TMI Blog2018 (8) TMI 2026X X X X Extracts X X X X X X X X Extracts X X X X ..... ) TMI 14 - SUPREME COURT] The object behind the grant of subsidy is important to determine the nature of the subsidy. In the present case, the scheme specifically provides that the incentives are given to promote industrial investment to all new eligible industrial units. Therefore, we have no hesitation to conclude that the object behind the grant of subsidy is only to promote the setting up of new industry and therefore having regard to the ratio laid down by the Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd [ 2008 (9) TMI 14 - SUPREME COURT] and CIT vs. Chaphalkar Brothers [ 2017 (12) TMI 816 - SUPREME COURT] he subsidy amount granted is capital in nature and cannot be brought to tax. The fact that the subsidy is in the form of concession of the power tariff is not relevant to decide the nature of the subsidy in the light of settled proposition of law that it is the quality of payment that is decisive of the character of the payment and not the method of the payment or its measure. Appeal filed by the assessee is allowed. - ITA No. 1177/Hyd/2017 - - - Dated:- 29-8-2018 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT ME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up a new industry in the State of Andhra Pradesh in terms of Industrial Investment Promotion Policy for 2005- 2010 by G.O.Ms.No. 178, dated 21.06.2005. He had taken us through the contents of the said G.O., placed at page 31 of the paper book. Vide para 3.3.5 of the said G.O., it is stated that the eligible units shall be entitled for reimbursement of power cost @ ₹ 0.75 per unit during the first year of the policy and the balance of four years of the policy the rate of reimbursement being so regulated on early basis keeping in view the tariff structures to ensure that power cost to the industry is pegged down to the first year s level. Further, vide para 4 of the said G.O., the object behind the grant of subsidy was stated and for the sake of ready reference, the said para is extracted as under:- 4. To promote Andhra Pradesh as attractive and competitive destination for industrial investments, the State Government have offered various incentives / benefits to all eligible new industrial units set up in the State except in the Municipal Corporation limits f Visakhapatnam, Vijayawada and Hyderabad and commence commercial production on or after 1.4.2005 but before 31.33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an incentive for setting up of a new industry in the eligible area is capita in nature or revenue. On perusal of the G.O.Ms.No.178, dated 21.06.2005 it is clear that the subsidy is granted as an incentive for setting up of a new industry in the State of Andhra Pradesh in the eligible area. No doubt, the subsidy is in the form of reduction / concession in the power tariff which is obviously on revenue account. The Hon ble Supreme Court in the case of Sahney Steel Press Works Ltd (228 ITR 253) (supra) had decided that if the monies are given to the assessee for assisting them in carrying out their business operations after commencement of production such subsidy must be treated as a assistance for the purpose of trading which can be brought to tax as revenue receipt. The said proposition in the case of Sahney Steel Press Works Ltd (supra) was distinguished by the Hon ble Apex Court in the case of Ponni Sugars and Chemicals Ltd (supra) and held as under:- Ponni Sugars (supra) was the authority relied on by the assessee. In Panni Sugars (supra), the court observed about the decision in Sahney Steel (supra) as follows: The importance of the judgment of this court in Sahney ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring to the earlier decisions in the case of Sahney Steel Press Works Ltd (supra) and Ponni Sugars and Chemicals Ltd (supra) held as under:- 11. Having heard learned counsel for both sides, it becomes necessary to analyze the judgments relied upon. 12. In Sahney Steel Press Works Ltd.'s case (supra), the notification issued by the Andhra Pradesh Government was concerned with certain facilities and incentives which were to be given to all new industrial undertakings which commenced production on or after 01.01.1969 with investment capital not exceeding ₹ 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. Concession was also available for subsequent expansion of 50% and above. The incentives were in the form of, inter alia, refund of sale tax on raw materials, machinery and finished goods. This Court 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. In doing this, in paragraph 9 of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. Thereafter, the Court went on to discuss certain High Court judgments and, in para 30, specifically referred to the Bombay High Court judgment inSadichha Chitra v. CIT [1991] 189 ITR 774 and approved the view taken by the Bombay and Kerala High Courts as they accorded with the principle laid down in Seaham Harbour Dock Co. case (supra) The facts in Sahney Steel Press Works Ltd's. case (supra) were distinguished from the facts of the Bombay and Kerala judgments as follows:- In the case before us, subsidies have not been granted for production of or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. Applying the test of Viscount Simon in the case of Ostime it must be held that these subsidies are of revenue character and will have to be taxed accordingly. 16. The next important judgment that was referred to is the judgment in Ponni Sugars Chemicals Ltd. case (supra). On the facts in that case, incentives given under a scheme relating to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion capacity. In other words, the extent of the increase of free sale sugar quota depended upon the increase in the production capacity. (iv) The benefit of the Scheme had to be utilised only for repayment of term loans. 18. After discussing the judgment in Sahney Steel Press Works Ltd.'s case (supra) this Court then 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 ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. 23. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT [2011] 9 taxmann.com 255/198 Taxman 122/ 333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Bengal cases must follow the judgment that has been just delivered in the Maharashtra case. 28. Accordingly, the appeals filed by the Department are dismissed. 9. Thus, from the above it is clear that the object behind the grant of subsidy is important to determine the nature of the subsidy. In the present case, the scheme specifically provides that the incentives are given to promote industrial investment to all new eligible industrial units. Therefore, we have no hesitation to conclude that the object behind the grant of subsidy is only to promote the setting up of new industry and therefore having regard to the ratio laid down by the Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd (supra) and CIT vs. Chaphalkar Brothers (supra), the subsidy amount granted is capital in nature and cannot be brought to tax. The fact that the subsidy is in the form of concession of the power tariff is not relevant to decide the nature of the subsidy in the light of settled proposition of law that it is the quality of payment that is decisive of the character of the payment and not the method of the payment or its measure. The Hon ble Apex Court in the case of Senairam D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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