TMI Blog2015 (6) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 object/purpose of assistance under the subsidy scheme was to enable the assessee to set up new unit in State of West Bengal. Therefore, the receipt of the sales tax subsidy in the hands of assessee was capital in nature. The decisions relied on by ld. DR would not support the case of the revenue. Considering case of Ponni Sugars Chemicals Ltd. [ 2008 (9) TMI 14 - SUPREME COURT] and sales tax subsidy received by the assessee is capital receipt in nature and are not subjected to tax. The additions made by the AO on account of receipt of sales tax subsidy are accordingly deleted in all the assessment years in appeals. - Decided in favour of the assessee - ITA No. 744/CHD/2006, 370/CHD/2006, 977/CHD/2008, 1082/CHD/2008, 1428/CHD/2010 Assessment Year: 2003-04 To 2007-08 - - - Dated:- 16-6-2015 - Shri Bhavnesh Saini, Judicial Member And Shri T.R.Sood, Accountant Member Department by: Smt. Jyoti Kumari Assessee by: Shri Ashwani Kumar ORDER PER BENC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the nature of Sales Tax Subsidy held in 306 ITR 392 (CIT Vs Ponni Sugars Chemicals Ltd.) held that it is the nature and purpose of a subsidy that would determine whether it is a capital or revenue receipt thereby clarifying that Sales Tax Subsidy shall be a revenue receipt depending upon its nature and purpose. The counsel for assessee also submitted before Hon'ble High Court that in other case, the Division Bench of the High Court after considering the judgement in CIT Vs Ponni Sugars Chemicals Ltd. (supra) remitted the matter to the Tribunal to record a opinion, whether Sales Tax Subsidy availed by the assessee is a revenue or capital receipt, after considering its nature and purpose. The Hon'ble Punjab Haryana High Court considering the submissions of both the parties in the light of the above decisions, set aside the orders passed by the ITAT Chandigarh Bench and matter was restored to the Tribunal for redetermining the question, Whether Sales Tax Subsidy is a revenue or a capital receipt by reference to the nature and purpose of the subsidy ? . While allowing the appeal and restoring the appeals to the Tribunal, it was directed to the Tribunal to adjudicate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the unit should be approved project within a particular area and subsidy is granted for growth of the industry and not to supplement the profit. He has referred to Certificate of Registration under West Bengal Incentive Scheme, 1999 issued by Directorate of Industries, West Bengal dated 31.12.1999 in the name of the assessee for establishing the unit in District Hooghly and the nature of the project was New . The ld. counsel for the assessee submitted that in the same certificate, it is clarified that 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 the period of 12 years in the scale of 100% of the fixed capital investment without any cap. He has also referred to the letter dated 31.12.1998 issued by Government of West Bengal, Commerce Industries Department, who have examined the case of the assessee through High Powered Committee on Industrial Development and it was considered and decided to give Sales Tax Incentive to assessee in the scale of 100% of fixed capital investment for 12 years in sale of finished goods and on purchase of raw material without any cap. He has also referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it was not economically viable to run new sugar factories and, due to high financial costs, financial institutions did not come forward to advance loans to the entrepreneurs of new sugar factories. The tempo of establishing new sugar factories received a serious setback. A committee appointed by the Government recommended that five possible incentives for making a sugar plant economically viable could be provided for, viz., capital subsidy, larger percentage of free sale of sugar, higher levy sugar price, allowing rebate on excise duty and remission of purchase tax. Following that report, schemes were formulated giving the following benefits (i) incentive subsidy available only in new units and to substantially expanded units ; (ii) minimum investment for new units and expansion of existing units ; (iii) increase in free sugar sale quota. The benefit of the schemes had to be utilised only for repayment of loans. The Department and the High Court had held that the receipts from the Government under the incentive schemes were in the nature of revenue. On appeal to the Supreme Court : Held accordingly, reversing the decision of the High Court, on this point, that the main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have gone through the rival submissions carefully and find force in the submissions of the Ld. Counsel for the assesses. Copy of industrial scheme has been filed at page 841 to 862 of the paper book, it has been stated in the policy that Government of Punjab has formulated new industrial policy 1996 which offers fresh incentive for the development of industry in the State of Punjab. Objects of the policy are as under: 1. Attracting fresh investment to further boost the growth of industry in the State. 2. Avoiding multiplicity of incentives so that they are easy to interpret and administer. 3. Off-setting the locational disadvantages of the State 4. Creating more job opportunities for the youth in the Border District through increased investment in industrial sector.' From page 854 onwards a copy of the scheme is enclosed which lays down eligibility criteria of the subsidy and other procedural matters. Para 6 of the scheme starts as incentives to small scale industry units and then para 6.1 starts investment incentives (capital subsidy). This itself shows that subsidy was for termed in the nature of capital nature. In the elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme given by Gujarat Government various conditions were also imposed, The decision in case of Vardhman Acrylics Ltd (supra) was also taken because in the earlier years on similar issue, the issue was decided against the assessee whereas in the present case, it is first time that the issue of subsidy has been raised. 15. As far as decision relied on by the Ld. CIT(A) is concerned, we are of the opinion that the decisions relied on in case of Sahney Steel and Press Works Ltd Vs. GIT (supra) is distinguishable by the observation of Hon'ble Supreme Court in case of CIT Vs. Ponni Sugars and Chemicals Ltd, (supra). It was clearly held in that case that most important thing for determination of the nature of subsidy is the object of the subsidy. It was further observed that point of time of receipt is not relevant. As we have seen above the object of the subsidy in the present case is to encourage the setting up of new-industry in the State of Punjab, Further the Hon'ble Punjab and Haryana High Court in case of CIT Vs. Siva Ram Garg (HUF) where the subsidy was received for setting up of Agro Industry in the backward area was held to be of capital nature after considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 dated 16.01.2009for Asstt. Years 1999-2000 to 2001-02. 2. ln the case of DCIT, Cir-12, Kol Vs. M/s. Teesta Agro Industries Ltd. in ITA No. 1237/Kol/2010, ITA No. 1053/Kol/2010 ITA No. 17S3/KoV2010 dated 07.01.2011 for Asstt. Years 2003-04, 2006-07 2007-08 respectively. We find that the West Bengal Incentive Scheme 1993 and 1999 categorically encouraged the promotion of industries in the State of West Bengal and in such circumstances the issue is clearly covered by the decision of Hon'ble Supreme Court in the case of Sahaney Steel Press Works Ltd., supra. The issue is also covered by the Tribunal's decision as noted above. Accordingly, we confirm the order of CIT(A) and this issue of revenue's appeals for both the years is dismissed. 16. The ld. counsel for the assessee, therefore, submitted that the Sales Tax Subsidy received by both the assessees are capital receipt in nature and departmental appeals may be dismissed and appeals of the assessee may be allowed. 17. On the other hand, ld. DR submitted that in the case of Ponni Sugars Chemicals Ltd. (supra), the issue was of repayment of the loan, therefore under those f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st business is revenue receipt. 20. We have considered the rival submissions and perused the material available on record. It is admitted facts that the case of both the assessees fall within the scheme known as West Bengal Incentive Scheme, 1999, copy of the same is placed on record. It provides that incentive scheme is approved by the Government of West Bengal for large/medium and small scale industries. The various salient features of this incentive scheme provide that whereas, the Governor is of opinion that it is necessary and expedient to extent incentive for promotion of industries in this State , therefore, Governor is pleased hereby, in supercession of 1993 Scheme, sanctioned present Incentive Scheme. The title of the scheme is called The West Bengal Incentive Scheme, 1999 for industrial projects of large, medium and small scale units to be set up in the State. 21. The definition of Small Scale Unit would mean a unit having investment upto the limit as prescribed by the Government of India from time to time. The definition of New Units means an industrial unit in the large/medium/small scale sector having investment in fixed capital asset which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on or after 01.04.1998 and valid registration to that effect may be accepted and the amount of subsidy shall be judged on the quantum of investment in the plant and machinery as sanctioned and disbursed by the financial agency concerned. The scheme further provides classification of developed areas and backward areas. The incentive would be available under the scheme for approved projects according to their location which are classified in group A B and C . It is provided that no subsidy shall be granted to Group A (Developed Area). The scheme further provides the sales tax deferment/remission on sale of finished goods. A new unit for its approved project shall be eligible for deferred payment of sales tax due for payment by it or alternatively for remission of sales tax due to payment by it for the period and subject to ceiling as is referred depending upon location of the unit and in case of the assessee, it is Remission of Sales Tax due for payment by the unit, percentage ceiling in terms of gross value of fixed capital asset of the approved project. Group A would not get any benefit. It is also provided that a new unit for its approved project or an existing unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of finished goods and exemption of sales tax on purchase of raw material for a period of 12 years in the scale of 100% of the fixed capital investment. The copy of Eligibility Certificate under the scheme is also filed which also provides that in case the industrial unit of the assessee has failed to take effective steps for establishment of the aforesaid project within the specified period, the validity of certificate would not be extended. The crux of the above West Bengal Incentive Scheme, 1999 thus, provides that the scheme is directly related to the setting up of the industrial units/projects in the State of West Bengal, the industry should be registered with the Directorate of Industries which is in the case of the assessee and the required certificate has been obtained. The eligibility certificate shall have to be issued in favour of industry/unit and the investment shall be calculated with reference to fixed capital investment and the incentive/subsidy shall have to be granted out of the sales tax. Thus, the assessee has fulfilled all the requirements under the West Bengal Incentive Scheme, 1999 and only on fulfilling the conditions of the scheme, the Directorate of Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of West Bengal. Therefore, the receipt of the sales tax subsidy in the hands of assessee was capital in nature. The decisions relied on by ld. DR would not support the case of the revenue. The decision cited by ld. counsel for the assessee clearly support the submission of ld. counsel for the assessee that the sales tax subsidy received by the assessee are capital in nature. We may also note here that the same scheme under West Bengal Incentive Scheme, 1999 under reference was subject matter of consideration before ITAT Kolkatta Bench in the case of Keventer Agro Ltd. (supra) and the Tribunal also decided the issue in favour of the assessee holding that the West Bengal Incentive Scheme, 1999 categorically encourage the promotion of industries in the State of West Bengal. 26. Considering the facts and circumstances of the case in the light of decision of the Hon'ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra) and considering the above discussion, we are of the view that sales tax subsidy received by the assessee is capital receipt in nature and are not subjected to tax. The additions made by the Assessing Officer on account of receipt of sales ..... X X X X Extracts X X X X X X X X Extracts X X X X
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