TMI Blog2017 (3) TMI 1807X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 70 to 72 of the Act would be applicable. In such an event the claim of set off as claimed by the assessee deserves to be allowed. Apart from the above in the light of the decision of the Hon ble Supreme Court in the case of Yokogawa India Ltd. [ 2016 (12) TMI 881 - SUPREME COURT] provision of section 10B have to be regarded as deduction provision, the provisions of section 70 to 72 of the Act will be applicable. In view of the above we uphold the order of CIT(A) on this issue and dismiss ground no.2 raised by the revenue. Additional depreciation on plant and machinery only in the year of acquisition and installation u/s 32 - CIT(A) allowing assessee's claim of additional depreciation of plant and machinery on original cost in the year subsequent to the year of acquisition and installation - Additional depreciation was rejected by CIT(A) for the reason that additional depreciation is available only in respect of new plant and machinery acquired and installed after 31.03.2005 - only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee received subsidy of ₹ 1,50,03,609/- comprising of a sum of ₹ 1,29,87,383/- received from West Bengal Industrial Development Corporation Ltd., on account of subsidy under the West Bengal Incentive Scheme 2000 (WBIS 2000)and ₹ 20,16.,226/- received from IFCI Ltd on account of interest subsidy refund under the Technology Up-gradation Fund Scheme (TUFS). These amounts were credited in the profit and loss account under the head Other income . However, in the computation of total income the Assesee excluded the aforesaid subsidies on the ground that these were capital receipts not chargeable to tax. 4. The AO called upon the assessee to explain as to how the aforesaid subsidies were capital receipts not chargeable to tax. The assessee explained before the AO that the aforesaid subsidies were capital receipts not chargeable to tax for the following reasons:- 1. Subsidy received under TUFS of ₹ 20,16,226/-: (a) The Assessee explained the objective of TUFS was to meet the challenges of post quota regime which requires industry to become more competitive, cost effective and quality oriented. With this background, Govt. of India launched a Technology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up in group B and group C areas and not to industries in group A area which means subsidy is basically granted for promotion of industries in backward area and not for running the industry (c) The Assessee drew attention of the AO to para no. 11.2A of WBIS 2000, which provided that additional interest subsidy will be granted if the eligible industrial unit is able to generate direct employment of 200 or more which clearly shows that the basic motive for giving the subsidy was promotion of industry for development of the backward region where there is scarcity of employment opportunity. (d) The Assessee submitted that the object for which the subsidy was given is decisive as to whether its capital or revenue in nature. If the subsidy is given for setting up or expansion of the industry, it will be capital receipt, irrespective of the modality or the source of funds through or from which it is given and if monies are given for assisting the assessee in carrying out the business operations only after, and conditional upon, the commencement of production, it shall be revenue receipt. 5. In support of the above submission, the assessee referred the following judicial pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at internationally comparable rates of interests. It was therefore amply clear that the subsidy was to be allowed for the period of 5 years and after the commencement of production. Hence, the subsidy has to be regarded as revenue receipt and therefore the deduction of the subsidy amount is not allowed. 7. On appeal by the assessee the CIT(A) held that the subsidies were capital subsidies not chargeable to tax. As far as subsidy received under TUFS is concerned the CIT(A) observed as follows :- On perusal of the objective of the 'The Technology Upgradation Fund Scheme (TUFS)' issued by the Ministry of Textiles, Govt. of India, it is seen that to improve the overall health of the textile industry which contributes significantly to the Indian economy and provides sizable employment opportunity it was decided to provide adequate capital to textile companies at internationally comparable rates so that major modernization programme through technology up gradation could be carried on by them. Hence the interest subsidy was not provided to the Appellant to carry out or support its day to day business operations but was for capital expenditure made in modernizing its existi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the ITAT in the assessee's own case for AY 2007-08 [ITA.828/Kol/12 in appeal arising out of order u/ s 263 has held that State Capital Investment Subsidy received under WBIS 2000 is capital in nature. It was submitted that identical subsidy was held to be capital receipt by ITAT Kolkata in DCIT -vs.- M/s Pricewaterhouse Coopers Pvt. Ltd. ITA No. 2033/Kol/2013 order dated 13.7.2016 wherein it was held that WBIS, 2000 was intended to accelerate industrial development of the state. The incentive given under the scheme was for setting up of industries in West Bengal. Hence interest subsidy received under WBIS 2000 shall be treated as capital receipt. Reference was made to several other decisions of the Hon ble Apex Court in the case of CIT -vs.- Ponni Sugars Chemicals Ltd. (2008) 306 ITR 392(SC) wherein it has been held that it is the purpose of the incentive which decides its nature and not the modality or the source thereof. Reference was also made to the decision of Jurisdictional High Court in CIT - - Rasoi Ltd. (2011) 335 ITR 438 (Cal) wherein it has been held that subsidy received for expansion of capacities, modernization and improving the marketing capabilities to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b - Haryana High Court in ITA No. 472 of 2010 vide decision dated 17.01.2011. Hon 'ble High Court has considered and held the issue as under :- 2. The assessee is engaged in manufacture and sale of woolen garments It received subsidy for repayment of loan taken for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (FUFS) of Ministry of Textiles, Government of India. The assessee claimed the said subsidy to be capital receipt but the Assessing Officer did not accept the same and added back the same to the income of the assessee holding the same to be revenue receipt. On appeal, the CIT(A) upheld the plea of the assessee, which view has been affirmed by the Tribunal with the following observations :- Having regard to the aforesaid, in our view, it is quite clear that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. 10. Considered in the aforesaid light, in our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12.7.2005 with Small Industry Development Bank of India. The relevant clause of the agreement under which the subsidy was given is as under:- Para 8. - to prevent misutilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended 10 the loan amount. 7. In view of above, the view taken in Sahney Steel Press Works Ltd. 015., could not be applied in the present case, as in said case the subsidy was given for running the business. For determining whether subsidy payment was 'revenue re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of the incentives, districts have been grouped as A (Calcutta Municipal Coportation) B (Howrah, Hooghly, North 24-Parganas, South 24 Parganas, Burdwan, Nadia Midnapore districts and C (Murshidabad, Birbhum, Purulia, Bankura, Malda, Cooch Behar, North Dinajpur, South Dinajpur, Jalpaiguri and Darjeeling districts). Some of the special features of the 2000 Scheme: 1. Capital Investment Subsidy for all categories of units. Industrial units to get State Capital Investment Subsidy on the investment made in the fixed capital depending on the location: Group B - @ 15% to the limit of ₹ 150.00 lakhs Group C - @ 25% to the limit of ₹ 250.00 lakhs 2. Interest Subsidy @ 50% of interest liability to the limit of ₹ 100.00 lakhs per year for: Group B 5 years Group C 7 years . There are several subsidies provided under the WBIS 2000. In the present case we are concerned with the Interest Subsidy which is contained in para-2 of the Foreward to the WBIS 2000 referred to above. 11. The law with regard to circumstances under which subsidy received can be treated as capital receipt not chargeable to tax has been laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 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 i clearly covered by the decision of Hon ble Supreme Court in the case of Sahaney Steel Pres 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 th years is dismissed. 13. The Hon ble Calcutta High Court in case of CIT Vs. Rasoi Ltd. [335 ITR 438] has in a similar case of receipt of subsidy held as follows: In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent. of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sales tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT reported in [1961] 42 ITR 392 (SC) AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. According to the AO, income from the EOU was subject to deduction u/s 10B of Chapter-III of the Act, which deals with the income which do not form part of total income. He was therefore of the view that set off of losses of 100% EOU will not enter the computation of total income at all as it was an exemption provision under chapter-III of the Act which deals with income which do not form part of the total income under the Act. Thus the loss of 100% EOU will not enter the computation of total income at all and the profit of the DTA unit should be brought to tax without setting off the loss of the 100% EOU. The plea of the Assessee however was that the issue whether loss of EOU unit whose total income is exempt can be set off against profit of the non-exempt non-10B unit, has been settled by the Hon'ble Kolkata Tribunal in favour of the assessee in its own case vide order dated 28-03-2008 for AY. 2004-05 in ITA No. 1658/Kol/2007, wherein the Hon'ble Tribunal held that the said losses of EOU unit needs to be adjusted with the income of other units. 18. The AO however held that the claim of the assessee cannot be accepted as the Revenue has not accepted the stand of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the nature of 'exemption' but provides for 'deduction'. Hence the loss sustained by the said unit can be set off against the profit of the non eligible unit. Similar view has also been taken in the case of:- - CIT -vs.- Galaxy Surfactants Ltd. (2012) 343 ITR 108 (Bom) - CIT vs Patni Computers Systems Ltd : ITA No. 2177 of 2010 (Bom) -M/s. Bharat Resins Ltd. -vs.- ACIT (2012) 50 SOT 298 (Ahm) -DCIT vs Brijlaxmi Infotech Limited: IT A No. 732/Ahd/2010 (Ahd) - Mindtree Consulting (P) Ltd. -vs.- DCIT (2006) 102 TTJ 691 (Bang.) - Mindteck (India) Ltd. vs ITO: 151 ITD 251 (Bang) - HoneyweIl International (India) (P) Ltd. -vs.- DCIT (2007) 108 TTJ 924 (Del) - DCIT vs Birla Soft Ltd : [2014] 32 ITR{T) 117 (Del) - Sonata Software Ltd vs ACIT : IT A No. 8032/Mum/2011 (Mum) - Sandoz (P.) Ltd vs DCIT : [2013]145 ITD 551 (Mum) - Navin Bharat Industries vs ACIT : 90 ITD 1 (Mum) - Sovika Infotek Ltd vs ITa: 23 SOT 271 (Mum) - Patni Computers Systems Ltd vs DCIT : 135 ITD 398 (Pune) 21. Attention was also drawn to CBDT vide Circular No. 279/Misc/M-116/2012-ITJ dated 16-07-2013, has clarified that income/ loss from various sources i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of CIT(A) on this issue and dismiss ground no.2 raised by the revenue. 24. Ground No.3 raised by the revenue reads as follows :- 3. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law by allowing assessee's claim of additional depreciation of plant and machinery on original cost in the year subsequent to the year of acquisition and installation and thereby has erred in deleting the addition of ₹ 54,21,617/- without appreciating the fact that such additional depreciation is allowable on plant and machinery only in the year of acquisition and installation. 25. This ground of appeal relates to the claim of the Assessee for additional depreciation u/s.32(1)(iia) of the Act. The undisputed facts are that the original cost of the new machinery purchased and installed by the Assessee after 31.3.2005 but before 1.4.2006 in the 100% EOU and DTA unit ₹ 29,77,470 and ₹ 2,41,30,615. The WDV of these machineries as on 1.4.2006 was ₹ 24,51,920/- and ₹ 1,81,50,266/- respectively. The Assessee availed of additional depreciation @ 20% on the original cost of the machinery at ₹ 5,95,494/- and ₹ 48,26,123/- res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec.32 Depreciation. (1)In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assess ee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1.4.1981 reads thus (the sub-section existed upto 31.3.1988 and was deleted thereafter): (iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was not so restricted to only to the intital assessment year. From AY 1981-82 to 87-88, the claim for additional depreciation was restricted to previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year. From AY 2003-04 till 2005-06, the claim for additional depreciation was restricted to previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or if any industrial undertaking existed before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid I am of the view that in terms of provisions of Section 32(1)(iia), additional depreciation is available in AY 2006-07 and subsequent years in respect of all new plant machinery acquired and installed after 31-03-2005 subject to overall criteria that total depreciation does not exceed the actual cost. Hence Ground No. 4 is decided in favour of the Appellant. 31. Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee submitted that fiscal statute shall be interpreted on the basis of the language used therein and not de hors the same. It was argued that Clause (iia) to Sec. 32(1) was first introduced vide Finance (No. 2) Act, 1980 w.e.f. 01-04-81 and was applicable till AY 1987-88. The clause was subsequently re-introduced vide Finance Act, 2002 w.e.f. 01-04-03. On perusal of clause (iia) to Sec. 32(1) as existed during the aforesaid period, it could be seen that the legislature conferred the benefit of additional depreciation only in the first AY when the asset was installed and first put to use. However vide Finance Act, 2005, clause (iia) to Sec. 32(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or thing or achieves substantial expansion by way of increase in installed capacity by 25%. The only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use. In our view this stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression new machinery is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01.04.2006. The plain language of the section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground no.3 raised by the revenue. 33. Ground No.4 raised by the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act. 35. The assessee while computing its book profit u/s 115JB of the Act excluded profit on sale of fixed assets of ₹ 31,68,895/-. This amount admittedly was credited in the profit and loss account. According to the AO, the aforesaid sum had to be included as part of the book profits u/s 115JB of the Act as it is not one of the item of income which has to be excluded from the net profit as per profit and loss account, set out in the explanation below Sec.115JB(2) of the Act. 36. On appeal by the assessee the CIT(A) held as follows :- In this regard the Appellant has placed reliance on the decision of Mumbai Tribunal in :the case of Frigsales (India) Ltd. 4 SOT 376 (Mum) wherein it had been held that capital gain on sale of depreciable asset exempt u/s 50 cannot be taxed as income under the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of profit under s. 115JA of the Act or not. The case of the assessee is that due to the sale of capital assets, the assessee has earned profit to the tune of ₹ 83,26,670. The assessee claimed exemption on these capital gains under the provisions of s. 50 of the IT Act. The AO computed the capital gains under the provisions of s. 115JA while including this amount of ₹ 83,26,670. According to the AO, this amount forms part of the book profits determined under the provisions of Part II and Part III of Schedule VI of the Companies Act, 1956. Thus, according to the AO thought this amount is exempted under the provisions of s. 50, the same is taxable under the provisions of s. 115JA. The learned CIT(A) did not agree with the findings of the AO and after referring to the provisions of sub-s. (4) of s. 115JA he deleted the addition made by the AO under the Act, any receipt in the nature of income alone is taxable. Sec. 115JA is also part of the Act. No doubt, it starts with a non obstante clause and overrides the other provisions of the Act but that is only confined to determination of total income. It only substitutes total income based on book profits but it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine the book profits and the book profits so determined has to be taxed taking into consideration the other provisions of the Act. In other words, s. 115JA is a part of the Act now and the exemption allowed by one provision of the Act cannot be taken away by another provision of the Act. In the present case, if the exemption allowed under s. 50 of the Act is taken away while taxing, the book profits under s. 115JA, it will make the provision of s. 50 of the Act as redundant. This interpretation is not justified. The ratio of Apollo Tyres vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) is distinguishable because the same has been rendered in the context of provisions of s. 115J which is independent code, while s. 115JA is not an independent code and the Legislature in their wisdom has brought sub-s. (4) of s. 115JA on the statute to make s. 115JA also a part of the Act. Regarding relevance of the decision relied on by the Revenue in the case of Indo Marine Agencies (Kerala) (P) Ltd. vs. Asstt. CIT (supra) and CIT vs. Veekaylal Investment Co. (P) Ltd. (supra). These cases were rendered as per the provisions of s. 115J which is self-contained code. As has been held in a numb ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
