TMI Blog2021 (2) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... s)-I (in short 'Ld. CIT'], Indore dated 08/03/2018 which is arising out of the order u/s. 143(3) of the Income Tax Act 1961(In short the 'Act') dated 22.12.2017 framed by ITO-1(1), Indore. 2. Revenue has raised following grounds of appeal:- On the facts and in the circumstances of the case the Ld. CIT(A):- (1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Indore was justified in deleting the addition on account of Revenue subsidy claimed as capital subsidy of ₹ 2,57,07,188/- by ignoring various factual categorical findings given by the AO. (2) Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Indore was justified in deleting the aforesaid addition without appreciating the fact that the capital subsidy is altogether a separate subsidy given by MP Govt. and hence, the subsidy under question cannot be claimed as capital in nature. (3) Whether on the facts and in the circumstances of the case, the Ld. CIT(A, Indore was justified in deleting the aforesaid addition while ignoring the fact that VAT and ST assistance are reimbursement after adjusting input tax rebate on the amount of value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to use VAT subsidy as per his sweet will. (vi) It is also noted that, no part of subsidy has been used for the purpose of repayment of loan borrowed for acquiring capital assets. (vii) Subsidy has been granted after the units of the assessee had commenced production and the subsidy is unconditional and can be used for any purpose. (viii) The subsidy in the case of assessee is linked to production as was the case with Sahney Steel Press Works Ltd. The subsidy in Sahney Steel Press Works Ltd. case (supra) was an incentive subsidy linked to production. In Sahney Steel Press works Ltd. Case (supra) the Court had categorically stated that the scheme in hand was an incentive scheme and it was not a scheme for setting up the industries. In- the said case, the salient features of the scheme were examined and it was noticed that the scheme formulated by the Government of Andhra Pradesh was admissible only after the commencement of production. The subsidy in the case of the assessee is also an incentive subsidy as the credit of V A T subsidy is directly linked with the sale of manufacturing goods. (ix) The Govt. of MP has also been granting capital/investment subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, Ld. Counsel for the assessee also referred to the following written submissions which were filed in response to the direction of this Tribunal on 19.10.2020 seeking certain clarification: 5. Details of Utilisation of subsidy received In the industrial investment Promotion Assistance (IPA) Scheme 2010 of Madhya Pradesh Government, there is no stipulation regarding utilisation of subsidy as it is granted after commencement of Commercial production by the Industrial Unit. The assessee is free to use the subsidy for any of its business purposes. At the outset it is a settled law now that the purpose of giving subsidy is relevant and not the form and nature or method of computation. If the same is for development of backward areas, generating employment then the same would be capital in nature irrespective of the time and manner of payment. 1. Chaphalkar Brothers (2013) 33 taxmann.com 431 (Bombay High Court) 2. CIT vs. Chaphalkar Brothers (2018) 400 ITR 279 (SC). 3. CIT vs. Rasoi Limited (2011) 335 ITR 438 (Cal) 4. Senairam Doongarmall v. CIT AIR 1961 SC 1579 (SC). 5. Shree Balaji Alloys v. ITO (2010) 127 TTJ 129 (ASR). 6. Pr. CIT vs. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax deposited and the eligibility of the assessee, the subsidy is granted to the extent of 75% of tax deposited by the eligible unit. 11. It was also submitted before us that the unit for which subsidy is received by the assessee is situated in a backward area. The instant appeals relates A.Y. 2015-16 and in the year under appeal as well as in the preceding years the subsidies granted, were disclosed in the Audited Financial Statement as revenue receipt and offered to tax. However, during the year under appeal when it came to the knowledge of the assessee that similar type of subsidies are held to be capital subsidies by the Co-ordinate Bench as well as Hon'ble Courts then a revised claim was made by filing a revised return, claiming alleged amount as capital subsidy given in lieu of investment made in the backward area for establishing business. 10. Ld. Assessing officer on the basis of his observation which were relied by Ld. DR mentioned in the preceding paras was not convinced with this claim and treated it as a revenue receipts however, when the order came up before First Appellate Authority, he in view of settled judicial precedence and in the light of facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in determining the nature of the subsidy as revenue or capital. 2. The Allahabad High Court in Kalpana Palace V. CIT (275 ITR 365) where it was held that grant-in-aid received from State Government for setting up cinema theatres in backward areas, though such receipt was after the business had set -up, would constitute' capital receipt'. 3. Universal Cables Ltd. v. DCIT [2015) 57 taxmann.com 95 in context of same scheme i.e. Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004 held the incentive received as capital receipt after following the decision of Supreme Court in case of CIT v. PJ. Chemicals Ltd. 210 ITR 830 (SC). 4. Delhi Tribunal in case of Dy. CIT v. Cosmo Films Ltd. (2012) 139 ITD 628 (Delhi)(Trib.) wherein it is held that sales tax subsidy given under dispersal of Industries scheme as incentive to set up industries in areas other than Mumbai, Pune and Thane is capital receipt. 5. Delhi Tribunal in case of Dy. CIT v. Indo Rama Textiles Ltd. (2012) 53 SOT 515 (Delhi)(Trib.) Sale tax subsidy from Government of Maharashtra under Sales Tax Subsidy Scheme of 1993 was held to be capital receipt not liable to tax. 6. Dy. CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up a unit in a backward area and for this made capital investment of ₹ 10.43 cr. (approx.). The scheme of subsidy is devised to give the benefit to the assessee by way of refund of the sales tax/MPCT/VAT CST deposited by the assessee on the sales effected by it in the Unit-II located in backward area. So the nexus of subsidy is linked to the capital investment made by the assessee for setting up a unit in backward area. In these given facts, the subsidy received during the year by the assessee, in our view is capital in nature. Our view is further supported by following various decisions: Name of Decision 1. CIT vs. Chaphalkar Brothers [2017] 88 taxmann.com 178 (SC) 2. PepsiCo India Holdings (P.) Ltd. vs. Addl. CIT [2018] 100 taxmann.com 159 (Delhi - Trib.) 3. Bhushal Steel vs. CIT(SC) 4. PCIT vs. Welspun Steel Ltd. [2019] 103 taxmann.com 436 (Bombay) 5. Johnson Matthey India (P.) Ltd. vs. DCIT [2018] 91 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the State Government in terms of which it was to undertake to make the requisite investment in fixed assets within the agreed Universal Cables Ltd. AY 2008-09 2009-10 time span. The said Scheme was to be operative from 01.04.2004 to 31.03.2009 and commercial production had to commence on or after 01.04.2004 but before 01.04.2009. 27. Since the assessee's project involved fixed capital investment of more than ₹ 60 crores and use of new technology for the first time in India, it was accorded the status of a mega project of special importance by the Apex Level Empowered Committee for Industrial Investment Promotion constituted under the chairmanship of the Chief Minister of the State of Madhya Pradesh and the package sanctioned for it, inter alia, included Industrial investment promotion assistance equivalent to....5% of the State and Central Sales Tax paid for every year for a period of seven years from March 29, 2007 to March 28, 2014 with a maximum cap of ₹ 60.25 crore. Industrial Investment Promotion Assistance:-,. An Industrial Investment Promotion Assistance, equivalent to 50% amount of Commercial Tax and Central Sales Tax (excluding Commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of assistance was to be adjusted against the sales tax liability of the year of claim. The subsidy amount is calculated @ 75% of the sales tax. The subsidy is given for 5 years from starting of commercial production. All these features of this scheme show that the subsidy is not given for meeting a part of the capital expenditure Universal Cables Ltd. AY 2008-09 2009-10 incurred by the assessee but as incentive for establishing or expansion of a unit and not for the specific purpose of meeting a portion of the cost of the assets. The subsidy is not directly relatable to any capital assets and not for the specific purpose of meeting a portion of the cost of the assets but it is the overall investment to make it eligible for availing the benefit. In the present case before us, the total capital investment cost for this project was 61 Crores. The State Government after evaluation of the proposed project of the company, granted certain fiscal incentives including Industrial Investment Promotion Assistance (UP A) for a period of 7 years from the date of Commencement of Commercial Production subject to fulfillment of condition as regarding infusion of capital investment as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng receipt. The Source of the fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project, the monies must be (related as to have been received for a capital purpose. Bill if monies are given to the assessee for assisting him in Carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. In the case of Sahney Steel and Press Works Limited and others vs. Commissioner of Income Tax (supra) though it was a sales tax subsidy but it was treated to be a revenue receipt as subsidy was given from the public funds granted by the Government by way of refund of sales tax, etc. on purchase of machinery etc. after commencement of production of enable the assessee to run its business more profitably, and not for selling up of the industry. 10. In the case of Commissioner of the Income Tax vs. Perini Sugars and Chemicals Ltd. (supra), their lordships of the Hon'ble Apex court have reiterated, the test for determining the nature of subsidy. In that case, their Lordships again reiterated that character of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the order of the Special Bench in the case of DCIT vs. Reliance Industries Ltd. (supra)) the Tribunal has held that nature of sales tax exemption subsidy received by the assessee is a capital receipt. xxx xxx. From the totality of the above facts, it is abundantly clear that the subsidy by way of sales tax exemption is provided to the assessee to set up a new unit and it is not being given to - the assessee to run the business more profitably. Therefore, on the above facts: in our opinion, the decision of Hon'ble Apex Court in the case of Panni Sugars Chemicals Ltd. (supra) as well as Sahney Steel Press works Ltd. Ors (supra) would support the case of the assessee rather than revenue. We also find that the Special Bench off TAT, Mumbai has considered the similar issue in the case of Reliance Industries Ltd. (supra), The-Special Bench held as under: The question for consideration is whether the Tribunal in the case of RIL had correctly appreciated and interpreted and interpreted the ratio of the decision of the Supreme Court in Sahney Steel. On a careful reading of the order of the Tribunal in the case of RIL, it appears to us that the ratio o ..... 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