TMI Blog2018 (4) TMI 1928X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of this appeal. 3. Facts of the case in brief are that the assessee filed the return of income on 27.09.2011 declaring Nil income after claiming deduction u/s 80IB of the Income Tax Act, 1961 (hereinafter referred to as the Act). Income declared u/s 115JB of the Act was at Rs.147,46,87,332/-. Subsequently, revised return was filed on 30.03.2012 with the same figures as were in the return filed on 30.03.2012. Thereafter, the assessee again revised return of income on 30.03.2013 declaring Nil income (income u/s 115JB of the Act declared at Rs. 147,37,82,015/-). The said return of income was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. The AO did not allow the subsidies claimed by the assessee by observing in para 4 of the assessment order dated 29.01.2014 which reads as under: The assessee has claimed following subsidies: i) Interest subsidy under Rajasthan Investment Promotion scheme of Rs.1,06,12,610/- ii) 3% Central Interest subsidy received on working Capital loans Rs.3,61,15,924/- iii) 4%/5% Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracter 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 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 of the mechanism through which the subsidy is given is irrelevant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l development in the state . It is also noticed that subsequently another notification dated 28th November, 2003 was issued, a copy whereof is placed at page 59 of the appellant's paper book. The said notification makes it very clear that the purpose of the subsidy being granted was creation of employment opportunities in the State of Jammu Kashmir. The relevant extracts of the said notification are as under: No.1(111)/2012-NER - In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and self employment opportunities in Jammu Kashmir, the Government of India had set up a Task Force under Cabinet Secretary. The recommendations of Task Force were submitted to the Cabinet. To achieve this object of employment generation, the Cabinet has, inter alia, approved following definition of the term substantial expansion' for the purpose of incentives/ subsidies notified as per O.M. No.1(13)/2000-NER dated 14.06.2002. 2. The Central Government, therefore, hereby makes amendment in the Central Interest Subsidy Scheme, 2002 notified in the notification of the Government of India in the Ministry of Commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy were capital receipt not liable to tax. Some of the relevant observations of the High Court are reproduced as under: 22. Perusal of the Office Memorandum dated 14-6-2002 indicating New Industrial Policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz., (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu and Kashmir. Amendment introduced to the Office Memorandum vide Notification of 28-11-2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) eloquently demonstrates the Central Government's intention in extending the incentives. The Government's objective, as conveyed by Hon'ble the Prime Minister at Srinagar on 19-4-2003, was, for creation of one lakh employment and self-employment opportunities in Jammu and Kashmir State. 23. To achieve the purpose and objective referred to herein above, it was, inter alia, provided in the Central Excise Notifications that the exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere Production and Trade Incentives, as held by the Tribunal. 28. Making of additional provision in the Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved. 29. The other factors, which had weighed with the Tribunal in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid Rajasthan Investment Promotion Scheme was also shown as part of other income in the Schedule 15 of the audited accounts. These facts, in my view, leads to the conclusion that since the subsidy was provided for promoting investment in the state of Rajasthan and was linked to capital investment/additional wages being provided, the same was granted in larger public interests and hence constitute capital receipt not liable to tax. Accordingly, it is held that subsidy of Rs.44,64,000 received under the above unit was not liable to tax. * 5% interest subsidy TUFS by Government of India TUF Scheme was introduced by the Government of India, Ministry of Textiles for Textile Industries. On perusal of the objective of the TUF scheme placed at pages 88 to 199 of the appellant's paper book, it is noticed that the said scheme was introduced to promote technological upgradation in the Indian Textile Industry. This fact is clear on perusal of the objective as stated in the Government Resolution on TUFS on Techno-Operational Parameters bearing No. 6/4/2007- CTI dated May, 20-08. The relevant extracts of the said resolution are reproduced hereunder: 1. In spite of a strong and div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segments for high value addition and employment generation and accords high priority to decentralized powerlooms segment in Small and Medium Enterprises dominated textiles economy for employment generation and capacity building. The Working Group on Textiles and Jute Industry for XI Five Year Plan constituted by Planning Commission has set a growth rate of 16% for the sector, projecting an investment of Rs.1,50,600 crores in the plan period. FINDING On perusal of the aforesaid, it is clear that the TUF scheme was introduced by the Government recognizing the potential of the textile industry and the larger benefits of technological upgradation in the textile industry, which was necessary to provide afresh lease of life to the said industry. The Government recognized that technological upgradation in textile industry would result in capacity expansion and modernization, which would have direct impact on employment generation, exports and globalization of textile trade. In order achieve such objective, TUF scheme was introduced by the Government to provide interest subsidy on loan taken for technological upgradation by the units in the textile industry. In terms of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the beneficiary after a lock-in-period of three years on a pro-rata basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended to the loan amount. In view of above, the view taken in Sahney Steel and Press Works Ltd.'s case (supra) could not be applied in the present case, as in said case the subsidy was given for running the business. For determining whether subsidy payment was 'revenue receipt' or 'capital receipt', character of receipt in the hands of the assesses had to be determined with respect to the purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel and Press Works Ltd.'s case (supra) itself and reiterated in later judgment in CIT v. Ponni Sugars and - Chemicals Ltd. [2008] 306 ITR 392 / 174 Taxman 87 (SC), referred to in the impugned order of the Tribunal. The aforesaid decision squarely applies to the facts of the appellant's case since the subsidy was received by the appellant under the very same TUF scheme. Being so, the subsidy received is held to be in the nature of capital receipt and accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, it is noticed that the very first para of the said notification provides that The Government of India is pleased to make the following scheme of Interest Subsidy on Working Capital Loans for industrial units in the state of Jammu Kashmir with a view to accelerating the industrial development in the state . It is also noticed that subsequently another notification dated 28th November, 2003 was issued, a copy whereof is placed at page 59 of the appellant's paper book. The said notification makes it very clear that the purpose of the subsidy being granted was creation of employment opportunities in the State of Jammu Kashmir. The relevant extracts of the said notification are as under: No.1 (111)/20 I2-NER -In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and self employment opportunities in Jammu Kashmir, the Government of India had set up a Task Force under Cabinet Secretary. The recommendations of Task Force were submitted to the Cabinet. To achieve this object of employment generation, the Cabinet has, inter alia, approved following definition of the term 'substantial expansio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal however, did not agree with the claim of the assessee and held that excise refund and interest subsidy were in the nature of revenue receipts. While, setting aside the decision of the Tribunal and upholding the claim of the assessee, the High Court held that excise refund and interest subsidy were capital receipt not liable to tax. Some of the relevant observations of the High Court are reproduced as under: . 22. Perusal of the Office Memorandum dated 14-6-2002 indicating New Industrial Policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz., (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu and Kashmir. Amendment introduced to the Office Memorandum vide Notification of 28- 11-2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) eloquently demonstrates the Central Government's intention in extending the incentives. The Government's objective, as conveyed by Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f asses sees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in Industrial development, which is certainly a purpose in the Public Interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere Production and Trade Incentives, as held by the Tribunal. 28. Making of additional provision in the Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bona fide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved. 29. The other factors, which had wei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry, which was necessary to provide a fresh lease of life to the said industry. The Government recognized that technological upgradation in textile industry would result in capacity expansion and modernization, which would have direct impact on employment generation, exports and globalization of textile trade. In order achieve such objective, TUF scheme was introduced by the Government to provide interest subsidy on loan taken for technological upgradation by the units in the textile industry. In terms of the said scheme, the appellant received interest subsidy of Rs.25,90,32,252 in respect of various units as per details placed at page 200 of the paper book. The interest subsidy so received was shown as net of interest on term loans paid by the appellant as is evident from Note No.18 given in schedule 22 of the Notes on Accounts forming part of the balance sheet of the appellant for the relevant assessment year. The aforesaid facts, in my view, make it clear that subsidy under the TUF scheme was given for technological upgradation, in order to incentive-wise the textile industry and for promoting capacity expansion, globalization of textile trade and employment generatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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