TMI Blog2021 (11) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... oards (I) Ltd. [ 2020 (12) TMI 55 - ITAT KOLKATA] wherein the excise VAT subsidies received by the assessee post commencement of commercial production, from the Central Government and State Government for setting up new units in the States of Assam and West Bengal respectively, was held to be capital in nature We find merit in the claim of the assessee that the VAT subsidy received by it for undertaking substantial expansion at their unit was in the nature of capital receipt not liable to tax, since the object of granting of subsidies was to bring about industrial development, encourage fixed capital investment and generate employment in the State of Assam. Allow the grounds taken by the assessee and direct the AO to deduct the VAT subsidy both while computing income under normal computational provisions and book profit u/s 115JB of the Act for the relevant AY 2014-15.- Decided in favour of assessee. - I.T.A. No. 92/Gau/2019 - - - Dated:- 28-10-2021 - Shri P.M. Jagtap, Vice-President And Shri A. T. Varkey, Judicial Member For the Appellant : Shri Akkal Dudhwewala, A/R For the Respondent : Shri N.T. Sherpa, JCIT, Sr.DR ORDER PER SHRI A.T.VARKEY, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries (Tax Exemption) Order, 2009. According to the assessee, the intent and purpose of the Industrial Policy of Assam, 2008 was for establishing/substantial expansion of manufacturing units located in backward areas of State of Assam and generate employment for the local people, and therefore the nature of subsidy received under the State Industrial Scheme was in the capital field not exigible to tax. In support of this proposition, the assessee had relied on the decision of the Hon ble Supreme Court in the case of CIT vs. Ponni Sugar and Chemicals Limited (306 ITR 392) wherein it was held by the Hon ble Apex Court that, when the object of subsidy was to enable the assessee to run the business more profitably and/or to meet its recurring expenses, the receipt would be held to be on Revenue Account. On the other hand, if the object of subsidy scheme is to enable the assessee to set up new unit or expand the existing unit, then the subsidy received under such scheme is capital in nature. Therefore, according to the assessee, upon applying the purpose/object test to the Industrial Policy of Assam, 2008, and having regard to the substantial expansion undertaken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was eligible for deduction u/s 80- IC/80-IE of the Act. 7. Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is in appeal before us. 8. We have heard both the parties and perused papers on record. Before us, the Ld. AR of the assessee, Shri Akkal Dudhwewala submitted that the AO wrongly appreciated and applied the judgment of the Apex Court in the case of Sahaney Steel Press Works vs. CIT (supra) . According to him, the ratio laid down in that decision was explained by the Hon ble Apex Court in its latter judgment in the case of CIT vs. Ponni Sugar Chemicals Ltd. (supra) wherein the Hon ble Supreme Court held that whether the subsidy or grant given by the Government is in the nature of capital or revenue will have to be judged and decided with reference to the object and the purpose for which the subsidies are granted. It was pointed out by the Ld. A/R that according to the Supreme Court, if the principal object for grant of subsidy is to promote industry or to enable the assessee to set up or expand the existing unit or capital base, then such subsidy is capital in nature and cannot be taxed as income. The mere fact that quantification of the subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the subsidy received by it was as assistance for the carrying on the business and therefore it is not in the nature of Capital Receipt. The Ld. DR relied on the decision of the Hon ble Supreme Court in the case of Meghalaya Steels Limited (supra), and thus he does not want us to interfere with the order of the Ld. CIT(A). 11. Having heard both the parties and after perusal of records, we note that the assessee became entitled to the VAT subsidy under the Assam Industrial Policy Scheme, 2008. The assessee has claimed it to be capital in nature but the lower authorities have held it to be in the nature of revenue receipt by relying on the decision of the Hon ble Supreme Court in the case of M/s. Sahney Steel Press Works (supra) and Meghalaya Steels Limited (supra). So the bone of contention is whether the VAT subsidy which the assessee received, is Capital or Revenue in nature. To adjudicate this issue, we first refer to the recent judgment rendered by the Hon ble Supreme Court in a batch of appeals with the lead case of CIT vs. Chaphalkar Brothers Pune(supra) . In the instant case, the question before the Hon ble Supreme Court was whether the subsidy received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the State Industrial Policy (Page 33 of paperbook) which read as under: 4.1AIMS AND OBJECTIVES 1) To generate economic development by accelerating the process ofindustrialization. 2) To generate employment and increase income by encouraging the establishmentof micro enterprises. 3) To increase the share of the Industrial sector in the State Domestic Product (SDP). 4) To make Nature Economics Centric Development. 5) To make Agro and rural area linked industrial investment as focused programme. 13. He further pointed out that the said Industrial Policy clearly stated that the incentives under the Scheme were only available to new units or those existing units which undertook substantial expansion within the period prescribed in the policy i.e. 01/10/2008 to 30/09/2013. The relevant extracts thereof (Page 33 34 of paperbook) is as follows: 4.3 PERIOD OF VALIDITY OF THE POLICY The policy will be effective from 1/10/2008 and will be valid for a period of 5 years, i.e.up to 30/9/2013. All new units as well as existing units which go in for substantialexpansion and which commence commercial production within the period of validitywill b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a view to given them financial assistance in running of their business is found to be factually incorrect. 15. The Ld. AR thereafter invited our attention to Chapter 7 Tax Incentives of the Industrial Policy of Assam, 2008 (Page 39 of the paper book) which stated that, only those eligible units which fulfilled the eligibility criteria, would be entitled to exemption of 99% of the tax payable under the Assam Value Added Tax Act. Para 7.1 of the Industrial Policy stated that the Finance Department of the Government of Assam shall implement an agency for tax incentives and shall accordingly bring out a separate notification in this regard. 16. It was pointed out that, the Finance Department of the Govt. of Assam thereafter notified the Assam Industries (Tax Exemption) Scheme, 2009 vide Gazette Notification dated 03.11.2009for granting exemption to such units which manufacture goods in Assam and are considered eligible in the manner prescribed therein the Scheme, which was placed at Pages 40 to 48 of the paper-book. The said Scheme was in force from 01.10.2008 up to 30.09.2013. It is noted that three different categories of eligible units were specified for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunities in the State of Assam. The mode of paying the subsidy was by way of remission of VAT collections, which was disbursed from the date of commercial production. We thus find merit in the contention of the Ld. AR of the assessee that, since the object of the subsidy was to accelerate industrial development and generation of employment in the State, the incentive received in the form of VAT exemption was capital in nature. 19. The reliance placed by the Ld. CIT(A) on the decision of the Hon ble Supreme Court in the case of Meghalaya Steels Limited (supra) is foundto be misplaced. In this case, the grievance of theparties before the Court was, whether the subsidy received from the State had first degree nexus with the business of the assessee and therefore whether it is eligible for deduction u/s 80-IC and 80-IE of the Act. In the instant case, both the assessee and the Revenue had not disputed the nature of subsidies to be revenue in nature and therefore the Court was never called upon to adjudicate the nature/character of the subsidy and whether it is capital or revenue in nature. 20. The Ld. AR, in this regard, rightly invited our attention to the decision of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a that, the incentives received under the State Industrial Scheme, which was intended to stimulate industrial development and generate employment opportunities in the backward regions, was capital in nature and therefore not liable to tax. The relevant findings of the Court are as follows:- 20. What follows from the above discussion is the relevance and applicability of the purpose test to determine the nature of the receipt towards transport subsidy in the hand of the assessee. But before we proceed further with the matter, the Court has to deal with the contention of the revenue lawyer that the assessee cannot apply certain accounting method, in order to treat the received sum as capital receipt by including the amount in the reserve and surplus head, in the balance sheet. On this point we may benefit by referring to the ratio in Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC). Here the Supreme Court considered the accountancy practice and observed that when the question is whether a receipt of money is taxable or not or whether certain deduction from that receipt are permissible in law or not, the question has to be decided accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt and thus not taxable, in the hands of the assessee. 23. The transport subsidy received by a mustered oil unit located in Assam was the subject matter of consideration of the Apex Court in Jai Bhagwan Oil and Flour Mills (supra). In this case, the Supreme Court declared that the object of the Transport Subsidy Scheme is not augmentation of revenue but to improve trade and commerce between the remote parts of the country with other parts to bring about economic development of the remote and backward regions. The ratio of this case makes it clear that the amount received towards transportation cost in the hand of the assessee is capital receipt and the same cannot be subject to taxation in the hand of assessee, under the I.T. Act. 25. Following the above discussion and analysis and also the ratio of the decisions in Sahney Steel Press Works Ltd. (supra), Ponni Sugars Chemicals Ltd. (supra), Jai Bhagwan Oil and Flour Mills (supra) and applying the purpose test, we are of the considered opinion that the transport subsidy received by the assessee during the assessment year 2001-02 is intended to stimulate industrial activity in the backward region, to generate employment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed capital investment in plant and machinery for the purposes of expansion of capacity/modernization and diversification and have commenced commercial production from such expanded capacity on or after the 1st day of April, 2007 but not later than 31st day of March, 2017. 40. During the relevant year the assessee was also in receipt of subsidy in form of refund of sales tax/VAT from the State of West Bengal under the West Bengal Incentive Scheme, 2000 which was formulated expressly for the purpose of attracting private investment in the State of West Bengal in the specified areas which are industrially backward. To promote industrialization, the Government offered various incentives/ subsidies including 'Industrial Promotion Assistance' ( IPA ) in form of refund of 50% of sales tax paid for a period of fifteen years. The subsidy was therefore directed towards industrial development in the State. The assessee received an eligibility Certificate dated 07.07.2004 from the Government of West Bengal for setting up a new unit for manufacturing high pressure decorative laminates having capacity of 24 lacs sheets. The object and applicability of the West Bengal Incentive Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing book profit u/s.115JB of the Act, these subsidies should be excluded though it is credited in the profit and loss account. In support of this proposition, he relied on the judgment of the Hon ble jurisdictional High Court in the case of Pr. CIT vs Ankit Metal Power Ltd (416 ITR 591) and the decisions rendered by this Tribunal in the cases of DCIT vs Emami Biotech Ltd. in ITA No. 1915/KOL/2017 and SICPA India (P) Ltd. vs DCIT (80 taxmann.com 87). Per contra, the Ld. CIT, DR argued that since this claim was not made before the AO by filing revised return of income, it should not be admitted at this stage. 43. We have considered the rival submissions of both the parties. From the facts as already discussed in the foregoing, it can be safely inferred that the subsidies were granted to the assessee for setting up new units in the States of West Bengal and State of Assam. The Hon ble Supreme Court in the case of CIT Vs Chaphalkar Brothers (supra) has held that the subsidies granted under the State Industrial Scheme to accelerate industrial development and generate employment is capital in nature. The relevant extracts of the judgment are as follows: 44. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore not liable to tax. In the circumstances therefore, inclusion of such capital receipt in the computation of book profit u/s 115JB would defeat two fundamental principles. Firstly, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. We thus find merit in the assessee s claim that the said subsidies being capital in nature, deserves to be excluded from the computation of book profit u/s 115JB of the Act. 46. It is noted that in the context of similar State Industrial Scheme, the jurisdictional Hon ble Calcutta High Court in the case of Pr.CIT Vs Ankit Metal and Power Ltd (416 ITR 591) held that subsidies received for setting up new industry is not in the nature of income and therefore cannot be deemed as income for the purposes of computing book profit u/s 115JB of the Act. In the decided case the assessee had received interest subsidy under the WB Incentive Scheme, 2000 and power subsidy under the Power Intensive Industries Scheme, 2005 for setting up Sponge Iron Plant in Bankura. Before this Tribunal, the assessee claimed that receipt of such subsidies in form of remissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits u/s.115JB of the Act, even though these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. In rejecting the claim of the Assessee in this regard, the AO held that these sums have been credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. 22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec.115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income- tax, payable on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion does not have any character of income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Dy. CIT v. Binani Industries Ltd. [2016] 178 TTJ 658 : had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon'ble Apex Court in case of Indo Rama Synthetics (I) Ltd. v. CIT [2011] 330 ITR 336/9 taxmann.com 25, Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. v. Dy. CIT [2010] 40 SOT 265 (Hyd.) (SB), ITAT Luknow Bench in the case of ACIT v. L.H. Sugar Factory Ltd. and vice versa in ITA Nos. 417 , 418 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P.) Ltd. v. Dy. CIT [2015] 70 SOT 92/60 taxmann.com 314, came to the conclusions (i) the object of Minimum Alternate Tax (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Mumbai Bench of the ITAT in the case of Shivalik Venture (P.) Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: '26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term income as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as incomes not included in total income for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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