TMI Blog2022 (11) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... Employees Stock Option Expenses should be deleted as relying on Kotak Mahindra Bank Ltd [ 2018 (1) TMI 320 - ITAT MUMBAI] and taking note of the special bench decision in the case of Biocon Ltd. v. Dy. CIT [ 2013 (8) TMI 629 - ITAT BANGALORE] Disallowance u/s 14A r.w.r. 8D - HELD THAT:- We restrict the disallowance under section 14A to 1% of tax-exempt income. Ordered, accordingly. Adjustment of book profits under section 15JB for the 14A disallowance - we find that this aspect of the matter stands concluded, in favour of the assessee, by a special bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd [ 2017 (6) TMI 1124 - ITAT DELHI] Additional depreciation u/s 32 (1)(iia) - eligible assets acquired during the Previous Year - Ceasure of asset after first year use - only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use - HELD THAT:- As decided in M/S. GLOSTER JUTE MILLS LTD. [ 2017 (3) TMI 1807 - ITAT KOLKATA] stand taken by the revenue is not supported by the language of statutory provision. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simplistic borrowing transaction, which it is not. The assessee has taken the vessels under a BBCD arrangement and, while entering into this arrangement, the AE essentially has to factor in the financing arrangement. The consideration for the BBCD instalments is based on the cost of finance, as also the cost of vessels, to the AE, and, as such, there is no occasion for sharing the difference between the interest rate implicit in the BBCD arrangement and the cost of borrowing to the AE. While examining the rate of interest under the BBCD also, one has to bear in mind the fact that it cannot be compared with a borrowing arrangement simpliciter as are the transactions on which LIBOR plus rates apply. Learned Departmental Representative has not been able to show any justification for LIBOR plus 300 bps either, and his challenge primarily is even to this approach of benchmarking. No material before us to support the findings of the CIT(A) in any case, and the findings of the AO, as noted above and in our considered view, are unsustainable in law anyway. In any event, interest is only one part of the working in the computation of instalments, and one cannot consider the same on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal filed by the assessee. 3. In ground no. 1, the assessee has raised these two grievances: 1(a). That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld. CIT (Appeals)] was not justified and grossly erred in confirming the action of the A.O. in not excluding the payment of Net Present Value of deferred sales tax liability, granted under the incentive scheme of State Government of Himachal Pradesh, in respect of its Darlaghat Unit, amounting to Rs. 12,56,20,681/- being capital in nature. 1(b). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in not appreciating the fact that the gain of Rs. 12,56,20,681/- arising on pre-payment of deferred sales tax liability cannot be treated as revenue receipt liable to tax u/s28 (iv). 4. So far as this grievance is concerned, the assessee was allowed deferral of sales tax liability by the Himachal Pradesh Government General Sales Tax (Deferral Payment of Tax) Scheme 20005 under which payment of 75% of sales tax liability was allowed to be deferred for 5 years. Vide a subsequent notification dated 26.7.2005, an op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Chandrapur District of Maharashtra. The assessee s plea was that the nature of this subsidy is the same as the sales tax subsidy, and, consistent with the view that the Assessing Officer had taken for the taxability of sales tax subsidy, this amount is also required to be treated as revenue in nature. Aggrieved, the assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in further appeal before us. 9. Having heard the rival contentions and having perused the material on record, we are of the considered view that the assessee deserves to succeed on this ground as well. Vide our orders on the appeals for the two immediately preceding assessment years, i.e. assessment years 2005- 06 and 2006-07, which were heard along with this set of cross-appeals, we have held that the sales tax subsidy is capital in nature. Going by the stand of the Assessing Officer, the nature of the sales tax subsidy is the same as this subsidy receipt. We thus have no reasons to take any other view of the matter than the view so taken by us for sales tax subsidy for the assessment years 2005-06 and 2006-07, we hold that the impugned receipt of Rs 30,00,000 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excise exemption receipts are also revenue in nature. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) also confirmed the stand of the Assessing Officer on the short ground that the exemption notification does not specifically state the object and purpose of the concession to be promotion of industry in the specified areas etc. The assessee is aggrieved, and is in appeal before us. 18. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 19. We have noted that the Assessing Officer himself states that he finds no difference in sales tax and excise exemption claimed , and in the immediately preceding paragraphs in this order, we have held that sales tax exemption receipt is a capital receipt in nature. There cannot be any good reasons to take a different view of the matter in respect to excise exemptions. For this short reason alone, the impugned additions must stand deleted as the related receipts are required to be treated as capital receipts in nature. The observations in the context of the first ground of appeal will apply mutatis m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro. [2017] 88 taxmann.com 178/[2018] 252 Taxman 360/400 ITR 279. It was a case arising out of judgment of this Court in which, the dispute between assessee and the Revenue was with respect to subsidy granted to the multiplex cinema operators in the form of entertainment tax waiver. The subsidy was granted in view of the fact that, industry was highly capital intensive. The Revenue argued that, the subsidy was revenue in nature. This Court after referring to several decisions of the Supreme Court including the case of CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 and Sahney Steel and Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253 (SC) held that, subsidy had not been granted for construction but only after setting up of a new industry which was in the nature of assistance given for the purpose of carrying on business. 7. On further appeal by the Revenue, Supreme Court confirmed the decision of this Court. It was noted that, Maharashtra Government's subsidy was not in form of an exemption from payment of entertainment duty to multiplex theater complex. The scheme was introduced to start new cinema houses in the State. The Supreme Court obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The computation of subsidy may be on the basis of sales tax or excise duty. Nevertheless, the purpose test would ensure that, the subsidy was capital in nature. 9. The second question raised by the Revenue is consequent of the first question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition. 10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such back-ground, question - arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v. Grace Paper Industries (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot say as to in what manner the subsidy was granted is to be utilized. In other words, the entrepreneur to whom the subsidy was granted was free to utilize it in any manner he liked. It would, therefore, appear that quantification of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment, directly or indirectly, to meet any portion of the 'actual cost The expression 'actual cost' in section 43(1) of the Income Tax Act,1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc. 20. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee. The Assessing Office is, accordingly, directed to delete the impugned addition of Rs 46,83,11,376. The assessee gets the relief accordingly. 13. We see no reasons to take any other view of the matter than the view so taken by the Tribunal in assessee s own case for the assessment year 2006-07. Respectfully following the same, we hold that the amount of Rs 53,23,56,012, being a capital receipt in nature, from the total income. The assessee gets the relief accordingly. 14. Ground no. 3 is thus allowed. 15. In grounds no. 4, the assessee has raised the following grievance: That on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 2006-07. Respectfully following the same, we hold this disallowance of Rs 83,84,690 should be deleted. Ordered, accordingly. The assessee gets the relief accordingly. 18. Ground no. 4 is thus allowed. 19. In grounds no.5 , the assessee has raised two grievances: 5(a). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in computing disallowance u/s 14A at Rs. 6,99,32,651/- without appreciating the fact that no expenditure has been incurred by the appellant for earning exempt income. 5(b). That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in computing disallowance u/s 14A at Rs. 6,99,32,651/- by applying a method akin to the method prescribed under Rule 8D without appreciating the fact that the same is not applicable to instant Assessment Year. 20. In ground no. 15, which is also a connected issue, the assessee has raised the following grievance: That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the addition of expenditure incurred in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance could have exceeded the tax- exempt income. In any event, this is pre- rule 8D period, and as is the settled legal position as of now, rule 8D cannot be invoked in respect of the preamendment period. We are of the considered view that disallowance @ 1% of tax-exempt income will meet the ends of justice for the reason that the period pertains to the preamendment law and rule 8D does not, therefore, has any application in the matter, and that, in accordance with a series of coordinate bench decisions, it has been consistently held so far as the pre-amendment period is concerned, a disallowance of 1% is reasonableparticularly when the assessee has made investments entirety out of his own funds and when there are no borrowings costs involved. It is an undisputed position, on the facts of this case, that the assessee has made the investments entirely out of his own funds. The disallowance is thus restricted to 1% of the tax-exempt income. The assessee gets the relief accordingly 22. We see no reasons to take any other view of the matter than the view so taken by the Tribunal in assessee s own cases for the assessment years 2005-06 and 2006-07. Respectfully following the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation is allowable on plant and machinery only in the year of acquisition and installation. 25. This ground of appeal relates to the claim of the Assessee for additional depreciation u/s.32(1)(iia) of the Act. The undisputed facts are that the original cost of the new machinery purchased and installed by the Assessee after 31-3-2005 but before 1-4-2006 in the 100% EOU and DTA unit Rs.29,77,470 and Rs.2,41,30,615. The WDV of these machineries as on 1-4-2006 was Rs.24,51,920/- and Rs.1,81,50,266/- respectively. The Assessee availed of additional depreciation @ 20% on the original cost of the machinery at Rs.5,95,494/- and Rs.48,26,123/- respectively in AY 2006-07. In AY 2007-08 also the Assessee claimed additional depreciation at 20% of the original cost viz., Rs.5,95,494 and Rs.48,26,123 respectively in all depreciation totaling Rs.54,21,617/-. 26. According to the AO, the deduction u/s.32(1)(iia) of the Act is granted only to new plant and machinery and once depreciation is granted in the 1st year in which the machinery is installed or put to use, the machinery ceases to be a new machinery and therefore additional depreciation cannot be allowed. The plea of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profession, the following deductions shall be allowed (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1-4-1981 reads thus (the sub-section existed upto 31-3-1988 and was deleted thereafter): (iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s installed or, if the machinery or plant is first put to use in the immediately succeeding previous year. From AY 2003-04 till 2005-06, the claim for additional depreciation was restricted to previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or if any industrial undertaking existed before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the relevant statutory provisions. 30. The CIT(A) after considering the aforesaid scheme and history of the provisions of Sec.32(1)(iia) of the Act, deleted the addition made by AO observing as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery acquired and installed after 31-03-2005 subject to overall criteria that total depreciation does not exceed the actual cost. Hence Ground No. 4 is decided in favour of the Appellant. 31. Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee submitted that fiscal statute shall be interpreted on the basis of the language used therein and not de hors the same. It was argued that Clause (iia) to Sec. 32(1) was first introduced vide Finance (No. 2) Act, 1980 w.e.f. 01-04-81 and was applicable till AY 1987-88. The clause was subsequently re-introduced vide Finance Act, 2002 w.e.f. 01-04-03. On perusal of clause (iia) to Sec. 32(1) as existed during the aforesaid period, it could be seen that the legislature conferred the benefit of additional depreciation only in the first AY when the asset was installed and first put to use. However vide Finance Act, 2005, clause (iia) to Sec. 32(1) was amended w.e.f. 01-04-06 wherein the condition of claiming additional depreciation only in the initial AY was deleted. It was submitted that since the specific condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking begins to manufacture or produce any article or thing or achieves substantial expansion by way of increase in installed capacity by 25%. The only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use. In our view this stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression new machinery is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01-04-2006. The plain language of the section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground No.3 rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(Appeals) was not justified in confirming the action of the A.O. in assessing Interest Income of Rs. 33,61,60,879 /- as income under the head Income from Other Sources . 8(b). That on the facts and in the circumstances of the case and without prejudice to ground no. 8(a) taken here-in-above, necessary direction may please be given to the A.O. to allow deduction of expenditure incurred for earning the aforesaid income for the purpose of computing Income from Other Sources 33. Learned counsel, however, submits that the assessee does not wish to press this grievance, and these grounds of appeal, therefore, may be dismissed as not pressed. The prayer is accepted. The grounds of appeal are dismissed as not pressed. 34. Ground no. 8 is thus dismissed. 35. In grounds no. 9 and 10, the assessee has raised the following grievance: 9. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the denial of deduction u/s 80-IA on Infrastructure facility, being Rail Systems at Ropar, Maratha and Sankrail on the contention that prescribed certificates were not filed along with the return of income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8) which is as follows: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the TPO/AO to apply LIBOR Plus 350 point as a benchmark for determining the ALP regarding payment of interest for purchase of ships under BBCD arrangement without appreciating the fact that LIBOR Plus 350 basis point is upper limit provided by the RBI circular for the purpose of ECB and assessee for the relevant year was having AA+ to AAA as credit rating. 40. Learned representatives fairly agree that whatever is decided on the above issue for the assessment years 2005-06 and 2006-07, the appeals for which were heard along with this set of cross-appalls will apply mutatis mutandis for this assessment year as well. Vide our order dated 31st October 2022, and while dealing with the assessment year 2005-06, we have held as follows: So far as this grievance of the assessee is concerned, the relevant material facts are as follows. During the course of proceedings before the Transfer Pricing Officer, to whom the ascertainment of arm's length price of the international transactions entered into by the assessee with its AEs was referred, it was notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r context- rather than as a simplistic borrowing transaction, which it is not. The assessee has taken the vessels under a BBCD arrangement and, while entering into this arrangement, the AE essentially has to factor in the financing arrangement. The consideration for the BBCD instalments is based on the cost of finance, as also the cost of vessels, to the AE, and, as such, there is no occasion for sharing the difference between the interest rate implicit in the BBCD arrangement and the cost of borrowing to the AE. While examining the rate of interest under the BBCD also, one has to bear in mind the fact that it cannot be compared with a borrowing arrangement simpliciter as are the transactions on which LIBOR plus rates apply. Learned Departmental Representative has not been able to show any justification for LIBOR plus 300 bps either, and his challenge primarily is even to this approach of benchmarking. There is thus no material before us to support the findings of the CIT(A) in any case, and the findings of the AO, as noted above and in our considered view, are unsustainable in law anyway. In any event, interest is only one part of the working in the computation of instalments, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, we have noted that the assessee has been given alternative relief by way of 15% depreciation on the capitalized amount as above, and, in any event, no specific arguments have been advanced before us. This ground of appeal is, accordingly, dismissed as not pressed in effect. 45. Ground no. 12 is thus dismissed. 46. In grounds no. 13, the assessee has raised the following grievance: That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs. 6,81,07,284/-. 47. Learned representatives fairly agree that whatever is decided on the above issue for the assessment year 2006-07, the cross-appeals for which were heard along with this set of crossappalls will apply mutatis mutandis for this assessment year as well. While dealing with the assessment year 2006-07, we have held as follows: 44. Learned counsel for the assessee fairly submits that the issue now stands covered against the assessee, and deduction on a provision basis is indeed inadmissible. He, however, prays that a direction may be given that the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019) 416 ITR 591 (Cal)], by Hon ble jurisdictional High Court s judgment in the case of CIT Vs Harinagar Sugar Mills Ltd [ITA No 1132 of 2014, dated 4th January 2017] and by a coordinate bench decision in the case of ACIT Vs JSW Steel Limited [(2019) 112 taxmann.com 55 (Mum)]. Learned Departmental Representative, however, relied upon the stand of the authorities below. 56. We find that a coordinate bench of this Tribunal, in JSW Ltd s case (supra), has inter alia, observed as follows: 47. We further noted that Hon'ble Kolkata High Court, in the case of Pr. CIT v. Ankit Metal Power Ltd. [2019] 109 taxmann.com 93/266 Taxman 237 Ltd. had considered an identical issue and after considering the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) held that when a receipt is not in the character of income as defined under section 2(24) of the I.T. Act, 1961, then it cannot form part of the book profit u/s 115JB of the I.T. Act, 1961. The Hon'ble High court, further observed that sales tax subsidy received by the assessee is capital receipt and does not come within definition of income under section 2(24) of the I.T. Act, 1961 and when, a receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame cannot be considered for the purpose of computation of book profit u/s 115JB of the I.T.Act 1961. Hence, we direct the Ld. AO to exclude sales tax subsidy received by the assessee amounting to Rs. 36,15,49,828/- from book profits computed u/s 115JB of the I.T. Act, 1961. 57. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to exclude the sales tax incentive subsidy for computing book profit under section 115 JB of the Act. The assessee gets the relief accordingly. 58. Ground nos. 16 is thus allowed in the terms indicated above. 59. No other issue was raised before so far as the appeal of the assessee is concerned. 60. In the result, the appeal of the assessee is partly allowed in the terms indicated above. 61. We will now take up the appeal filed by the Assessing Officer. 62. In ground no. 1, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing sales Tax incentives received under various schemes of diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and generation of electricity. The assessee has set up its plants in different parts of the country, and as the location of some of these plants was in backward areas, the assessee had received certain sales tax concessions from the respective State Governments. These concessions were in the nature of exemptions and remissions etc, and were granted under specific schemes announced, under the industrial policies, from time to time. During the relevant previous year, the assessee received amounts aggregating to Rs 169,93,34,752, but all these receipts were treated as tax exempt on account of being in the nature of capital receipts. When income tax return filed by the assessee was subjected to the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had a lodged a claim for exclusion of Rs 169.93 crores, being sales tax exemption/incentives received by it, as capital receipt, and hence not liable to tax. The Assessing Officer declined this claim, primarily on the basis of certain observations in the judgments in the cases of Tamilnadu Sugar Corporation Ltd Vs CIT [(2001) 251 ITR 843 (Mad)], CIT Vs Rajaram Maize Products [(2001) 251 ITR 427 (SC)], CIT Vs S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has then held that so far as the object and purpose for which the subsidy is given, only the subsidy schemes of the Maharashtra and Punjab State specifically state that the subsidies in question are for achieving dispersal of industries outside Mumbai, to attract them to the underdeveloped and developing areas of the State, and to promote the growth of the industry in the State, in the preamble to the scheme. It is on this basis that he has held that so far as the subsidies given by the Maharashtra and Punjab States are concerned, these are required to be treated as capital in nature, whereas, the subsidies received from the State Governments of Himachal Pradesh and Rajasthan, in the absence of specific mention to the effect in the preambles of the subsidy schemes that these subsidies are required to be held to be revenue in nature. However, in our considered view, the approach of discerning the purpose of the subsidy, solely from the specific words used in the preamble of the scheme and without examining the overall scheme of the Act- which is admittedly to promote the growth of industry, is incorrect and superficial. The subsidies so received can be said to be revenue in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax exemption increased the profits of the assessee by eliminating the expenses which the assessee would have had to incur later and therefore the impugned receipts were in the revenue field. He also referred to Explanation (10) to Section 43 (1) of the Income Tax Act inserted in with effect from 01/04/99 to emphasise that the action of the assessee in not reducing the cost of assets by the amount of subsidy for working out the Written Down Value was indicative of the fact that the impugned receipts were not in the nature of capital receipts. 55. We have heard both the parties and considered their rival submissions. Perusal of the scheme extending the aforesaid incentives to prestigious units announced by Government of Gujarat on 26/07/91 makes it amply clear that the scheme was announced to attract investment in core sector industry having potential, to spur industrial growth in ancillary, tertiary and secondary sector of the economy. The other scheme announced by the Government of Gujarat as Capital Investment Incentive Scheme on 11th September 1995 was intended to attract investments to generate greater employment in less industrially developed areas of Gujarat and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues involved in these appeals are squarely covered by the decisions of this Court in Birla VXL Ltd. (supra) and in Munjal Auto Industries Ltd. (supra). Therefore, the questions of law posed for our consideration in these appeals are answered in favour of the assessee and against the department. Accordingly, all these appeals are dismissed. 8. In the case of JCIT Vs Grasim Industries Limited ( ITA Nos 2155/Mum/2016 and Ors; order date 29th April 2022), a coordinate bench has dealt with these legal issues in considerable detail and observed as follows: 5.3.5. . the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 homegrown beet during the relevant period. Lord Macmillan held that What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business. He further observed that: I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received. 15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idy. 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 must be utilised 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. 19. Sahney Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o add that the object of the scheme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. 23. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT [2011] 9 taxmann.com 255/198 Taxman 122/ 333 ITR 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. 24. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. Such But if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade. 9. Such decision was considered in case of Ponni Sugars and Chemicals Ltd.(supra) and the Apex Court held and observed as under : 13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 for the Revenue referred to various decisions of Hon'ble High Courts. But, all those decisions were rendered prior to the decision of Hon'ble Supreme Court referred to above. Hence, the decisions relied upon by the ld. Special Counsel for the Revenue would not advance the case of the Revenue. 5.3.9. It is pertinent to note that in each of the aforesaid decisions of Hon'ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account . 5.4 . Applicability of Special Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53) 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 Special Bench after placing reliance on the decision of Hon'ble Supreme Court in Sahney Steel and Hon'ble Madras High Court in the case of CIT v. Ponni Sugars Chemicals Ltd. Reported in 260 ITR 605 held that the decision of the Tribunal in Asst Year 1985-86 is correct and observed the following: 37 .The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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. The respondent assessee had received a subsidy. It is undisputed that up to the level of Income Tax Appellate Tribunal, the assessee did not raise a contention that such subsidy was towards capital account and, therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999- 2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 would have to take a decision in accordance with law. These questions, therefore, are not considered. (emphasis applied by us while placing reliance on the decision of Hon'ble Jurisdictional High Court) 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon'ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon'ble Supreme Court did not even challenge this ground of subsidy and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 decision is now pending before Hon'ble Bombay High Court. When posed with a special bench decision and a division bench directly on the issue, though touching different chords, we have no difficulty in recognizing our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned 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 our functioning, and we must follow the same. We, therefore, regret our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 279 (SC)], Hon'ble Supreme Court has held that where the object of respective subsidy schemes of State Governments was to encourage the development of Multiple Theatre Complexes, incentives would be held to be capital in nature and not revenue receipts, and, following the same logic, the sales tax subsidy schemes, which are admittedly to encourage industrial growth in the specific areas and the overall scheme in all the sales tax subsidy and exemption schemes unambiguously indicate so, are capital receipts in nature. 8. We see no reasons to take any other view of the matter than the view taken by the coordinate bench in the assessee's own case for the immediately preceding assessment year. Respectfully following the same, we uphold the plea of the assessee and dismiss the grievance of the assessee. The relief granted by the CIT(A) in this regard also stands approved and confirmed .. 64. We see no reasons to take any other view of the matter than the view so taken in assessee s own cases. Respectfully following the same, we approve and confirm the relief granted by the CIT(A) and decline to interfere in the matter. 65. Ground no. 1 is thus dismissed. 66. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 73. Ground no. 3 is thus dismissed. 74. In ground no. 4, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing Pooja/ function expenses amounting to Rs. 53,38,748/- as a business expenditure. 75. Learned representative fairly agree that this issue is also a legacy issue and is covered by decisions of the co-ordinate benches an assessee own cases for the assessment years 1988-89 to 1989-90 1997-98 to 2000-05. Copies of the orders passed by the co-ordinate benches were also placed before us. Learned Departmental Representative, however, relied upon the stand of the Assessing Officer. 76. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches in assessee own cases for the preceding assessment years. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. 77. Ground no. 4 is thus dismissed. 78. In ground no. 5, the Assessing Officer has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion even as he took note of the Tribunal decisions on the said issue, in favour of the assessee in its own cases, but added that the views of the Tribunal has not attained finality, and that the CIT(A) gave relief on the ground that as the Assessing Officer has not challenged the relief granted by the Tribunal, the matter has attained finality. No material has been brought before us to dislodge the findings of the learned CIT(A). In any event, even going by the observations of the Assessing Officer, the matter is squarely covered, in favour of the assessee, by decisions of the coordinate benches in assessee s own case. We, therefore, uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 88. Ground no. 7 is thus dismissed. 89. So far as ground no. 8 of the revenue s appeal is concerned, it has already been dealt with, and disposed of, while dealing with ground no. 10 in the asseee s appeal. We need not, therefore, take it up again. 90. Ground no. 8 is thus dismissed. 91. In ground no. 9, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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