TMI Blog2017 (12) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... ayag Jha/Prateek Jha Revenue by: Dr. Vivek Aggarwal ORDER Vikas Awasthy, JM : These four appeals relating to two different assessees are taken up together for adjudication as they involve identical issue i.e. taxability of sales tax subsidy‟ received by assessee on generation of power through windmill. ITA No. 1362/PUN/2011 (A.Y. 2008-09) ITA No. 2389/PUN/2012 (A.Y. 2009-10) 2. These two appeals have been filed by the Department against the order of Commissioner of Income Tax (Appeals), Aurangabad. ITA No. 1362/PUN/2011 is directed against the order of Commissioner of Income Tax (Appeals) dated 04-08-2011 for the assessment year 2008-09. The grounds raised by the Department in the said appeal read as under : 1. On the facts and circumstances of the case, the Hon ble CIT(A), Aurangabad has erred in deleting the addition of ₹ 86,37,639/- on account of disallowance Sec. 80IA. As the assessing officer disallowed at ₹ 86,37,638/- on the basis of decision of Honorable Supreme Court in the case of Liberty India Ltd. Vs. CIT (2009) 225 CTR 233 (SC). The CIT(A) has ignored the fact that the source of subsidy incentive is the Govt. law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction u/s. 80IA(4) of the Act. Against the said findings of Commissioner of Income Tax (Appeals), the Revenue is in appeal. 5. Shri Rajan Vora appearing on behalf of the assessee submitted that the State Government in order to promote electricity and power sector and to provide electricity to factories and households at cheaper rate floated the scheme under which subsidy is provided to the entrepreneurs/companies for setting up units for generation of electricity through windmill. As per scheme the electricity generated by windmill units has to be sold through Maharashtra State Electricity Board (MSEB). Based on quantum of electricity produced and other relevant criteria, as per the scheme, various categories/groups have been formed. The power generation unit of assessee falls under Group-II power project as determined by the Maharashtra Electricity Regulatory Commission. The assessee is eligible to receive tariff @ ₹ 2.50 per unit, subject to rate revision of 10 paisa every year. The assessee falls in aforesaid tariff rate as the assessee opted for sales tax subsidy for power generation. If the assessee would not have received any subsidy, then the assessee would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 raising an alternate contention that the sales tax incentive received by assessee be treated as capital receipt and hence not chargeable to tax. The ld. AR submitted that since, the First Appellate Authority had decided the issue of allowability of deduction u/s. 80IA of the Act in favour of the assessee, this alternate ground to treat subsidy as capital receipt was not adjudicated. The ld. AR submitted that since, benefit of deduction u/s. 80IA was granted, the assessee did not prefer any appeal before the Tribunal. The ld. AR contended that Hon ble Gujarat High Court in the case of Garden Silk Mills Vs. Commissioner of Income Tax and Another reported as 394 ITR 192 has held that subsidy in the form of sales tax incentive is a capital receipt. The ld. AR to further support his alternate contention draws strengthen from the following decisions : i. Commissioner of Income Tax Vs. Chaphalkar Brothers, 351 ITR 309 (Bom); ii. DCIT Vs. Inox Leisure Ltd., 351 ITR 309 (Guj). 5.5 The ld. AR further pointed that the Hon ble Supreme Court of India in the case of Commissioner of Income Tax Vs. M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs. Dy. Commissioner of Income Tax (supra) has held that the sales tax subsidy is revenue in nature, the application filed by the assessee under Rule 27 raising an alternate ground to treat the sales tax subsidy as capital receipt, is liable to be rejected out rightly. 6.2 The ld. DR further submitted that the Pune Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. Dy. Commissioner of Income Tax in ITA Nos. 575/PN/2007 150/PN/2008 for assessment years 200304 and 2004-05 decided on 31-03-2011 after analyzing the sales tax subsidy scheme floated by State of Maharashtra has held that sales tax subsidy under the said scheme is not capital in nature. The ld. DR in support of his submissions also placed reliance on the following decisions : i. Shri Umesh M. Joshi Vs. Income Tax Officer in ITA No. 4287/Mum/2010 for assessment year 2006-07 decided on 23-12-2011 (Mum.-Trib.); ii. Lap Finance and Consultancy P. Ltd. Vs. Addl. Commissioner of Income Tax in ITA No. 1292/PN/2010 for assessment year 2006-07 decided on 28-02-2012 (Pune-Trib.); iii. Chandu Laxman Chavan Vs. ITO in ITA No. 371/PN/2012 for assessment year 2005-06 decided on 28-05-2013 (Pune-Trib.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 12.3.1998 modified its existing policy for the purposes of promoting wind energy generation in the State of Maharashtra. This policy has been formulated in the background of the fact that the earlier policy of the State Government on generation through non conventional sources in January, 1996 did not achieve the desired results. In the said policy, nine different incentives have been laid out, which have been extracted by us in earlier part of this order. The dispute before us is in relation to the sales-tax benefits. The Preamble of the policy itself reflects the area which is sought to be addressed by the policy which is the problems being faced by promoters of wind energy generation . It is quite clear that the sales-tax benefit is not intended to be granted for creation of or bringing into existence any new asset. It is also clear that there is no prescribed criteria as to the manner in which such incentives are to be utilized. The claim of the assessee is that the sales-tax benefit is granted having regard to the qualifying investment, which is stated to be towards investments in plant and machinery, new building, land development, technical development and design of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits received by the assessee under the instant Scheme are in the course of carrying on its trade more profitably and therefore such receipt cannot be characterized as capital in nature. Thus, the assessee fails on this Ground. The aforesaid decision of Co-ordinate Bench answered the first issue raised in the present set of appeal i.e. the sales tax subsidy received by assessee on generation of power is revenue in nature. In the light of above findings the alternate plea raised by assessee by way of application under Rule 27 is rejected. 11. The ld. AR has placed reliance on the decision of Hon ble Gujarat High Court in the case of Garden Silk Mills Vs. Commissioner of Income Tax and Another (supra) to contend that the subsidy in the form of sales tax incentive is capital receipt. The ld. AR has not drawn any parity between the sales tax subsidy held as Capital in the said case and the sales tax subsidy in question in the appeals in hand. Merely for the reason that that the subsidy therein was in the nature of sales tax incentive would not ipso facto lead to conclusion that all Sales Tax Subsidies would be capital in nature. The purpose test‟ as expounded by Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reduced the cost of production of an industrial undertaking and since there was first degree nexus between the said subsidies and the profits and gains derived by an industrial undertaking, therefore, it was entitled to the deduction under section 80IB / 80IC of the Act in respect of the said subsidies so received. The proposition propounded by the Hon ble Gauhati High Court in the said case was that the subsidies received by the assessee were inter-linked and had direct nexus with the manufacturing activities of the industrial undertaking and had reduced the cost of production of the said undertaking and hence, there was nexus between the said subsidies and profits and gains derived by the industrial undertaking and hence, the same were held to be eligible for deduction under section 80IB / 80IC of the Act. However, in the facts of the case before us, the assessee is in receipt of sales tax subsidy, which undoubtedly, is a revenue receipt in the hands of the assessee, but the said subsidy does not in any manner reduce the cost of production of industrial undertaking. It is a benefit given to the industrial undertaking for establishing the wind energy generation units in the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Vs. Meghalaya Steels Ltd. (supra). The subsidies that were subject matter of adjudication in the aforesaid case were Transport, Interest and Power subsidies. The relevant para 28 of the judgment by Hon ble Apex Court in the case of Commissioner of Income Tax Vs. Meghalaya Steels Ltd. (supra) read as under : 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head income from other sources , which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deduction u/s. 80IA(4) in the light of decision of Hon ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Meghalaya Steels Ltd. (supra) and in the case of Commissioner of Income Tax Vs. M/s. Shree Balaji Alloys (supra). It would be relevant to mention here that perhaps the decision of Pune Bench of the Tribunal in the case of M/s. Patankar Wind Farm Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) was not brought to the notice of Mumbai Bench. As we have observed earlier, the issue whether the assessee is eligible for claiming deduction u/s. 80IA in the light of decision rendered by Hon ble High Court in the case of Commissioner of Income Tax Vs. Meghalaya Steels Ltd. (supra) has already been considered and has been decided against the assessee. Accordingly, we find no reason to remit this issue back to the file of Assessing Officer. 17. Thus, in the view of our above findings and the decision of Pune Bench of the Tribunal in the case of M/s. Patankar Wind Farm Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) we hold that the sales tax subsidy received by the assessee is revenue in nature and not eligible for claiming deduction u/s. 80IA of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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