TMI Blog2019 (7) TMI 1762X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds of appeal raised by Revenue. - ITA No.446/PUN/2017 - - - Dated:- 15-7-2019 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Appellant : Shri S.B. Prasad. For the Respondent : Shri C.H. Naniwadekar. ORDER Per Sushma Chowla, JM: The appeal filed by Revenue is against order of CIT(A)-1, Pune, dated 18.11.2016 relating to assessment year 2012-13 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The Revenue has raised the following grounds of appeal:- 1. The order of Ld. CIT(A) is contrary to law and on facts and in the circumstances of the case. 2. The Ld. CIT(A) has erred in law and on facts and in the circumstances of the case in directing the AO to delete the addition made by him by treating the subsidy as revenue receipt. 3. The Ld. CIT(A) has erred in law and on facts and in the circumstances of the case by treating the subsidy as capital receipt even though the assessee‟s case clearly falls within the ambit of principles laid down by Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd. 4. For these and such other grounds as may be urged at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unit Subsidy pertaining to (Financial Year) Nature Amount Rs. Bokaro Capital Investment Subsidy 4,00,00,000 Bokaro 2008-2009 Capital Investment Subsidy (On payment of commercial taxes) 1,16,49,000 Bokaro 2009-2010 Capital Investment Subsidy (On payment of commercial taxes) 4,57,33,000 Sub Total A 9,73,82,000 Jejuri 2009-2010 Industrial Promotion Subsidy (IPC) 9,02,636 Jejuri 2010-2011 Industrial Promotion Subsidy (IPC) 36,22,104 Sub Total B 45,24,740 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same has been granted for expansion of existing plant on account of being eligible for Industrial Promotion subsidy (IPS) under package scheme of incentives 2007 issued by Govt. of Maharashtra as per which quantum of subsidy is linked to Fixed capital Investment. 7. Thus, from the perusal of Scheme under which subsidy has been granted to appellant by both the states i.e. Jharkhand and Maharashtra, it is clear that the same was given for capital investment and the same is also linked to capital investment. The fact that part of subsidy was given by way of refund of Sales tax/VAT paid by the appellant is immaterial as the same will not change the character of payment which is for the purpose of infrastructure development in the field of industry. The AO has treated the receipt as revenue on the ground that payment was received after start of commercial production and since the same was granted by way of Sales tax refund, the same was of revenue nature This stand of the AO cannot be accepted for the simple reason that what is important is the purpose for which subsidy has been granted and not the manner in which the same was granted. From the Scheme of subsidy granted by bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment capital not exceeding ₹ 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. The Hon'ble Supreme Court in Sahney Steel Press Works Ltd. Vs. CIT (supra) further held, on the facts of that case, that as no financial assistance was granted to the assessee for setting up of the industry, the idea of the subsidy scheme was to provide a helping hand for five years in order to enable the industry to be viable and competent. 10. Then, the Hon'ble Supreme Court in CIT Vs. Chaphalkar Brothers Pune (supra) has made reference to judgment in Ponni Sugars Chemicals Ltd. 2008 (9) SCC 337 and it was observed as under:- The next important judgment that was referred to is the judgment in Ponni Sugars Chemicals Limited (supra). On the facts in that case, incentives given under a scheme relating to sugar production were in the nature of a higher free sale sugar quota, and also allowing the manufacturer to collect excise duty on the sale price of free sale sugar in excess of the normal quota but to pay to the government only the excise duty payable on the price of levy sugar. Clause 7 of the aforesaid sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held: The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to the applied in judging the character of a subsidy. The test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned in this case is that the incentive must be utilised for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the Subsidy Scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... okaro Subsidy: The company has set up Air Separation Plant in the premises of Bokaro Steel Plant (Steel Authority of India) at Bokaro in the accounting year 2008-09. The commercial production commenced on 13th December 2008. The said plant is eligible for Investment Promotion Incentive i.e. Capital Subsidy under Jharkhand Industrial Policy 2001 and categorized as Mega Project. Accordingly it is entitled for Capital Investment Subsidy of 5% of fixed capital investment subject to maximum of ₹ 4 crores and 75% of amounts received by Govt. towards Commercial taxes (VAT and CST) for the period of seven years from the date of commercial production i.e. 13th December 2008. The Capital Investment Subsidy (75% of commercial taxes paid) for the period 13th December 2008 to 31st March 2009 is received by us on 28th December 2011. The same is accounted in accounting year 2011-12 by crediting capital subsidy account under Reserves and Surplus. Also Capital Subsidy of ₹ 4 crores and Capital Subsidy (75% of commercial taxes) for FY 2009-10 is accounted in accounting year 2011-12 by crediting capital subsidy account in the books of accounts on the basis of sanction letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of assessee that the subsidy received by it by way of refund of sales tax paid is capital in nature. The assessee had reduced the said amount from total income, but however the Assessing Officer held the said amount to be taxable in the hands of assessee treating the said receipts as revenue receipts. The CIT(A) upheld the order of Assessing Officer. 7. We find that similar issue arose before the Tribunal in assessee‟s own case in ITA No.601/PN/2013, relating to assessment year 2009-10 and ITA No.215/PN/2014, relating to assessment year 2010-11, wherein vide consolidated order dated 24.03.2017, the Tribunal has elaborately considered the scheme under which the assessee was given the said subsidy and has observed that the said incentive received by the assessee under PSI, 2007 Scheme in the form of refund of sales tax was capital receipt and not liable to tax. The said ratio laid down by the Tribunal is squarely applicable to the facts and issues raised in the present case also, since the subsidy by way of refund of sales tax has been received by the assessee under the said scheme itself. We are referring to the order of Tribunal in this regard but the same is not b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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