TMI Blog2021 (4) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... rder) in the case of Thermo Cables Limited Vs. ACIT [ 2018 (8) TMI 2026 - ITAT HYDERABAD] Thus it is undisputed fact that the object of the Subsidy Scheme is only to encourage the setting up of industries and not to subsidize the operating expenses of industry. Therefore, we are of the considered opinion that the subsidy received by the assessee is only capital in nature. Accordingly, we reverse the orders of authorities below and allow the appeal filed by the assessee. - ITA No.574/PUN/2018 - - - Dated:- 6-4-2021 - Shri Inturi Rama Rao, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For the Assessee : Shri Kishor Phadke For the Revenue : Shri Vithal Bhosale ORDER This is an appeal filed by the assessee directed against order of the Commissioner of Income Tax (Appeals) - 9, Pune, dated 12.01.2018 for the Assessment Year 2014-15. 2. Briefly, the facts of the case are that the appellant is a company, incorporated under the provisions of The Companies Act, 1956. It is engaged in the business of manufacture and sale of Automatic Parking Systems. The return of income for the assessment year 2014-15 was filed electronically on 26.11.2014 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Package of Incentives and scheme was amended from time to time, known as 2001 Scheme which is operative from the 1st April, 2001 to 31st March, 2007. The stated object of Scheme is as under:- The State has declared the new Industrial, Investment, Infrastructure Policy 2006 to ensure sustained industrial growth through innovative initiatives for development of key potential sectors and further improving the conducive industrial climate in the State, for providing the global competitive edge to the State s industry. The policy envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced Regional Development and Employment Generation through Greater Private and Public Investment in industrial development. The Package Scheme of Incentives 2007 outlines the eligibility criteria, quantum of incentives and monitoring mechanism for administering the incentives. 7. Thus, it is clear that the object of the subsidy was to encourage setting up of industries in less developed areas. It is settled proposition of law that the test to be applied to determine whether the subsidy is capital or revenue in nature is the purposive test as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epayment 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 capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant. One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or our purpose is the fact that in para 18 of that judgment, the test of whether the receipt of subsidy is capital or revenue is stated as follows:- If any subsidy is given, the character of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as a trading receipt. The source of the fund is quite immaterial. 14. The Court went on, thereafter, to give a telling example in para 19 of the aforesaid judgment, which is set out herein below:-- For example, if the scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should submit utilisation certificates annually from Chartered/Cost Accountant, holding certificate of practice. Utilisation certificate in respect of each sugar season during the incentive period should be furnished on or before 31st December of the succeeding year. Failure to submit utilisation certificate within the stipulated time may result not only in the termination of release of incentive free sale quota, but also in the recovery of the incentive free sale releases already made, by resorting to adjustment from the free sale releases of future years. 17. The Court then referred to the background of the incentive scheme and to the fact that the Sampat Committee was set up to examine the question relating to the economic viability of new sugar factories. The Court then found in para 9 of the judgment that the Sampat Committee referred to the fact that the increase in the cost of new sugar factories was because of increase in the cost of plant and machinery. The Committee then stated that five possible incentives for making a sugar plant economically viable could be provided. It is two of such incentives referred to that was the subject- matter for decision before this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that this Court found that the assessee was free to use the money in its business entirely as it liked. 20. Finally, it was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature. 21. What is important from the ratio of this judgment is the fact that Sahney Steel was followed and the test laid down was the purpose test . It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. 22. Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that the issue raised in those appeals was covered, inter alia, by the judgment in Ponni Sugars Chemicals Ltd.case (supra) and the appeals were, therefore, dismissed. 25. We have no hesitation in holding that the finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference. 26. In coming to the West Bengal cases, we find that the West Bengal Finance Act, 2003 which amended the Bengal Amusements Tax Act of 1922 also provided: The Bengal Amusements Tax Act, 1922. The provision seeks to provide, in order to encourage development of multiplex theatre complex, a very modern and highly capital-intensive entertainment centre, financial assistance to the proprietors of such complex by allowing them to retain, by way of subsidy, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioners of Inland Revenue [1922] 12 Tax Cas. 427 and affirmed by Lord Macmillan in Van den Berghs Ltd. v. Clark [1935] 3 ITR (Eng. Cas.) 17, there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test. This proposition is as sound as it is well-expressed, and has been followed in numerous cases under the Indian Income-tax Act and also by this court. 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, and makes it fall within capital or revenue. The above principle had been reiterated by the Hon'ble Supreme Court recently in the case of Ponni Sugars and Chemicals (306 ITR 392) (supra) wherein it was held vide para 25 of the judgment that the fact that the subsidy took a particular form would make no difference. In the light of this position of law, the reasoning adopted by the Ld. CIT(A) cannot be appreciated and therefore the decision of the CIT(A) is not in accordance with the settled position of law. Accordingly, the grounds raised by the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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