TMI Blog2016 (10) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... n satisfactory compliance made by the assessee in this regard, would release the subsidy by reimbursing 75% of the sales tax / VAT paid by the assessee. We have gone through the relevant pages of the paper book of the assessee containing the evidence in the form of tax paid challans for sales tax / VAT. Hence we hold that the ld AO had factually erred in stating that the sales tax / VAT were not paid by the assessee. AO had erred in invoking the provisions of section 41(1) of the Act. It is well settled that the said provision could be invoked only when the assessee had claimed deduction in earlier years at the time of creation of liability and if the said liability ceases to exist, then the provisions of section 41(1) of the Act could be invoked. In the instant case, admittedly, the assessee had not claimed any deduction in the earlier years towards the sales tax portion of the subsidy. Hence, the provisions of section 41(1) of the Act could be invoked in the facts of the instant case. Keeping in view the objects of the West Bengal Incentive Scheme 2000 and various judicial precedents relied upon hereinabove, we hold that the subsidy is to be treated as capital receipt not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect from 1.1.2000. The said scheme was announced for allowing several incentives to new units and / or existing units in the large / medium/ small scale sector having registration certificate by the Directorate of Industries and Eligibility Certificate by the West Bengal Industrial Development Corporation Ltd (WBIDCL) or registration certificate issued by the District Industries Centre. It was submitted that on reading of the Preamble and Short Title at Page 1 of the said Scheme , it would be found that the State Government announced the said scheme with the object of Promotion of Industries in West Bengal . The assessee also drew the attention of the communication issued by Government of West Bengal vide letter dated 22.3.2004 wherein it was mentioned that the State Government has approved the following package for Budge Budge Refineries Ltd (assessee herein) to be located at Budge Budge , South Parganas with an investment of ₹ 65 crores for setting up an Edible Oil Refinery Plant and Captive Power Generation Unit . Furtehr the Government of West Bengal, Commerce Industries Department vide its letter addressed to the Managing Director, WBIDC, approved the financial pac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Sahney Steel Press Works Ltd reported in 228 ITR 253 (SC) and held that the sales tax incentive / subsidy eligible to be received is a revenue receipt and would be treated as income u/s 41(1) of the Act on the ground that remission of liability which was allowed as a deduction in the earlier years and added the sums of ₹ 3,72,95,124/- and ₹ 8,05,58,316/- for the Asst Years 2007-08 and 2008-09 respectively. 5. The ld CITA deleted the additions on the ground that the subsidy was actually released / sanctioned to the assessee vide letters of WBIDCL dated 18.8.2008 and 20.2.2009 only which falls in the financial year 2008-09 relevant to Asst Year 2009-10 and hence the accrual of subsidy / receipt of subsidy had to be seen only in that year and not in the years under appeal. He did not give any finding as to whether the said subsidy is to be treated as a capital receipt or revenue receipt. Aggrieved, the revenue is in appeal before us for both the years. 6. The ld DR vehemently relied on the order of the ld AO. The ld AR stated that the ld AO had made a factual error by stating that the assessee had not paid the Sales tax / VAT for which purpose, he drew r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotion of industries in the State from the same date. Now, therefore, the Governor is pleased hereby, in supersession of the West Bengal Incentive Scheme 1999 sanctioned under Commerce Industries Department s Notification No. 580-CI/H/ dated 22.06.1999 and amended from time to time, to approve and sanction a New Incentive Scheme for large, medium and small scale Industrial units as under :- 7.1. A careful perusal of the West Bengal Incentive Scheme 2000 shows that the scheme was intended to accelerate industrial development of the state and the incentive was given for setting up of industries in West Bengal and for the purpose of determining the amount of subsidy to be given, sales tax / VAT paid by the assessee on its finished products after setting up of the unit was taken as the basis. We find that the Purpose Test is to be seen while ascertaining the taxability of subsidy in the facts and circumstances of the case. The Purpose Test clearly proves that the subsidy herein is contemplated for setting up of the industry / eligible unit for promotion of industries in the State of West Bengal . The quantification of subsidy alone is based on reimbursement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain eligibility condition in the schemes was that the incentive had to be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of an existing unit. The subsidy received by the assessee was not in the course of a trade but was of a capital nature. 7.2. We also find that the Hon ble Calcutta High Court in the case of CIT vs Rasoi Ltd reported in (2011) 335 ITR 438 (Cal) had 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. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the following case laws: CIT Vs. Ponni Sugars Chemicals Ltd. (SC) ACITVs. Rasoi Ltd. (ITA No. 1467 to 1469 (Cal) 2001 CIT Vs. KlarSehen P. Ltd. (G.A.N. 145106 dt. 12.5.08 (Calcutta High Court) Klar Sahen P. Ltd. Vs. ITO (ITA No. 2069 to 2071 (Kol) of 2004) EMCEE Pharmaceuticals (P) Ltd. Vs. Dy. CIT (ITA No. 1941 (Kol)/2004) Mendine Pharmaceuticals (P) Ltd. (ITA No. 2403/Koh/2003) The department has been relying on the Hon ble Supreme Court decision in the case of Sahney Steel and Press Works Ltd.(supra). The Calcutta High Court in the case of CIT vs. Chindwara Fuels (supra) has followed the Apex Court decision. This decision has also been followed by Hon ble ITAT, Kolkata in the case of East India Pharmaceuticals Works Ltd. (supra). The A.O in his assessment order simply quoted the case laws and held that WBIPA receipt is a capital receipt. The A.O has not analysed the facts nor compared the facts with the facts of the Supreme Court case (Sahney Steel Press Works Ltd.(supra). On the other hand the Hon ble ITAT, Kolkata has dealt this issue in a number of cases and held that the subsidy/assistance received from West Bengal Government is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch including the case of KIar Sehen P. Ltd. (supra) which was later upheld by the Kolkata High Court. It is very much relevant to reproduce the relevant extract from the ITAT ( - r in the case of Rasoi Ltd. Vs. DCIT in ITA No. 1080/Cal/98 dt. 18.5.01: 7. So far as the present case before us is concerned, the notification No. 1460 - F.Y. dated 27th May 1994 recites the Resolution of the Govt. of West Bengal, Starting as follows: Whereas certain industries in the State have been passing through an acute financial crisis and it has been considered necessary to extend financial assistance to tide over such crisis for promotion of such industries, it has been decided in the public interest to formulate a scheme to allow financial assistance to the manufacturing units in West Bengal of such. It is clear from the above preamble to the Resolution that the scheme for allowing assistance to industries is to help them to tide over the financial crisis faced by the industries and for promotion of the industries themselves. The Scheme of the Govt. of West Bengal does not relate to new industries alone and rather allows benefit under the scheme to new as well as existing units pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been followed in the case of Klar Sehen P. Ltd.(supra) for treating the assistance as a capital receipt. Subsequently the Kolkata High Court has also confirmed the decision in the case of Klar Sehen P. Ltd. as under: Further we have perused the order passed by the Tribunal. We have found that the Tribunal has extensively dealt with the matter including the facts, materials and evidence placed before the Tribunal or adjudication. We do not find any reason to interfere with the order so passed by the learned Tribunal nor the order so passed by he learned Tribunal suffers from any legal infirmity nor we find any substantial question of law is involved in the appeal. 6.4 Decision: The facts of the case and the issue involved in the present case is similar to facts of the cases decided by the jurisdictional Kolkata Tribunal and High Court. I find in the later years (A.Y. 2001-02) in the appellant s own case my predecessor following the jurisdictional ITAT decisions [Rasoi Ltd., Mendine Pharm. Ltd. (supra)} held the WBIPA as capital receipt. I am also of the view that the sole purpose behind the grant of assistance is to tide over the financial crisis and promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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