumstances of the case. We find that the CTT(A) has considered the legal aspect as to whether the sales tax remission was a revenue or capital receipt in the hands of the assessee. He found that the sales tax remission given under West Bengal Incentive Scheme 1993 and 1999 was not for assisting the assessee in carrying out its business operation but incurred the promotion of industries in the State of West Bengal and consequently, following the decision of Hon'ble Supreme Court in the case of Sahaney Steel & Press Works Ltd. Vs. CIT 228 1TR 253 holding the sales tax remission as capital receipt. Ld. counsel also drew our attention to the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in Section 2(24), all subsidies received by the industries are taxable, though it is affected w.e.f. assessment year 2016-17. The ld. DR referred to the letters of West Bengal Industrial Development Corporation Ltd. referred to by ld. counsel for the assessee and submitted that concession/exemption is given from start of the production. Therefore, it is directly related to augmentation of profit earned by assessee and production is necessary which should be considered as revenue in nature. 18. The ld. DR relied upon decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. Vs CIT 228 ITR 253 as was considered in the case of Ponni Sugars & Chemicals Ltd. (supra). The ld. DR also relied upon decision of the Hon'ble Supreme Court in the case of CIT Vs Raja Ram Maize Products 251 ITR 427 in which it was held that, "Power SubsidySubsidy went towards reduction of the subsidy bill, it was revenue nature liable to tax." 19. The ld. DR also relied upon decision of the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. Vs CIT 87 ITR 542 in which it was held that, "Sales Tax collected from buyers - Not paid to State or owners of goods n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt installed for the pollution control measures of the approved project under the scheme. The Explanation also provides how the fixed capital investment shall be calculated. The applicability of 1999 Scheme shall be applicable to all large, medium cottage and small scale project units to be set up and also expansion project of the existing units on or after 01.01.1999. The eligibility criteria for incentive under the 1999 Scheme provides that industrial project to which the scheme applies, shall be eligible for securing eligibility certificate provided ; a) The Project is covered by a detailed feasibility report/project report prepared for the purpose; b) The Project has been approved and sanctioned by the Central Financial Institution or Commercial Banks or State Financial Institutions, as the case may be. In the case of Projects with arrangement of finance from own resources, issue of eligibility certificate shall be considered provided the WBIDC is satisfied about the arrangement of such finance. 22. It further provides that any industrial unit in the small scale sector shall be eligible for incentives under this scheme subject to the fulfillment of the condition that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive benefits being Developed Area. Subsidy received by assessee for Area-B Unit may be backward area. Therefore, subsidy would link to capital only. As per certificate of registration under West Bengal Incentive Scheme, 1999 issued by Directorate of Industries, Govt. of West Bengal in the case of the assessee, the unit of the assessee is located in District Hooghly which falls in group 'B' and is a new unit. This certificate has terms and conditions. No. 9 is relevant which reads, "The unit is eligible to get remission of sales tax on sale of finished goods and exemption of sales tax on purchase of raw material for a period of 12 years in the scale of 100% on the fixed capital investment without any cap." Thus, the assessee would be eligible for sales tax deferment/remission on sale of finished goods etc. as per the scheme. The assessee also filed letter from Commerce & Industries Department dated 31.12.1998 who have considered the case of assessee through High Powered Committee and assessee has been granted sales tax incentives in the scale of 100% of fixed capital investment for 12 years on sale of finished goods and on purchase of raw material without any cap. The West Bengal In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has been allowed remission of sales tax for 12 years upto 100% of gross fixed capital investment/asset of the approved project. The incentive scheme was available for location of the unit. No incentive is available to units located in group 'A'. The unit of assessee is located in group 'B' (Hooghly). The subsidy would help the growth of industry and not to supplement profit. Subsidy is determined with reference to the fixed capital investment/asset and not profit. No working capital is considered in the scheme. The ld. DR says that the subsidy is given for 12 years after production and as such it is revenue in nature. The arguments of ld. DR cannot be accepted in view of the above facts because the scheme is made to encourage the promotion of industries/setting up in the State of West Bengal. The incentives are provided to approved projects only. The purpose of giving subsidy is thus, to promote and set up industries in State of West Bengal. The eligibility certificate was issued before commencement of production, therefore subsidy based on fixed capital investment. The time of 12 years after commencement of the production is not relevant. The source of subsidy out of sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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