TMI Blog2022 (1) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee Eligibility for deduction u/s 80-IB - nature of subsidy has treated the incentive by way of central excise refund (generally called CENVAT credits) in relation to the Jammu unit - HELD THAT:- The refund of CENVAT credit on the facts of the present case is capital subsidy in view of the principle laid down by the Hon ble apex court in case of Shree Balaji Alloys [ 2016 (4) TMI 1161 - SC ORDER] and also the judgement of the Tribunal in the group concern of the assessee as cited Montage Enterprises Pvt. Ltd [ 2018 (7) TMI 209 - ITAT DELHI] and Ultimate Flexipack Ltd. [ 2019 (3) TMI 1298 - ITAT DELHI] MAT computation u/s 115JB - Since we have already held that the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J K as formulated by the Central Government is a capital receipt not liable to tax, accordingly the same cannot be part of book profit under Section 115JB also Characterization of receipts - taxability of receipts - VAT subsidy being capital in nature - HELD THAT:- For the year under consideration the assessee has placed on record relevant assessment passed by the authorities under the Uttar Pradesh VAT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowing expenses without examining the direct and immediate connection with dividend income. There was no expenditure incurred in relation to dividend exempt income. 4. That on the facts and in the circumstances of the case, the lower authorities erred by including such investments under rule 8D(2)(iii) from which no exempt dividend is received or not likely to be exempted. 5. That on the facts and in the circumstances of the case, the lower authorities erred in law in not appreciating the difference between a simple investment to earn income from dividend or interest or a Business investments made as a promoter with a motive to hold a controlling stake with a view to manage the company. 6. It is contended that on the facts and circumstances of the case and in law, refund of Excise duty (Self Cenvat Credit) amounting to ₹ 3,29,12,376/- is a capital receipt not liable to tax under the provisions of Income Tax Act, 1961. 7. It is contended that on the facts and circumstances of the case and in law, refund of Excise duty (Self Cenvat Credit) amounting to ₹ 3,29,12,376/- is a capital receipt not includible in the determination of total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for earning the dividend from M/s Flex Foods Ltd., the appellant has not incurred any expenditure at all as dividend warrant were directly credited in the account. On such facts, the appellant stated that while computing the disallowance, if any, u/s 14A (2) of the Act, the disallowance has to be restricted in relation to the other companies from whom the dividend has been received and that too, to the extent of actual expenditure so incurred. For this purpose, the appellant relied upon the judgment of Hon ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT in 347 ITR 272. 4.2 However, the ld. Assessing Officer denying the assessee s claim having regard to the nature of expenses claimed and the exempt income earned, proceeded to apply Rule 8D and worked out the disallowance at ₹ 1,95,33,819/-. The ld. CIT (Appeals) gave relief to the extent of ₹ 1,66,07,634/- on the ground that in so far as the interest expenditure is concerned, the assessee had not utilized any borrowed funds for acquisition of investments but were made from assessee s own surplus funds. However, he confirmed the computation of administrative expenses @ 0.5% under Rule 8D(2)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The appellant stated that the Jammu unit was established on 20th September 2007 under the incentive scheme framed by the Central Government for the purpose to boost industrialization in order to improve employment opportunities in the State. For such purposes, the Central Government has announced a new Industrial Policy and allowed various concessions for the State of Jammu Kashmir floated by Office Memorandum dated 14th June 2002 on the request of the Government of Jammu Kashmir for a special package for development of the industries in the State. 6.1 The Government of India, Ministry of Commerce Industry (Department of Industrial Policy and Promotion) issued its Office Memo dated 14th June 2002 - copy thereof has been placed at page 281 of the paper book wherein it was provided that keeping in view the fact that the State of Jammu Kashmir lagged behind in industrial development, there was need for structured interventionist strategies to accelerate the industrial development of the State and boost investors confidence. These fiscal incentives were to be provided to the new industrial units as well as to the industrial units who have made substantial expansion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing: Concessions for substantial expansion should extend to include all new investments by entrepreneurs, which leads to substantial additional employment creation by an existing entrepreneur without insisting on major expansion. However, credit under the Industrial Policy Package should not be merely for paying off old debts or for equipment already in place. 6.3 All these notifications, as issued by the Central Excise for the refund of central excise paid by the new industrial undertakings or who have taken substantial expansion were considered by the Hon ble J K High Court in the case of Shree Balaji Alloys vs. CIT in 333 ITR 335 and after considering the aims and objects of the scheme formulated by the Central Government for the refund of central excise (generally called CENVAT), held that the purpose of the scheme was to boost the industrialization of J K to create employment opportunities in the State. 7. The ld. Assessing Officer however, held that refund of Excise credit in the form of subsidy received by the industrial undertaking though has been decided in favour of the assessee in the group concern by the ld. CIT (Appeals), however, the Revenue is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the fact that it was granted only after commencement of production would make no difference. 11. Before us, the appellant has further, placed on record that even the Coordinate Delhi Bench in the following group concerns of the assessee, after considering the judgment in the case of Shree Balaji Alloys (supra) in exactly similar set of facts and nature of subsidy has treated the incentive by way of central excise refund (generally called CENVAT credits) in relation to the Jammu unit as capital receipts not liable to tax. (i) ITA No. 5124/Del/2011 dated 29th June 2018 Montage Enterprises Pvt. Ltd. vs. DCIT (Paras 9 to 60) (ii) ITA No. 2199/Del/2009 dated 20th March 2019 Ultimate Flexipack Ltd. vs. DCIT. 12. Thus, we hold that the refund of CENVAT credit on the facts of the present case is capital subsidy in view of the principle laid down by the Hon ble apex court and also the judgement of the Tribunal in the group concern of the assessee as cited above. 13. Consequently, ground No. 2 as raised by the Revenue is dismissed as infructuous as we have already held that it is a capital receipt and not exigible to tax. 14. Regarding issue raised vide Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Nos. 204 of 2010 and 85 of 2014 vide order dated 22nd August 2017 has not admitted any question of law in appeal filed by Revenue. 15. Since we have already held that the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J K as formulated by the Central Government is a capital receipt not liable to tax, accordingly the same cannot be part of book profit under Section 115JB also. Consequently, ground No. 7 is also allowed. 16. Before us, the assessee has raised additional grounds in respect of Sales Tax subsidy amounting to ₹ 19,22,32,000/- by way of refund of Uttar Pradesh VAT under the Uttar Pradesh Industrial Policy, 1994 as capital receipt and also to be excluded from the computation of book profit under Section 115-JB of the Act. The additional grounds raised by the appellant for the sake of ready reference are reproduced hereunder:- (1) It is contended that the sum of ₹ 19,13,32,000/- being VAT refund claimed under Uttar Pradesh VAT Act 2008 is a capital receipt being the amount of identical amount paid by the appellant and thus not exigible to tax. (2) It is contended that sum of ₹ 19,12,32,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. The Primary sector contributes around 45 per cent of the state s income. Unemployment and poverty are the major problems of the state. In the year 1994- 95, the total number of unemployed stands at 26 lacs and that of semi-employed at 78 lacs. U.P. lags behind other states of the country in per-capita income. Infrastructural facilities, industrial activity, human development index etc. However the state has shown remarkable progress in the agricultural sector and it contributes 21 per cent of the total fertilizer produced in the country. Owing to the lack of adequate infrastructure facilities, investment in the industrial sector remains lower than the expected level. However, new industry is undergoing a rapid transformation. 20.2 The purpose and object of managing the incentive scheme have been described in the heading Preface in following words: The underlying principal of the new industrial policy is that industrial development is an integral component of agricultural and rural progress. The prime objective of this policy is to ensure creation of maximum employment opportunities and eradication of poverty. 20.3 The objective of the scheme has also bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Housing Energy Education Road Medical Drainage and Sewerage Commercial Centre Telecommunication Entertainment Transport Community Welfare Other facilities like Bank, Post Office, Police Station etc INFRASTRUCTURE MAPPING Considering the importance of infrastructural facilities, the state Government is undertaking the exercise for the mapping of existing facilities for ascertaining the position regarding their availability in industrial areas. This would also enable identification of infrastructural gaps as well as assessment of requirement for the future. PRIVATE SECTOR PARTICIPATION IN THE DEVELOPMENT OFINFRASTRUCTURAL FACILITIES A policy for encouraging private sector participation in providing top class infrastructural facilities has been adopted. Special emphasis will be laid on providing following infrastructural facilities with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement. (d) Special incentive would be considered in such industrial areas. Decisions in this regard will be taken by the Empowered Committee under the chairmanship of the Chief Secretary. ESTABLISHMENT OFINFRATRUCTURE FUND The State Government has proposed to set up an infrastructure fund. This fund would be used to develop top class infrastructural facilities. This fund is proposed to be financed by the state level corporations/institutions, national financial institutions and other such organizations apart from State Government. Attempts shall be made to procure contribution from Central Government as well. ARRANGEMENT OF LAND Rationalization of procedure for procuring land above 12.5 acres Procedure for obtaining land for industrial projects has been considerably streamlined. Divisional Commissioners have been authorized in place of State Government to grant permission for obtaining land above 12.5 acres. SETTING UP OF AN AUTHORITY FOR MAINTENANCE OF INDUSTRIAL AREAS Maintenance of industrial areas is also important apart from the development of such area. To fulfil this objective, industrial area maintenance authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and canals to industrial units. o Government guarantee for loans to be taken by State level financial institution, Industrial authorities and Public sector Authorities. o Analyses and improvements of the existing policies , rules and regulations. o Any other matter pertaining to industrialization of the state. IMPROVEMENT IN THE DECISION MAKING PROCESS Strengthening of single window* system The Single Window System is being made operational through the Udyog Bandhu at the district level under the chairmanship of District Magistrate, at the divisional level under the chairmanship of Divisional Commissioner and at the state level under the chairmanship of Chief Minister. Prescribed Committees of the Industrial Development authorities have been authorized to issue most of the sanctions at their own level. Efforts shall be made to make the system of Single window clearance even more effective. High Level Joint Committee A High Level Joint Committee has been constituted under the chairmanship of Principal Secretary (Heavy Industry) which will have representations from various industrial organizations and the Government. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment. C category Districts 8 Years 1st Year 100% 2nd Year 100% 3rd Year 75% 4th Year 75% 5th Year 50% 6th Year 50% 7th Year 25% 8th Year 25% 150% of Fixed Capital Investment 175% in case of Small Scale Units) SPECIAL INCENTIVE TO LARGE INDUSTRIAL UNITS In order to attract large industrial units to the State, it is proposed to provide special incentive to such units. This Incentive shall be in addition to the ones listed in the policy. This attraction would be in the form of concessions/incentive with reference to land or its value, trade tax etc. This facility shall be given on a case to case basis to the units which have an investment of more than ₹ 50 crores. It shall be dependent on the benefit that will accrue to the State as a consequence of setting up of such a unit. Decisions shall be taken on the basis of location of the unit employment potential and the possibilities of down-stream projects apart from the contributed to the general economic development of that area. This facility shall include declaration of functions of such units as essential service i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government to specify in the notification under sub-section (1) that the exemption from, or reduction in the rate of tax, shall be admissible- (a) generally in respect of all such goods manufactured subsequent to the date of such notification; or (b) in respect of such of those goods only as are manufactured in a new unit, the date of starting production whereof falls on or after the first day of October, 1982; or in either case (bb) in respect of those finished goods which are manufactured in a unit which has undertaken backward integration; or (c) in respect of those goods only which are manufactured in a unit which has undertaken expansion, diversification or modernization on or after April 1, 1990, and which in the case of diversification, are different from the goods manufactured before such diversification, and in the case of expansion or modernization are additional production as a result of such expansion or modernization; and (d) only if the manufacturer furnishes to the assessing authority an Eligibility Certificate granted by such officer, in accordance with such procedure, as may be specified; (e) with effect from a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of exemption available with reference to the capital investment made in the industrial units after obtaining the eligibility certificates from the office of the district industry centres or other industrial development organization, as the case may be - copy of notification dated 21st February 1997 placed at page 368 of the paper book. As per article 6 of the said notification, the capital investment would include: Land, building, plant 8s machinery, modes, dyes and fixtures. 20.9 The entitlement of the incentive under the scheme has been fixed on the basis of location of the unit as mentioned in article 7 of the notification. The assessee s industrial unit was located in district Ghaziabad. For district Ghaziabad, the availability of the incentives was fixed at 150% of the capital investment. 20.10 The eligibility certificate dated 19th August 1997 was issued by the Addl. Director Industries, Noida certifying the eligibility from exemption of trade tax up to 150% of the incentive investment - the copy thereof has been placed at page 391 of the paper book. 20.11 Another eligibility certificate dated 3rd November 2003 was issued by the Addl. Chief Executiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of exemption or reduction in the rate of tax is based on the fixed capital investment as provided under the erstwhile Act or notification issued there under; or (ii) an industrial unit purchased from the State Government or any corporation or undertaking owned or controlled by the State Government and to whom exemption or reduction in the rate of tax has been granted under the erstwhile Act may apply to the Commissioner for issue of the Certificate of Entitlement in the prescribed form and in prescribed manner. (b) The Commissioner after examining the relevant records and report from the assessing authority and if he is satisfied that the information furnished is correct and complete, shall issue within 60 days from the date of receipt of the application, the Certificate of Entitlement in prescribed form and in prescribed manner containing such particulars as may be prescribed including period of validity of certificate and amount of entitlement if any. (c) If the Commissioner is satisfied that particulars furnished by an industrial unit in the application is wrong or incomplete or is not worthy of credence, he shall after giving the applicant the opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t tax computed under clause (i) above, in proportion to the rate of tax available for exemption to the rate of tax payable under the erstwhile Act, in case of an industrial unit availing benefit of reduction in the rate of tax (4A) The industrial unit availing or granted benefit of exemption from tax on the turnover of purchase before the date of commencement of this Act shall be entitled for exemption by way of refund of Earned Input Tax Credit computed on the basis of data declared in the documents submitted along with the return of tax period in prescribed manner and on fulfilling the following conditions that,- (a) the industrial unit shall hold valid Certificate of Entitlement issued by the Commissioner as provided under sub-section (3); (b) the amount of refund shall not be more than an amount equal to input tax credit earned during relevant tax period, (c) the refund shall be subject to the provisions of section 40 except that the amount shall not be adjusted against the admitted tax liability, (d) the facility of refund shall cease on the day when the amount or the period mentioned in the Certificate of Entitlement, whichever is earlier, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest shall be refunded in such manner as may be prescribed. (8) The industrial unit availing the benefit of tax deferment as provided under sub-section (2) or availing the facility of refund as provided under subsection (4), shall be eligible to issue tax invoices and to claim input tax credit subject to provisions of section 13.The industrial unit availing the facility of refund on both sale and purchase, shall be eligible for claiming Input Tax Credit while computing net tax payable on the turnover of sale of goods described in the Certificate of Entitlement. (9) Where the amount or the period for exemption or reduction in the rate of tax changes on account of any valid reason or otherwise, the Commissioner shall suo motu or on an application of the industrial unit, amend the certificate of entitlement accordingly. (10) The facility of refund shall be available under this Act and under the Central Sales Tax Act, 1956. (11) An industrial unit claiming the refund under this section shall not be deemed to have been assessed based on the returns filed by it and any refund made shall be subject to assessment requiring production of accounts in sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons/assessees who were eligible for the incentives under the UP Industrial Policy and were having the entitlement certificates were exempted from payment of trade tax on their turnover. However, under the new UP VAT Act, the persons who were eligible for the incentives and were availing exemption from payment of tax under the Trade Tax Act are now required to pay VAT first on their turnover to the State Government and in turn thereafter the State Government will issue the refund. 20.14 The quantification of refund under the scheme has also to be made by the authorities while framing the assessment under UP VAT Act. For the year under consideration, the relevant assessment has been made by the VAT Authorities vide order dated 6th April 2013 - copy thereof has been placed at page 398 of the paper book and the eligibility of the VAT refund has been worked out by the authorities at internal page 14 of the order at ₹ 19,12,31,759/-. 21. The ld. counsel contended that the nature of incentives provided under the UP Industrial Scheme either by way of granting of exemption from payment of trade tax or the refund of VAT has to be examined with reference to the objects and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax exemption or refund of the Vat has been allowed to the entrepreneur by the State Government only for the purpose and having an object to boost industrialization of the State, by way of establishment of new industries so that more generation of employment could be made which is a prime responsibility of the State Government. 26. In the case of Sahney Steel Press Works Ltd. vs. CIT in 228 ITR 253, the Hon ble Supreme Court, while examining the incentive received by the said assessee from the Andhra Pradesh Government, which was to be given to all new industrial undertakings, at page 262 of the Report observed as under: 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 funds is quite immaterial. From the aforesaid observation of the Hon ble Supreme Court in the case of Sahney Steel (supra), it is clear that the nature of the incentive of the subsidy receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That 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 utilized for repayment of loans taken by the assessee to set up new units or for 11 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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