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TMI Blog2022 (4) TMI 1584X X X X Extracts X X X X X X X X Extracts X X X X ..... dy has been given nor has it clarified as to the purpose for which the subsidy has been utilized." 4. The revenue has raised the following additional ground: - "Whether the Ld. CIT (A) was justified against the AO's action of not considering the claim of Education Cess of Rs. 1,42,88,177/- on income tax and Dividend Distribution Tax by ignoring judgments of the Hon'ble High Courts in which Education cess was not allowed as deduction." 5. The brief facts of the case are that the assessee filed its return of income on 25.09.2014 declaring total income to the tune of Rs. 104,57,28,450/- for the A.Y.2014-15. The assessee has filed the revised return of income on 31.03.2016 declaring total income to the tune of Rs. 88,23,78,030/-. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was engaged in the business of manufacturing of 1200 TPA Isobutyl Benezene (BB), an intermediate used to manufacture Ibupofen from its plat at MIDC, Mahad, Raigad District, Maharashtra. The assessee was also having its second plant at Lote to manufacture 2 Acryla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has relied upon the decision of the Hon'ble Supreme Court in the case of Goetze India Ltd vs CIT. Therefore, the claim for export incentive of Rs. 3,66,70,644/- being capital in nature made during the assessment proceedings was rejected by the AO and held it as revenue receipt and addition was made in the total income of the assessee accordingly. 5.3 During the appellate proceedings the assesse argued that the export incentive under the schemes MLFPS/SHIS/IEIS from the Government is actually capital receipt and the same is not liable to be taxed and that MLFPS/SHIS/IEIS is an incentive granted by Government in order to export products/sectors of high export intensity employment potential and the same would be incentivized at 2% of FOB value of exports under MLFPS/SHIS/IEIS schemes. During the year under consideration the appellant has received export incentive of Rs. 3,66,70,644/under the scheme of Market Linked Focus Product Scheme from the Government. Basically the AO has not discussed about the nature of expenditure whether capital or revenue, the only stand taken by the AO is that the assessee failed to claim such incentive while filing the return of income u/s.139(1) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Book). 5.5 I have considered the facts of the case, submissions of the assessee and material on record and feel that this export incentive receipt is in someway connected to capital receipt in the form of technology upgradation and expansion of capacity of the plant. The Hon'ble Supreme Court in the case of CIT vs Ponni Sugars & Chemicals Ltd (2008) 306 ITR 392 (SC) has examined this issue in great detail and held that if the purpose of incentive or subsidy was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was of capital in nature. For clarity the relevant portion of the decision is reproduced as under: "15. In the decision of House of Lords in the case of Seaham Harbour Dock Co. v. Crook (1931) 16 TC 333 the Harbour Dock Co. had applied for grants from the Unemployment Grants Committee from funds appropriated by Parliament. The said grants were paid as the work progressed the payments were made several times for some years. The Dock Co. had undertaken the work of extension of its docks. The extended dock was for relieving the unemployment. The main purpose was relief from unemployment. Therefore, the House of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of a trade but was of capital nature. Accordingly, the first question is answered in favour of the assessee and against the Department." 5.6 An identical issue has been examined by Hon'ble ITAT Chennai in the case of Eastman Exports Global Clothing Pvt. Ltd. In ITA No. 47/MDS/2016 dated 17.05.2016. The said decision by ITAT considered Market Linked Focus Product Scheme (MLFPS) held as this incentive is capital receipt by observing as under: "9. We have considered the rival submissions on either side and also perused the relevant material available on record. The Market Linked Product Scheme is a scheme promoted by the Director General of Foreign Trade wherein incentive @ 2% on the FOB value of the total export was allowed. As per the Scheme, the incentive was given to export products in a specified market. The export of products which are covered under FPS list would be given incentive of 2% on FOB value of the export. In other words, it is an incentive given by the Government for exploring the new markets across the globe. The question arises for consideration is when the assessee was given incentive for exploring the new markets across the globe, whether such incenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Shamlal Bansal that their lordship have held that a TUF receipt is only a capital receipt" 5.10 Similarly, the issue whether the interest subsidy received under the technology up gradation fund scheme (TUF) is capital receipt or revenue receipt was came up for consideration before the Hon'ble ITAT, Kolkata bench in the case of M/s. Gloster Jute Mills Ltd vs Addl. CIT in ITA No. 687/Kol/0210 and the Hon'ble ITAT, vide order dated 02.07.2014 decided the issue in favour of the assesse with the following observation: "9. We have carefully considered the submissions. We find considerable cogency in the submissions of the Id. Counsel of the assessee. We find that identical issue under the Technology Upgradation Fund Scheme (in short 'TUFS ') of Ministry of Textiles was considered by the Hon'ble Punjab &Haryana High Court in ITA No. 472 of 2010 vide decision dated 17.01.2011. Hon'ble High Court has considered and held the issue as under: "2. The assessee is engaged in manufacture and sale of woollen garments It received subsidy for repayment of loan taken for building, plant and ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 machinery under the Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt, as per judgment of the Hon'ble Supreme Court in Sahne Steel & Press Works Ltd. & Ors. Ve CIT 1997) 228 ITR 253. ITA No. 95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr. 2007-08. 5. We are unable to accept the submission. 6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12.7.2005 with Small Industry Development Bank of India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d various decisions as given above, the export incentive is to be held as capital in nature is held as and liable not to tax. 5.12 Therefore, these grounds of appeal are decided in favour of the assesse and are accordingly treated as Allowed." 7. On appraisal of the above mentioned finding, we find that no doubt the assessee initially nowhere raised the claim of export incentive before the AO in its return of income nor the claim was raised at the time of filing the revised return of income. The claim was raised before the CIT(A) initially and the CIT(A) was having co-terminus power as of AO who dealt with the issue on the basis of the decision of Hon'ble Bombay High Court in the case Pruthvi Brokers Pvt. Ltd. 253 CTR 0515 and in view of the decision in the case of PCIT Vs. Karnataka State Co-op feberation Ltd. 148 Taxmann.com. The CIT(A) has also placed reliance upon the decision in the case of NTPC Vs. CIT 229 ITR 383 (SC) and Jute Corporation of India Vs. CIT 181 ITR 688 (SC). Apparently, CIT(A) has co-terminus power to consider the issue which may not be considered by the AO and can taken the decision in accordance with law. Taking into account of all the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 27-8-2009 onwards, unless a specific date of export/period is specified by public notice/notification. 3.14.3 Ineligible Exports Categories/Sectors for FMS The following categories of export products/sectors shall be ineligible for Duty Credit Scrip, under FMS scheme (a) Supplies made to SEZ units; (b) Service Exports; {c) Diamonds and other precious, semi-precious stones; (d) Gold, silver, platinum and other precious metals in any form, including plain and studded Jewellery; (e) Ores and Concentrates, of all types and in all forms; (f) Cereals, of all types; (g) Sugar, of all types and in all forms; (h) Crude/Petroleum Oil & Crude/Petroleum based Products covered under ITC HS codes 2709 to 2715, of all types and in all forms; and (i) Export of Milk and Milk Products covered under ITC HS Codes 0401 to 0406, 19011001, 19011010, 2105 & 3501. 3.15. Focus Product Scheme (FPS) 3.51.1 Objective Objective is to incentivise export of such products which have high export intensity/employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products, 3.15.2 Entitlement 'Exports of notified produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus Holders Incentive Scrip shall be with Actual User Condition and shall be used for exports of capital goods (as defined in FTP) relating to the sectors specified in Para 3.16.4 below. 3.16.4 The Status Holders of the following Sectors shall be eligible for this Status Holders Incentive Scrip - (1) Leather Sector (excluding finished leather); (2) Textiles and Jute Sector; (3) Handicrafts; (4) Engineering Sector (excluding Iron & Steel, Non-ferrous Metals in primary or intermediate forms, Automobiles & two wheelers, nuclear reactors & parts and Ships, Boats and Floating Structures); (5) Plastics; and (6) Basic Chemicals (excluding Pharma Products). The Status Holders of the additional sectors listed in the Para 3.10.8 of HBPv1 2009-14 (RE 2010) shall be eligible for this Status Holders Incentive Scrip an exports made during 2010-11 and 2011-12." 8. The scheme is self-explanatory. There is nothing on record to which it can be assumed that the same is not in existence. No reason has been explained to which it can be assumed that the CIT(A) has granted the relief wrongly and illegally. The facts are not distinguishable at this stage. In view of the facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Counsel for the assessee has submitted that 'Cess' has not been specifically mentioned in the aforesaid provisions of section 40(a)(ii) and, therefore, Cess is an allowable expenditure. He in this respect has relied upon the "CBDT Circular No. 91/58/66-ITJ(19) dated 18-05-1967", wherein it has been interpreted that the 'Cess' shall not be disallowable. The said Circular for the sake of ready reference is reproduced as under:- "Interpretation of provision of Section 40(a)(ii) of IT Act, 1961 - Clarification regarding.- "Recently a case has come to the notice of the Board where the Income Tax Officer has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of section 10(4) of the Old Act and Section 40(a)(ii) of the new Act. 2. The view of the Income Tax Officer is not correct. Clause 40(a)(ii) of the Income Tax Bill, 1961 as introduced in the Parliament stood as under:- "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains". When the matter came up before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving as under:- "In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income tax. The meaning of the word "surcharge" as given in the Webster's New International Dictionary includes among others "to charge (one) too much or in addition " also "additional tax". Thus the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Sur- charge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax". 21. The Hon'ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income-tax. At this stage, it is pertinent to mention here ..... X X X X Extracts X X X X X X X X Extracts X X X X
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