TMI Blog2022 (4) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals to be remitted back to the file of ld. AO for denovo adjudication, as prayed by the ld. Special Counsel for the Revenue. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon ble Supreme Court PONNI SUGARS CHEMICALS LTD. [ 2008 (9) TMI 14 - SUPREME COURT] in para 14 of its decision had held that character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. In fact, the Hon ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd [ 1997 (9) TMI 3 - SUPREME COURT ] and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. We hold that the provisions of Explanation 10 to Section 43(1) of the Act would not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive, etc, by whatever name called, received by the assessee could be construed as capital receipt not chargeable to tax in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee has received sales tax/entry tax/purchase tax/VAT, etc exemptions/incentives under respective schemes from the State Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana as the Assessee had set up units in notified areas of those State. During the Asst Year 1996-97, the assessee had availed sales tax exemption incentive of Rs 17,50,22,940/- for setting up new industry in backward areas under the scheme of various state governments. The assessee filed its original return and offered the subsidy as trading receipt. The assessments were completed treating the subsidy as a revenue receipt , but the ld. AO resorted to make certain additions / disallowances on certain other issues. This was agitated by the assessee upto Tribunal. Subsequently, the assessee filed an additional ground before the Tribunal claiming the sales tax exemption as a capital receipt, relying on the decision of Special Bench of Mumbai Tribunal in the case of DCIT v. Reliance Industrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) 3.1 Aditya Cement - Sales Tax 41.86 169.39 898.15 842.08 698.54 4 Madhya Pradesh State 4A Sales Tax Incentives 4.1 1991 Scheme for units with Capital Investment in fixed assets of Rs.100 Crores or more 4.1.1 Grasim Cement 683.27 1,045.09 1,187.93 1,022.03 1,346.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 1,750.23 3,185.12 3,605.97 3,314.36 4,421.81 3.3. The said exemption schemes are implemented by the respective sales tax authorities. For example, State Industrial and Investment corporation of Maharashtra ( SICOM ) is the implementing agency in Maharashtra. Exemption is granted to the assessee by way of eligibility certificate where various conditions are stipulated, including requirement of maintaining proper accounts, utilization etc. Generally, the purpose behind the grant of such schemes is for development of backward areas as well as industrial development and generating employment. For example, the preamble of the Package Scheme of Incentive ( PSI ), 1988 dated 01.10.1988 by State of Maharashtra is as under:- In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion setup in developing region of the State since 1964 under a Scheme popularly known as the Package S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentive scheme:- a. Sales tax/entry tax scheme or State Government notification; b. Eligibility certificate, wherever applicable; c. Entitlement certificate, wherever applicable; d. Sales tax assessment order/ Sales Tax Return/Entry tax returns/etc; The assessee further mapped all the documents with the scheme-wise amount of exemption claimed. The evidence in this regard is enclosed in Page 1167 of the Paper Book 4 filed. The index of the factual submissions made before the ld. AO has also been filed by the assessee vide Paper Book 1, the relevant page numbers of which are as follows: A.Y. Scheme-wise documents filed before the AO (Paper Book 1, Pg. No.) 1996-97 31-33 1997-98 37-40 1998-99 47-49 1999-00 51-54 2000-01 55-58 3.6.1. The ld. AO passed order u/s 143(3) r.w.s. 254 of the Act after considering the details in the form of various subsidy schemes of the various state governments and submissions filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of adjudication of the issue in dispute before us. 4.1. The ld. Special Counsel for the Revenue argued that assessee had filed its original return for the above years by including sales tax subsidy as revenue receipt. The assessments were completed after making certain additions / disallowances. Those disputed issues were carried in appeal up to the level of the Tribunal by the assessee. When the appeal was pending before this Tribunal for the first time, almost after a gap of 10 years, the assessee chose to file an additional ground before this Tribunal to claim that subsidy / incentive / grants received under various schemes / notifications of various state Governments are capital receipts not chargeable to tax. 4.2. The ld. Special Counsel for the Revenue submitted that this Tribunal erred in admitting the additional grounds raised by the assessee in the first round of proceedings, as the decision of Special Bench of this Tribunal in the case of Reliance Industries Ltd., has been reversed by the Hon ble Supreme Court. The ld. Special Counsel for the Revenue also criticized the Special Bench decision of this Tribunal in the case of Reliance Industries ltd., to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing working capital requirements of the assessee. The ld. Special Counsel for the Revenue argued that there was some factual discrepancies between the figures of notional subsidy mentioned in the additional grounds furnished by the assessee before this Tribunal in the first round of proceedings with the actual amount of subsidies received by the assessee. The same are tabulated hereunder:- A.Y. Amount (Rs.) (As per asst. order) Amount (Rs.) (As per addl. Ground of appeal) 1996-97 17,50,22,940/- 18 Cr. 1997-98 31,85,11,619/- 30 Cr. 1998-99 36,05,96,547/- 34 Cr. 1999-00 33,14,35,985/- 33 Cr. 2000-01 44,21,80,515/- 42 Cr. Total 162,77,47,606/- 157 Cr. 4.3. The ld. Special Counsel for the Revenue vehemently argued that assessee never reconciled these factual discrepancies with supporting docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder in the first round of appellate proceedings was passed by this Tribunal on 16/05/2012 on which date the order of the Hon ble Supreme Court was in force. Hence, the direction of this Tribunal in admitting the additional ground of the assessee and remitting the matter back to the ld. AO to decide the taxability of subsidy in the light of the Special Bench decision in the case of Reliance Industries Ltd., and ignoring the Hon ble Supreme Court decision thereon, makes the order of this Tribunal per incuriam. Accordingly, he prayed for restoration of the original assessment framed in the hands of the assessee for all these years. The ld. Special Counsel for the Revenue also submitted that Reliance Industries Ltd., deals with Maharashtra Subsidy Scheme of 1983 whereas, the assessee case deals with different schemes of different years of different states. He argued that the decision of the Hon ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of UP and others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited anywhere by this Tribunal and accordingly, the decision of Special Bench in the case of Reliance Industries Ltd., becomes non-est and loses its binding pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of industries from BombayThane- Pune belt to outside, boost up of new industrial development in the state, accelerating the pace of development. They are common objectives of any incentive system. It does not follow that all incentives would be capital in nature. (b) The incentives are given after the commencement of business. The presumption is that the incentive is of revenue nature [Vide the decision of the Hon ble Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT, 1997,228 ITR 253( SC) ]. It is for the assessee to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee]. (c) The incentive continues for years here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the industrial units put up in the backward area would not enjoy the same incentives, if they are relocated to backward area, from those areas not covered by the Mumbai-Thane-Pune belt. For the purpose of grant of such subsidies, the methodology of working was based on the value of investments made in these backward/notified areas, which may also include the value of plant machinery dismantled and relocated to these notified areas from the Mumbai-Thane-Pune belt. The Scheme is silent about relocation of Industrial Units from other areas than the specified Mumbai-ThanePune belt. Therefore, it cannot be said that the Package Scheme of Incentive 1988, of State Government Maharashtra was meant at large for all the units setup in the notified areas, and hence the purpose of Scheme was not for the setting up of new units, but was primarily for the purpose of decongestion and dispersal of the units located in the Mumbai-ThanePune belt/corridor. The subsidy therefore cannot be said to linked to the capital investments for setting of new units or relocation of units but was for the sufferance or disadvantage on setting up or relocating the units from MumbaiThane-Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l investment (8a), under the Sales Tax New Incentive Scheme for Industries 1989, Rajasthan [Sr.No.764 : F4(35)FD Gr.IV/87-39 dated 06.07.1989]. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (4) Vikram Woollens, Unit of Grasim Industries Limited, Sales Tax Exemption As per Assessee s submission for Assessment Year 1996-97, vide page nos.140, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (M.P. VinijyikarAdhiniyam, 1994). As per the Assessee s submission, the scheme of sales tax exemption is applicable to new industrial undertakings. However, neither the Scheme nor the Eligibility Certificate vide page No.140, clearly establishes any nexus of the exemption granted with the capital investments, The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue stated that the decision relied by the ld. CIT(A) on Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392 (SC) was not at all applicable in view of the fact that the questions raised in the case of Ponni Sugars and Chemicals Ltd., had two limbs:- Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the incentive given by the Government in the form of higher free sale quota of sugar towards excise duty and purchase tax should be treated as capital receipt and hence no tax was excisable thereon. 4.10. The ld. Special Counsel for the Revenue submitted that the incentive on purchase tax was held as revenue receipt by the Hon ble Madras High Court in the same case of Ponni sugars reported in 260 ITR 605 which was accepted by the assessee and that limb of the issue was never challenged before the Hon ble Supreme Court by the assessee. He submitted that in the case of Ponni Sugars and Chemicals Ltd., there was a categorical finding by the Hon ble Madras High Court in page 611 of the judgement that assessee had produced ample materials to show that monies accrued to it by way of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that notional subsidy is a Monster . He argued that Sales Tax and Income Tax department roles are totally different as Sales Tax department in the instant case is concerned with sales tax subsidy subject to maximum cap of Rs.5000 Crores whereas Income Tax department collects tax from assessee. The assessee had not maintained any accounts or details as to how the quantification of sales tax subsidy had been made in the instant case. 4.13 Finally, on without prejudice basis, the ld. Special Counsel for the Revenue argued that even if the aforesaid subsidy is treated as capital receipt, then the same should be reduced from the cost of the asset in terms of Explanation 10 to Section 43 (1) of the Act for A.Yrs. 1999-2000 and 20002001 as the said amendment was applicable only from Asst Year 1999-2000 and onwards. 5. We have heard the rival submissions and perused the materials available on record. The short point that arises for our consideration in these appeals is that whether the incentive /subsidy received by the assessee under various schemes of state governments after the commencement of business, could be construed as capital receipts not chargeable to tax. At the outse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, we remit this issue to the record of the AO to consider and decide the same as per law and after giving reasonable opportunity of being heard to the assesse It is not disputed that in original ROI, the Assessee had not claimed exemption of any sales tax/purchase tax/entry tax incentive/subsidy. However, Assessee raised claim before the Tribunal first time and which was admitted and restored to file of AO to consider and decide the same as per law after giving opportunity of being heard to the Assessee. The Department did not challenge this action of Tribunal for AY 1996-97 1997-98 and AY 1998-99 and where it did for AY 99-00 00-01, the HC dismissed the same. Against the same to best of our knowledge, no SLP has been filed. (Refer Page 1168 of Paper Book 5). 3 to 10/Para 2 Chart on factual data like data of original 143(3) order, ITAT order, submission of Assessee in set aside proceedings, date of 143(3) r.w.s. 254 order, reason of AO in rejecting claim, quantum of claim in second round and quantum of exemption mentioned in additional ground before ITAT and comments of Department Basis of AO denying exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Para 7.3: Holds that Assessee s reliance on AY 1995-96, OGE to ITAT wherein such incentive is held to be capital receipt as also CIT(A) order for AY 2006-07 to AY 2008-09 cannot be relied as principle of res judicata does not apply to income tax proceedings. Para 7.4: Holds that other decisions relied by Assessee cannot apply. Also holds that since in Return of Income no claim was made, relying on Hon ble Supreme Court in case of Goetz (India) Ltd. vs. CIT (284 ITR 323), claim cannot be allowed. Submissions: 1. All details called for were submitted and explained by the Assessee; 2. For AY 1996-97, please see Letter dated September 27, 2012 at Page 26, 28 of Paper Book 1; 3. For AY 1996-97, please see Letter dated August 28, 2012 at Page 30 of Paper Book 1; 4. For AY 1996-97, please see letter dated September 27, 2013 at Page 31 of Paper Book 1; 5. Please see Annexure A B referred to in letters dated August 28, 2012 September 27, 2013 at Page No 33 to 36 Paper Book 1. Similar details were submitted for subsequent assessment years also (please refer Page No. 37 to 58 of Paper Book 1). Thus, details of Scheme, exemptions claimed, yearwise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT orders have become final. 13. The Assessee submits that before the ITAT in Additional Ground an estimated amount was claimed as capital receipt. Nonetheless, before AO, entire details which are schemes, sales tax notifications, sales tax returns and assessment orders were filed and based thereon final amount was claimed as capital receipt. Further, the Assessee has summarized exact figures for each year, scheme wise at Page 1167 (PB 4). Further, the Assessee has also attached the relevant sales tax assessment order/sales tax return and matched each figures, along with eligibility certificates in PB 2. A specimen detailed chart for AY 1996-97 was also filed at the time of physical hearing. Thus, all figures are explained and entire basis of computation of subsidy year wise along with supporting document is given. 14. The DR has made a baseless allegation that false averments have been made by the Assessee without pointing on what those averments are. 15. The DR has highlighted that incentives is based on investment made by the Asseessee in fixed asset. It is submitted that as demonstrated for Maharashtra Scheme, the total incentive is capped at % of total ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has passed a detailed order. The discussion on this issue starts from Page 4 to 12/Para 3. The CIT(A) at bottom of Page 9 notes that the Appellant has filed details of all the incentive schemes including notifications of the State Government. Also holds that that applying purpose test as canvassed by Supreme Court in Ponni Sugars (supra) holds subsidy to be a capital receipt; At Para 3.3.3. at Page 10, holds that despite the Hon ble Supreme Court setting aside Bombay High Court decision in Reliance Industries case (supra), the ITAT Special Bench decision continues. In the original ITAT proceedings, the matter was restored to the AO and not CIT(A), thus the question of CIT(A) not following directions of ITAT in first round does not arise. Reliance is placed on decisions referred above for the proposition that once material is before CIT(A), he has considered the same, then merely because order is not written in manner expected by the DR, it cannot be said that there is no application of mind by the CIT(A). Pages 16 to 19 / Para 4 Reproduces Grounds of appeal raised by Revenue for all the years Factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Para 5(ii)/Page 19 The decision of Special Bench in Reliance cannot be basis of unsettling assessment in case of Assessee The decision of Special Bench until stayed or reversed by the Bombay High Court cannot be ignored and being a Jurisdictional ITAT order, it is binding on ITAT. Infact, even till date following the Special Bench, the Hon ble ITAT has been passing order in other cases. In fact, apart from decision of Ahmedabad Tribunal in the case of ACIT v. Genus Electrotech Ltd. (71 taxmann.com 101) (PB 4, Pg No. 801-808), the Hon ble Mumbai ITAT in the case of Welspun India Ltd. v. DCIT (104 taxmann.com 267) also considering the Supreme Court set aside Bombay High Court decision in Reliance Industries SB (supra), decided in favour of Assessee. Said decision of Mumbai ITAT has been affirmed by Hon ble Bombay High Court in the case of PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012-1017). The Assessee has also filed the order of Jurisdictional High Court in Assessee s own case for AY 2001-02 (ITA No. 778 of 2015) where at Para 5, the High Court has observed that decision of Special Bench a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal against a decision, as is elementary, does not affect the binding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Supreme Court, but was directed to be examined, on merits, by Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the co-ordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when it is pointed out to the Commissioner (DR), he did not have much to say except to rely upon the co-ordinate bench decision which seems to have followed that approach. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, there is no difficulty in recognizing the limitations. The wisdom of a division bench, even if superior-as strenuously argued by the Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of functioning of Tribunal and one must follow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt and thus presently the said decision is subsisting and binding. The Tribunals even post set-aside of Bombay High Court order in Reliance Industries by Hon ble Supreme Court, follows Reliance Industries Special Bench decision; Reliance is misplaced of decision of U.P. Rashtriya (SC) (supra). In present case, the CIT(A) has followed decision of Supreme Court in Ponni Sugar (supra) decision in Reliance Industries. Both the decisions are subsisting and not stayed by any Court. In fact, as on date, post Ponni Sugars (SC) (supra), the Supreme Court in Balaji Alloys (supra) and also Chapalkar Brothers (supra) have Post Chapalkar Brothers (supra) too, SLPs filed by Department have been dismissed.reiterated that subsidy for development of back ward area is a capital receipt. In Appellant s own case for (PCIT Central -1 v. Grasim Industries Ltd., (ITXA 778/2015 AY 2001-02), the Jurisdictional High Court inter alia observed as under: It is true that the judgment of this court confirming the order of the Tribunal in the case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and has been placed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the facts of any scheme to come to any conclusion as to whether they are revenue or capital receipt. So, for whatever reason, the purpose for which the asessments have been set aside have not been achieved. The CIT(A) also has not discussed any facts but has given complete relief. He has passed five identical appellate orders for the five assessment years giving a relief of over Rs.162 crores without discussing facts of any case. The CIT(A) does not discuss the schemes and their objectives. He does not mention what papers were filed before him. He does not mention how he was satisfied that the purpose test laid down by the Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. has been satisfied in respect of each of the schemes. The CIT(A) has not taken cognisance of the fact that the Assessing Officer has not decided the issue of sales tax incentive in accordance with the direction of the Hon ble ITAT. Hence, in compliance with the direction of the Hon ble ITAT, the CIT(A) ought to have called for a full factual remand report from the Assessing Officer about the objective and nature and quantum of the purported subsidy in respect each s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l account or not. The Supreme Court has repeatedly in Ponni Sugars (supra), Balaji Alloys (supra) and Chaphalkar (supra) have held the same to be on capital receipt. Also, unlike deductions or exemption like section 10 or Chapter VI, which may or may be conditional or subject to compliance of specific requirement, in present case, there are no conditions to be complied with under Income Tax Act. In fact, the decision of Supreme Court in Novopan (supra) was in context of whether the assessee claimed that manufactured melamine faced particle boards MFPB was same as unveneered particle boards which were entitled to total exemption from tariff under item 6 of Exemption Notification No.55 of 1979. In this context the Supreme Court held The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee assuming that same principle is good and sound- does not apply to the construction of an exception or an exemption provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability, must establish clearly that he is covered by the said provision. In case of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and this would be burden on the non exempt tax payers; The only basis for filing additional ground before ITAT was decision of Reliance Industries Special Bench. There the so -called subsidy related to only one state where here the subsidy concerned several states under different schemes. On this ground alone, the additional ground should have been thrown out as vexatious. The ITAT admitted the additional ground and set aside for examination and verification of nature of schemes and benefits. Additional ground cannot be entertained for fresh investigation into facts. It can be entertained on a pure question of law. At the cost of repetition, the Assessee again submits that the present appeals by Department is against the order of CIT(A) in second round wherein the CIT(A) held that sales tax incentive/subsidies/exemptions is a capital receipt but directed the AO to verify the quantification thereof. The Department had challenged the action of ITAT in admitting the additional ground in first round before the Hon ble High Court. The Hon ble High court has decided the matter in favour of the Assessee. The Department filed SLP against Bombay HC Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the excise duty payable on the price of levy sugar; Munjal Auto Industries Ltd. (SLP Dismissed) (supra): Chaphalkar Brothers Pune (supra) Further Hon ble Mum T in the case of Reliance Industries Ltd (subsequent assessment years viz. AY 2010-11 to 2012-13) vide order dated 28.09.2018 followed the decision of Special Bench and held that 7. We heard the parties on this issue and perused the record. The assessee has been given Sales tax exemption by Government of Gujarat and Uttar Pradesh and the Special bench of Tribunal in the asseessee s own case (referred supra) has held the notional sales tax receipt is Capital in nature. We notice that the co-ordinate benches of Tribunal has followed the decision rendered by the Special bench in AY 2003-04 to 2009-10 and upheld the decision rendered by Ld CIT(A) in holding that the Sales tax incentive is capital in nature . Attention is also invited to amendment to definition of income u/s.2(24)(xviii) .where the Legislature has used expression ..assistance in the form of subsidy, grant, incentive .(by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of sales-tax collected and not paid during the year can be found out. Thus, relying on decision of the Hon ble Supreme Court in the case of Novopan India Ltd. Hyderabad v. Collector of Central Excise and Customs, Hyderabad dated 14th September 1994 (Case : Appeal (Civil) 3556 of 1984) (1994 Supp(3) Supreme Court Cases 606 (supra), the assessee has failed this test and the claim of exemption should be rejected outright The incentives on account of exemption of sales tax, purchase tax or entry tax, etc is given by respective State Governments; The respective State Government would have a monitoring or an implementing agency who would govern and monitor the grants/subsidy or incentive as also compliance of terms for the said subsidy/grant. In so far as Maharashtra Scheme is concerned, the Scheme itself defines and explains what is a notional sales tax liability (NSTL) (PB 2/Page 376). In present case, the NSTL is also quantified by sales tax officer (PB 2/Page 553). Further, please see eligibility certificate at PB 2/Page 400 where SICOM has issued Eligibility Certificate, where various conditions are stipulated, including requirement of maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification thereof. The AO gave effect to the order of CIT(A) vide order dated 25.04.2016. Copy of order giving effect to the order of CIT(A) is enclosed at Page No. 78 to 89 of Paper Book 4. 2. Basis of calculating subsidy and supporting documents such as scheme related papers, eligibility certificate etc. were already filed before the AO during proceedings u/s. 143(3) r.w.s. 254 of the Act. The same can be checked at page 26 to 58 of the paper book -1. 3. The amount of sales tax subsidy is based on the amount as per final assessment order in each of the years except in few cases the amount is as per return where the case was not selected for assessment. Please see PB 4/Page 1167. 4. The AO while giving effect to ITAT direction has right adopted the exact figures supported by documents like Scheme/Notification/Returns or Assessment orders under respective state laws. Post CIT(A) order also, once again he has reconfirmed the figures of exemption claimed. Thus, in present proceedings, the Department cannot improve its case where both AO and CIT(A) have not disputed the amount. In any event, as stated above, the subsidy/incentive is generally linked to % of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be presumed that assessee has no answer to queries. All the details filed before AO and CIT(A) in second round (post set aside after admission of additional ground by the ITAT) are in Paper Books. Detailed submission to counter this allegation made above Para 17/Pages 46 to 48 Reliance is placed on decision of Mumbai Tribunal in Bajaj Auto (90 ITD 153) for definition of Notional Sales Tax Subsidy . Thus, definition is not simple. The definition does not deal with the situations discussed in paragraph 12(ii) where no sales -tax has been collected or less sales tax has been collected. In such cases the assessee will get relief from income-tax in respect of part of its non-exempt profit. Second the time lag. If the concept of notional subsidy and its determination by the Sales Tax authorities is adopted into income-tax, no income-tax returns can be filed in time. -The notional sales subsidy cannot be subjected to audit. The observations made in case of Bajaj Auto (supra) in respect of ITAT order in Reliance for AY 1985-86 have been considered and dealt with by Special Bench decision in case of Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the reliance on decision of Novopan (supra) is misplaced. Para 21/Page 50 Reliance is placed on Hon ble Calcutta High Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal.) What was the matter between the assessee and the Sales- Tax Department is no concern to the income-tax Department. The matter would have been different if it had received a fixed sum from the government. In that case the taxability of that receipt whether revenue or capital - could have been issues before the Income -tax Department. Exemption from sales tax is not an issue. However, if the assessee is of the view that it is entitled to exemption, it has to establish its case for exemption independently with supporting primary books and documents, under the doctrine of strict construction of exemption provisions as propounded by the Hon ble Supreme Court in the case of Novopan India Ltd. (supra). It cannot wake up after 10 years, cite an inapplicable judgment of a Tribunal, which in any case not relevant now in view of the Supreme Court setting it aside. Subsequent to the decision of Kesoram I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to establish with documents how it is capital receipt. [Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict construction of exemption provisions against the assessee]. (f) The incentive continues for years here 10 years, 5 years, 9 years and 11 years. As discussed in paragraph 20 above, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict interpretation of exemption provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was of revenue nature. The High Court referred to the relevant Scheme, also noted that concession was capped at 125% of fixed capital investment and could be availed within 9 years. After considering decision of Supreme Court in Ponni Sugar (supra) Sahney Steel (supra), the High Court held that though the subsidy was computed in terms of sales tax deferment and necessarily therefore, accrue after commercial production, this by itself would not be sole or concluding factor. Applying purpose test, the subsidy was held to be on capital account. Thus, in each of above cases, the Courts have been mindful of the fact that subsidy was to be received after commencement and to be availed within 9, 10 or 12 years, yet applying purpose test, it was held that subsidy was on capital account. The Department is consistently repeating that in the original return the Assessee did not claim exemption paid taxes and now after decades assessee has raked up the issue of capital receipt. The Assessee submits that post its filing its return of income, if subsequent judicial pronouncement hold that subsidy received is a capital receipt, and such view is also rendered by the Supreme Court th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as PSI. (Page 369 of PB) In light of the experience gained from earlier schemes, the Government has decided to bring in new Scheme i.e. Package Scheme of Incentives 1988. The Department conclusion that only if an existing unit is relocated to backward area is eligible is fallacious. See PB 2/Page 369/370 which list down Group A,B,C D specifying developed, under developed areas of the State. Page 373 further states that an existing or a new unit .would also be eligible. New Unit has been defined at Page 376. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. The Assessee is a Pioneer Unit (PB 2 Page 399 is the eligibility certificate issued by SICOM which recognises Vikram Ispat unit as a Pioneer Unit). Thus, under the Maharashtra 1988 Scheme, even new units are entitled to notional sales tax subsidy. Judgments relied upon by the Assessee wherein the subsidy received under the PSI Sales tax exemption scheme of Maharashtra has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. 7) Chloro Sulphuric Acid Division and Caustic Soda Membrance C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) This Scheme exempts the industrial unit from payment of tax on the sales made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment (Pg. 481 of PB) with the object of promoting industrial development in the State of Rajasthan. Objective at Pg 489 (this does not appear to be scheme document but some commentary on the same) :- To boost up industrial development in the State the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) Judgments relied upon by the Assessee wherein the subsidy receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme 1991 Scheme for units with Capital Investment in fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Pradesh)] Exemption granted to eligible industrial unit established in any district in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Madhya Pradesh has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not lead to the inference that the subsidy is of capital nature; The assessee is making general submission treating all the schemes alike ignoring the observation on facts by the ITAT Special Bench in the case of Reliance Industries Ltd, that the schemes of Maharashtra are different from those of Madhy Pradesh and Andhra Pradesh. As directed by the Hon ble Bombay High Court in assessee s own case cited in paragraph 5(ix) above, assessee was required to point out the specific clauses in each agreement pertaining to each assessment year instead of making generalized submission Without any assistance from the assessee, the Assessing Officer has faced imponderable difficulty in trying to make a sense out of the irrelevant submissions The Assessee has never stated that only because the incentive is linked to amount invested in capital asset, the incentive is capital receipt. The Assessee has always emphasized upon the purpose test. The Assessee has given all Scheme documents to AO. The CIT(A) has allowed the appeals and it is Department appeal to the Tribunal. It is for the Department to show from the Schemes that purpose of subsidy is to augment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Dusad Industries [1986]162 ITR 784 (MP) CIT v. Chhindwara Fuels [2000]245 ITR 9,(Cal) CIT v. Rajaram Maize Products [1998] 234 ITR 667 (MP) CIT v. Rajaram Maize Products [2001] 251 ITR 427 (SC) V.S.S.V. Meenakshi Achi [1966] LXI ITR 253 (SC) Merinoply and Chemicals Ltd. v, CIT [1994] 209 ITR 508 (Cal.) CIT v. Godavari Plywood Ltd [1987] 168 ITR 632(AP) CIT v. P J Chemicals Ltd. [1994] 210 ITR 830 (SC) K.C.P. Ltd.v. CIT [2001] 245 ITR 421 (GC) Bajaj Auto Ltd. v. DCIT [2004] 90 ITD 153 (Mumai) Essentially, the Department has relied on decision of Supreme Court in Sahney Steel(supra). Other decisions cited by the Department are prior to decision of Supreme Court in Ponni Sugars (supra). The Department in its Written submissions at Page 64 (iv) has reproduced part of decision of Supreme Court in Sahney (supra) where it was hled that the subsidies were given to encourage setting up of industries in State of Andhra Pradesh by making the business of production and sale of goods in the state more profitable . Thus, it appears that object of the Scheme in case before Sahney was to make industries m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even before Supreme Court in Ponni, the Supreme Court solely decided in favour as the subsidy was only for repayment of loan. The exact same argument was taken in case of M/s. Jindal Steel Power Ltd. (ITA No. 167/Del/2009), however, the Tribunal rejected the same at Paras 36 to 38 and ultimately following decision of Balaji Alloys (supra) and Chaphalkar (supra) decided in favour and held at Para 43 that subsidy received under the Madhya Pradesh scheme is a capital receipt. Copy of the decision in case of Jindal Steel (supra) is attached herewith as Annexure B. The subsequent decisions of High Court and Supreme Court have consistency applied the following tests, ignoring the form, time and source of subsidy: Shree Balaji Alloys (J K HC) (supra) affirmed by Hon ble SC (supra) Chaphalkar Brothers (SC) (supra) Munjal Auto (Guj), SLP Dismissed(supra) PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4, Pg. No. 1012-1017) PCIT v. Capgemini India P. Ltd. (90 taxmann.com 409) (Bom HC) (PB 4, Pg No. 1018-1020) CIT v. Indian Petrochemicals Corpn. Ltd. (102 taxmann.com 181) (Bom HC) (PB 4, Pg No. 1164-1166) CIT v. Nirma Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r considering the provisions of explanation 10 to section 43(1) as well as the decision of Hon ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales tax incentive cannot be reduced from the cost of capital investment as the percentage of capital investment is only a mode of quantification of subsidy and not a payment to meet any portion of the actual cost : PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4 pg. 1012-1017) Nestle India Ltd v. DCIT (1954/Del/2014) (PB 4 pg. 1089-1115) CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T) Sasisri Extractions Ltd. v. ACIT (122 ITD 428) (Vizac T) (PB 1 Pg. No. 364-367) 5.1. Further the ld. AR also filed yet another rejoinder to the oral submissions made by the ld. Special Counsel for the Revenue as under:- I: Ground (i) and (ii): Sr. No. DR s Arguments Assessee s Submissions 1. The Assessee had filed its original return for above years and included the sales as trading receipt following decision of Chowringhee Sales Bureau v. CIT (87 ITR 542) (SC) and Sinclair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same. Against the same to best of our knowledge, no SLP has been filed. (Refer Page 1168 of Paper Book 5). Once the Department has not challenged and the issue on admission of additional ground has become final, it is not open for Department to now raise this issue in the present proceedings. 3. The AO and CIT(A) have not followed the direction of the Tribunal. The AO has not examined any facts/schemes/amount of claim The CIT(A) has passed mechanical orders There is no proper discussion by the AO and CIT(A) The Assessee submits that the ITAT in each of the five years had directed AO to examine the issue after affording opportunity to the Assessee. Thus, the ITAT had not issued any directives to the CIT(A). At Para 4 of AO s order u/s.143(3) r.w.s. 254 (AY 1996-97), the AO notes that during the assessment proceedings, relevant details have been called for. Assessee submitted the details and explained the same. It may also be noted that during the course of proceedings u/s 143(3) r.w.s. 254, the AO had called for documentary evidences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. Thus, clearly entire directive of ITAT of examining facts including scheme, purpose and sales tax order/notifications all have been submitted. Unlike the amount referred to in additional ground before ITAT, the AO refers to exact amount claimed by the Assessee in set aside proceedings. 24. Entire written submissions before CIT(A) in second round is from Page 59 to 146 of Paper Book 1; 25. It is a settled law by Hon ble Supreme Court and Hon ble Bombay High Court that once entire details have been furnished before AO, how the AO writes the order is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions: Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC) ACIT v. Marico Ltd. (117 taxmann.com 244) (SLP Dismissed) Idea Cellular Ltd. v. DCIT (301 ITR 407) (Bom HC) (PB 7, Page 1396) GKN Sinter Metals Ltd. v. ACIT (371 ITR 225) (Bom HC) (PB 7, Para 14, Page 1393) Aroni Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available at the time of filing ROI. Highlights sales tax assessment orders at Pg. No. 554-559 for AY 96-97, Pg. No. 660-662 for AY 98-99, Pg. No. 676-679 for AY 99-00, Pg. No. 709-711 for AY 00-01 of FPB 2 to prove the same The figures of subsidy have changed. See grounds before ITAT and relief now allowed by the CIT(A). The Assessee has not explained the difference in amounts. The amount of sales tax incentive/subsidy may be changed by the respective authorities, how would income tax department keep track of the same. The Tax Department are not trained in sales tax and expert in those laws. The Assessee has not maintained separate account, how the subsidy is accounted, utlilized, etc. AO cannot be expected to do something that is impossible to do, relies upon the decision of Hon ble Supreme Court in the case of CIT Bangalore v. B.C. Srinivasa Shetty (128 ITR 294) (DR PB Pg. no. 150-157) The Assessee had raised the additional ground before the Tribunal, which was admitted and send back to the Assessing Officer. The fact that amount mentioned in those ground and as finally determined by the AO may be different as the figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the AO nor the CIT(A) has made any adverse comments on the documents filed by the Assessee including schemes, notifications, eligibility certificates etc. The Assessee has quantified the subsidy/incentives based on the factual documents and based on relevant orders of authorities or based on returns filed. Assuming that the higher amount of sales tax is determined, it would increase amount of exemption in a particular year and correspondingly reduce exemption in subsequent year. However, whatever change happens, once Assessee is entitled to an incentive, the outer limit is fixed and no incentive beyond that can be allowed by the respective authorities. Thus, at worst, it could be timing difference. On facts, the decision of B.C. Srinivasa Shetty (supra) is not applicable A s Maharashtra scheme provides for merely shifting existing units from Mumbai-Pune-Thane belt to backward areas which cannot amount to industrialisation. The said scheme is for shifting and not for setting up new units. The DR has relied only on the Maharashtra Scheme for said allegation. However, it is submitted that said alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills Ltd. v. CIT (191 ITR 518) (Cal HC) (DR PB Pg. No. 133-147) If subsidy was a fixed sum, the matter would have been different. % of capital investment provided in the schemes is only a measure of calculation Assessee has dumped 2000 pages which are not relevant. It has been settled by Hon ble HCs after considering Sahney Steel(Supra) , Ponni Sugars (supra) and Chaphalkar Brothers (supra) that where the object of the subsidy is to for development of state and setting up of industries in backward areas it is capital in nature and where it is to augment profits, it is a revenue subsidy. Few such decisions are as under: PCIT v. Ankit Metal Power Ltd. (Cal. HC) (416 ITR 591) (PB7 Pg. no. 1367-1374) PCIT v. Shyam Steel Industries Ltd. (Cal. HC) (303 CTR 628) (PB7 Pg. no. 1375-1377) The Jurisdictional HC in CIT v. Kirloskar Oil Engines Ltd. (364 ITR 88) (Pg 245-247/PB 1) after referring to both the decisions of Sahney Steel (supra) and Ponni Sugars (supra) has held that If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on the revenue ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied with. In present case the incentive was given by State Government and if relevant authorities of State Government which implement or monitor the Schemes, have granted incentive, for present appeal, only relevant issue is, based on purpose test whether it is capital or revenue. Thus, reliance on decisions of Hon ble apex court decisions in case of Novopan (supra) and M/s. Dilip Kumar (Supra) is misplaced. 6. DCIT v. Reliance Industries Ltd. (88 ITD 273 (Mum) (SB) (PB 1 Pg. No. 217-232) decision is perverse Hon ble SC has set aside the SB decision to Hon ble Bom HC and hence the same is not a good law. The Hon ble Tribunal did not look into aspects like whether subsidy a/c maintained, utilisation, it is poorly drafted; Order of Reliance (SB) is perverse; Made various allegation on manner in which Reliance (SB) was decided, etc; In Assessee s own case, the Tribunal has not followed Reliance (SB), See PB 4 (Page 841 onwards) After considering the Hon ble SC (PB 1 Pg. no. 243-244) setting aside to Hon ble Bom HC, Hon ble Mumbai Tribunal SB decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) Thus, even legislation has not made any distinction between the term Subsidy or Incentive etc. Further, in so far as Maharashtra Scheme is concerned, the Scheme itself defines and explains what is a notional sales tax liability (NSTL) (PB 2/Page 376). In present case, the NSTL is also quantified by sales tax officer (PB 2/Page 553). Various Hon ble Tribunals have either only used the term incentive or the term subsidy/incentive interchangeably and held the same to be capital in nature. Please See: - DCIT v. Reliance Industries Ltd. (88 ITD 273) (Mum SB) (PB 1 Pg. no. 217-232) - CIT v. Ponni Sugars Chemicals Ltd. (supra) - Shree Balaji Alloys v. CIT (333 ITR 335) (J K HC) (PB 1 Pg. no. 274-284) affirmed by SC in CIT v. Shree Balaji Alloys (80 taxmann.com 239) (PB 1 Pg. no. 239 - 240) - MAN Industries India Limited vs ACIT (ITA No. 6696, 6697 6698/Mum/2014) (PB 1 Pg. no. 322-350) - ACIT vs Economic Explosive Limited (ITA 202 to 206/Nag/2015) (PB 1 Pg. no. 351-354) - Grasim Industries Ltd. (Successor to Aditya Birla Nuvo Limited) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal had directed the ld. AO to make thorough examination of the various subsidy / incentive schemes and decide its taxability. is completely devoid of merits. Since the matter has been already examined by both the lower authorities and respective conclusions drawn thereon by them , though contrary to each other, we hold that there is no need for these appeals to be remitted back to the file of ld. AO for denovo adjudication, as prayed by the ld. Special Counsel for the Revenue. 5.3. We deem it fit and appropriate to refer to the various subsidy / incentive schemes of various state governments to understand its objects and purpose, which would ultimately decide its taxability. Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption : Package Scheme of Incentive( PSI ), 1988 dated 01.10.1988 by State of Maharashtra In order to achieve dispersal of industries outside the Bombay- Thane- Pune Belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New Units / Expansion set-up in developing region of the State since 1964 under a Scheme popularly known as PSI. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try including any such substantial expansion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 460 of the Paper Book. New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 under Madhya Pradesh Sthaniya Khstra Me Mal ke Pravesh Pare Kar Adhiniya, 1976 Exemption granted to new industry including any such substantial expansion of an existing industry as may be approved by the Government with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Page 472 of the Paper Book. We find that assessee furnished the Entry Tax Notification No.422-6596 dated 09/2/1977 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 460 to 466 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 10 of Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) To boost up industrial development in the State, the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) This Scheme exempts the industrial unit from payment of tax on the sales made in the course of inter-state trade or commerce of the goods including bye-products and waste items manufactured by them within the State and in case of packing material used therewith, the benefit is available only if it is linked with fixed capital investment with the object of promoting industrial development in the State of Rajasthan. This fact is evident from Page 481 of the Paper Book. We find that the assessee furnished Sales Tax New Incentive Scheme for Industries, 1989, Rajasthan (S.No.764:F-4(35)FD Gr.IV/87-39 dated 06/07/1989) before lower authorities. These documents are enclosed in pages 481 to 489 of the factual paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of tax in favour of Grasim Cement before the lower authorities. These documents are enclosed in pages 523 to 528 of the factual paper book which are part of judicial records. Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) Sales Tax Exemption Scheme (Haryana General Sales Tax Rules 1975) Exemption granted to eligible industrial unit being a new industrial unit or a unit undertaking expansion or diversification with the object of promoting investment in backward area. This fact is evident from Page 536 of the Paper Book filed which are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975) before the lower authorities. These documents are enclosed in pages 529 to 543 of the factual paper book which are part of judicial records. We find that assessee furnished Exemption Certificate in Form VAT G1 in favour of Grasim Industries Ltd., (Unit Elegant Spinners) before the lower authorities. These documents are enclosed in pages 544 to 545 of the factual paper book which are part of judicial records. 5.3.1. We further find that the assessee had furnished al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 608 - 610 iv Sales Tax Assessment Order for FY 1996-97 of Aditya Cement 611 - 614 V Sales Tax Assessment Order for FY 1996-97 of Vikram Woollens 615 - 620 vi Sales Tax Assessment Order for FY 1996 -97 of Grasim Cement 621 - 625 Sales tax Orders / Entry Tax Orders AY 1998-99 AY 1998-99 I Sales Tax Return for FY 1997 -98 of Vikram Ispat 626 634 ii Entry Tax Assessment Order for FY 1997 -98 of Chloro Sulphuric Acid Division 635 637 iii Entry Tax Assessment Order for FY 1997 -98 of Caustic Soda Memrance Cell 638 - 642 iv Sales Tax Assessment Order for A.Y. 1997-98 of Aditya Cement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Tax Assessment Order for FY 1999-00 of Elegant Spinners, Bhiwani 745 - 748 5.3.2. We find from the perusal of the Maharashtra Scheme as detailed hereinabove, the said scheme itself defines and explains what is Notional Sales Tax Liability . The said scheme also contemplates that the Notional Sales Tax Liability is required to be quantified by the Sales Tax Officer while framing the Sales Tax assessment for each of the years. Hence, the concept of Notional Sales Tax Liability is part and parcel of the Subsidy / Incentive Scheme brought out by the Maharashtra State Government. While this is so, we are unable to comprehend ourselves to accede to the arguments of Ld. Special Counsel for the Revenue that there cannot be any concept of Notional Sales Tax Liability and the quantification thereon becomes unworkable. We further strongly condemn the expressions used by the Ld. Special Counsel for the Revenue with regard to the said Notional Sales Tax Liability as a Monster . The aforesaid entire scheme papers were indeed fully furnished by the assessee before the lower authorities, which were categorised by the ld. Special Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective sales tax officers which is in consonance with the subsidy schemes of various State Governments. The role of Income Tax department is only to examine whether the said receipt of subsidy would constitute capital or revenue receipt in the hands of assessee nothing more nothing less. In any case, the lower authorities below had not even disputed this fact, which is vehemently argued by the ld. Special Counsel for the Revenue. This tantamounts to ld. Special Counsel for the Revenue making out a new case before the Tribunal and trying to travel beyond the brief, which is not permissible as per Law. Hence, we have no hesitation in summarily dismissing these arguments of ld. Special Counsel for the Revenue, as devoid of merits. 5.3.4. We further find that all the aforesaid schemes were subject matter of adjudication and consideration by various Tribunals across the country wherein, it was held that the subsidy / incentive received pursuant to the aforesaid schemes were capital receipts. The details of the various cases are tabulated hereunder:- Sr. No. Judgement Paper Book Pg. No. Objective of Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h industry in developed areas of the State of Maharashtra 7 Bombay Dyeing Mfg Co Ltd v. DCIT (87 taxmann.com 213) (Mum. T) 290-321 (PB 1) Package scheme of Incentive 2007 of Government of Maharashtra granting subsidy with a view to encourage the dispersal of industries to the less developed areas of the State of Maharashtra 8 Innoventive Industries Ltd v. DCIT (ITA No. 601/PN/2013)(Pune Trib.) 1222-1246 (PB 6) Package Scheme ofIncentive, 2007 ofGovernment of Maharashtragranting subsidy with a view to encourage the dispersal of industries to the less developed areas of the State of Maharashtra B Rajasthan Scheme 9 CIT v. Shri Cement (ITA No. 204 / 2010) (Raj HC) 248-275 (PB 1) Rajasthan Sales Tax/Central Sales Tax Exemption Scheme for Industries, 1998 for promoting industrial development of the State and encourage new capital investment in industry and thereby promote employment 10 Birla Corporation L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 (PB 7) Sales tax exemption under Madhya Pradesh Industrial Investment Promotion Assistance Scheme-2004 with an objective to accelerate the pace of industrialization, to maximize the employment prospects and balanced regional development 17 M/s Vardhman Textiles Limited (ITA No. 787/Chd/2015) 1342-1366 (PB 7) 18 M/s. Jinal Steel Power Ltd. v. ACIT (ITA 167/Del/2009) - Notification No. 40 for exemption from sales tax dated 24.04.2000 issued u/s 8(5) of the Central Sales Tax Act, 1956 to encourage new industrial units, development of backward areas and create employment opportunities in public interest E Entry Tax Scheme-Madhya Pradesh 19 M/s. Jindal Steel Power Ltd. v. ACIT (ITA 167/Del/2009) - Notification No. 41 and 42 for exemption from entry tax 24.04.2000 issued u/s 8(5) of the Central Sales Tax Act, 1956 to encourage new industrial units, development of backward areas and create employment opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In fact, the Hon ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- 14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rendered by Hon ble Supreme Court in the case of CIT vs. Chapalkar Brothers reported in 400 ITR 279 which held that where the object of respective subsidy schemes of State Government was to encourage development of multiple theatre complexes, incentives would be held to be capital in nature and not revenue receipts. The relevant operative portion of the judgment is reproduced hereunder:- 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 mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omote construction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. 8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of find is quite immaterial. If the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case 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 analysed 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 giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no doubt in our mind that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee. 11. In the result we find no error in view of the Tribunal. Tax Appeals are dismissed. 5.3.7.1. It is pertinent to note that against this judgement, civil appeals were dismissed by the Hon ble Supreme Court vide its order dated 08/05/2018 on the ground that the issue is already covered in the decision of Chapalkar Brothers referred to supra. 5.3.8. Before us, the ld. Special Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be any question of overruling the decision of one Bench by another bench of equal strength as it would be contrary to the established norms of judicial system in the country. ii) Even on merits it cannot be said that the Tribunal has laid out more stress on the form of the scheme and not their substance as held in Bajaj Auto as the Tribunal in the order for AY 1985-86 has explained the difference between exemption schemes of Maharashtra and Andhra Pradesh in detail. iii) Reliance placed by Tribunal in Asst Year 1985-86 on the decision of Hon ble Supreme Court in the case of Sahney Steel Press Works Ltd. v. CIT (228 ITR 253) cannot be said to be erroneous. The Tribunal did recognise that the object with which subsidy is given is decisive as laid down by Hon ble Supreme Court. If the scheme is for setting up or expansion of industry in a backward area, it will be capital, irrespective of the modality or source of fund. If the scheme is for assisting of carrying out of business operations, it is revenue. Hon ble Supreme Court demonstrated the principle that the object of the subsidy must be given primary importance over the source of fund. 5.4.1. Ultimately the Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res availed by the assessee to the file of the Assessing Officer for deciding afresh after considering the decision of the Special Bench of the ITAT in the case of DCIT V. Reliance Industries Ltd., 88 ITD 273, which has not been accepted by the Revenue? (d) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in entertaining the additional ground without appreciating that the assessee had treated the amount of sales tax exemption benefit of Rs.58 crores as revenue receipt and had included this amount in the returned income and it had been taxed accordingly and the assessee did not raise this issue before the CIT(A) and the issue had attained finality? 5.4.3. While disposing of the questions Nos. c d, the Hon ble Jurisdictional High Court categorically held that the decision of the Special Bench of Tribunal had not been reversed or stayed by any higher judicial forum and it holds good as on date. The relevant operative portion of the judgement of Hon ble Jurisdictional High Court in this regard is reproduced as under:- 3. We will first address the questions no. (c) and (d), which are different elements of the same issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for the first time before the Tribunal, cannot be barred. So much is clear from series of judgments of various Courts including of this Court in case of CIT Vs. Pruthvi Brokers and Shareholders P. Ltd. (2012) 349 ITR 336. It is not the case of the Revenue that the assessee in the context of its contention on the nature of the subsidy, desired to produce additional evidence. It is true that the judgment of this Court confirming the order of the Tribunal in case of Reliance Industries Ltd. has been partially reversed by the Supreme Court. A question of law has been framed and placed for consideration of the 4 of High Court. However, this does not mean that the judgment of the Tribunal as on today stands reversed or stayed. In any case, quite apart from the judgment in the case of Reliance Industries Ltd. of the Special Bench of the Tribunal, it is always been for the assessee to contend before the Assessing Officer by pointing out the relevant clauses of the subsidy that in law the subsidy cannot be treated to be towards revenue account. It would be equally open for the Revenue to oppose such a contention if so advised. The Assessing Officer and the Revenue authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion, stands reversed. However, the decision of the Special Bench still holds good as the same has not, and at least not yet, even been examined by Hon'ble Bombay High Court. Mere admission of appeal against a decision, as is elementary, does not affect the biding nature of a judicial precedent. The Special Bench decision, in the case of Reliance Industries Ltd. (supra), was not reversed by Hon'ble Supreme Court, but was directed to be examined, on merits, by Hon'ble Bombay High Court. That is quite different from disapproving the special bench decision, but it appears that the coordinate bench was led to believe, and there could not have been any other reason for ignoring the special bench decision, that this Special Bench decision is reversed. That is patently incorrect, and when we pointed it out to the learned Commissioner (DR), he did not have much to say except to rely upon the coordinate bench decision which seems to have followed that approach. The coordinate bench, in the case of Jindal Steel Power Ltd. (supra), did indeed travel much beyond its limited mandate in ignoring a binding judicial precedent simply because appeal against that special bench dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above, no fault could be attributed on the ld. CIT(A) placing reliance on the decision of the Special Bench of the Tribunal and granting relief to the assessee in the instant case. 5.4.7. We find that the ld. Special Counsel for the Revenue placed heavy reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of Grasim Industries Ltd., (successor to the business of Aditya Birla Nuvo Ltd., formerly known as Indian Rayon and Industries Ltd.,) for A.Yrs. 1995-96 to 1998-99 in ITA Nos. 3938/Mum/2013, 2197/Mum/2014, 2198/Mum/2014 7062/Mum/2014 respectively dated 18/04/2018 wherein this Tribunal had held that the issue in dispute with regard to taxability of subsidy could be decided independently without depending upon the decision of the Special Bench in the case of Reliance Industries Ltd. We find that in the said decision, the Tribunal never said that Special Bench decision has been reversed by any higher forum or it is no longer good law. The Bench had simply stated that the issue in dispute would be adjudicated on merits with regard to taxability of subsidy and the Tribunal ultimately gave relief to the assessee on merits independently by apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 10 to Section 43(1) of the Act has been introduced in the statute only from A.Y.1999-2000 onwards. Eventhough we find that the subsidy in the instant case is given to meet the fixed capital investment but the said subsidy is not identifiable with any particular asset as such. When the subsidy or grant received is not identifiable to any particular asset, then the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable. Reliance in this regard is placed on the decision of the Hon ble Jurisdictional High Court in the case of PCIT vs. Welspun Steel Ltd., reported in 264 Taxman 252. The relevant question raised before the Hon ble Jurisdictional High Court is as under:- (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that subsidy cannot be considered as payment directly or indirectly to meet any portion of the actual cost ignoring the fact that if the assessee claims the same as capital receipt, the same shall be reduced from the cost of asset and depreciation claim should be on the net value/cost of the asset after reducing the amount of incentives in terms of Explanation 10 to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eurs were reluctant to set up industries in backward areas. These areas were identified as backward because there was un-development or underdevelopment of industries in these areas. It was, therefore, that the Government decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy so that entrepreneurs could utilize such cash subsidy for any purpose connected with the establishment of industries in the backward areas. Once the decision to give cash subsidy was taken, the Government had to work out some method to determine the quantum of such subsidy. In other words, the question as to how the amount of cash subsidy should be determined had to be considered by the Government. The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognized methods of working it out on the basis of the amount invested by an entrepreneurs in acquiring capital assets as cash subsidy. The scheme does not say as to in what mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government subsidy was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. In such a case, specified percentage of the fixed capital cost, which was the basis for determining the subsidy, would be granted. The Court held that, such basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. It was held and observed as under:- 'In so far as question No.2 is concerned, this court finds that the same is squarely covered by the decision of the Supreme Court in CIT v. P. J. Chemicals Ltd., [1994] 210 ITR 830. In the said case, after review of the law on the point, the Supreme Court has held as under (head note): Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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