TMI Blog2024 (1) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of the 1993 Scheme, which was to industrialise underdeveloped and developing areas was fulfilled. Thus, in our opinion, the argument advanced on behalf of the appellant/revenue that a perusal 1993 Scheme would show that the incentives were tied in with production is untenable. The complete focus of the 1993 scheme was to achieve the object, as noticed above, engrafted in its preamble. Assessee was entitled to avail of sales tax subsidy/incentive under two eligibility certificates dated 13.12.1994 and 15.10.1996 [as amended] for 14 years and 13 years 11 months, respectively, subject to a maximum entitlement of 110% of capital investment made in setting up of the industrial units. Investment in capital assets such as land, buildings, plant and machinery was only a measure adopted for calculating the sales tax subsidy/incentive [which in this case was availed by the respondent/assessee by retaining the sales tax it had levied on its goods]. A perusal of the eligibility certificate dated 13.12.1994 would show that it was issued for setting up a new unit , while the eligibility certificate dated 15.10.1996 was given to a pioneer unit which had undertaken expansion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the above- captioned appeals, reads as follows: Whether the Income Tax Appellate Tribunal was right in holding that the subsidy received in the form of sales tax incentive under the Resolution dated 07th May, 1993 under the Package Scheme of Incentives Scheme, 1993 was [a] capital receipt and not revenue in nature? 5. Thus, the central issue which arises for consideration in the appeals concerns the nature of the benefit received by the respondent/assessee. The benefit which the respondent/assessee has obtained from the Government of Maharashtra, in the AYs in issue, is a sales tax subsidy in the manner and form prescribed under the scheme titled Dispersal of Industries Package of Incentives, 1993 [hereafter referred to as 1993 Scheme ]. 6. The moot point which arises for consideration is whether the sales tax subsidy received by the respondent/assessee is a capital receipt or, as contended by the appellant/revenue, a revenue receipt. Backdrop: 7. Thus, before we proceed further to conclude one way or the other concerning the aforementioned issue, the following broad facts are required to be noticed: 7.1 The 1993 Scheme referred to hereinabove was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent/assessee) was similar to an earlier avatar of the scheme, i.e., 1979 Scheme, which was considered by its special bench of the Tribunal in the matter of DCIT v. Reliance Industries Ltd (2004) 88 ITD 273 (Mum) (SB). This direction was issued by the Tribunal on 01.02.2006. 8. Upon remand by the Tribunal, submissions were advanced before the AO qua the matter concerning sales tax subsidy on 28.12.2007. 8.1. The AO, however, was not persuaded by the arguments advanced on behalf of the respondent/assessee and, accordingly, via order dated 31.12.2007, concluded that the sales tax subsidy had to be treated as a revenue receipt. 8.2. The respondent/assessee assailed the assessment order dated 31.12.2007 before the CIT(A). The CIT(A), via order dated 19.09.2011, overturned the conclusion arrived at by the AO that the sales tax subsidy had to be treated as revenue receipt. The CIT(A) observed that the 1993 Scheme was identical to the 1979 Scheme considered by the unique bench of the Tribunal in the matter of DCIT v. Reliance Industries Ltd. 8.3 In reaching this conclusion, the CIT(A), among other things, considered the order dated 26.03.1998 passed by his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is otherwise covered for the tax incentive for the year under appeal. (iii) The Tribunal in the appellant's case for AY 1997-98 has set aside for verification the issue as regards applicability of the DCIT Vs Reliance Industries Ltd. 88 ITD 273 (Mumbai Special Bench) to the case of appellant undertaking its business of production of PSF and POY at an area classified under the Maharashtra Incentive. Scheme 1993 for its coverage for grant of sales tax incentive. In the case before the Bombay Tribunal, the issue relate to classifying the character of the subsidy obtained under the 1979 package scheme of incentives of the Maharashtra Government, and whether subsidy could be treated as revenue receipt as per the decision of the Tribunal in the case of Bajaj Auto Ltd. (IT reference no. 49 and 110) (Bombay) of 1991 dated 31.12.2002). in the case of DCST vs Reliance Industries Ltd (supra) it was held at para 28 and 29 of the order that the thrust of the Maharashtra Scheme was industrial development of the backward districts as well as generation of employment, thus establishing, a direct-nexus with the investment in fixed capital assets. In the preamble to 1993 scheme, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 108 of the order in Reliance Industries case, the Tribunal found that in Andhra Pradesh Scheme, the object was to stimulate rapid industrialization throughout the state, whereas under the Maharashtra Scheme, the aim was to disperse the industries outside the Bombay, Thana - Pune belt and to speed up the pace of industrialization in the developing regions of the state. Under the Maharashtra Scheme, no incentive was available to industries in the developed regions of the state. The second point of difference related to the quantum of the sales tax incentive which was uniform to all eligible units under the Andhra Pradesh Scheme, but not so under the Maharashtra scheme, under which the quantum depended on the area in which the industry is located. The third point of distinction was that in the Andhra Pradesh scheme incentive, was in the form of refund of sales tax subject to maximum of equity capital, whereas under the Maharashtra scheme, it was either in form of sales tax exemption and interest free unsecured loans. Further the incentives in the Maharashtra Scheme were subject to monetary limits directly related to fixed-capital investment. Another distinction is the period f (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the notional sales tax liability. The AD is directed to allow upon verification the quantum of notional sales tax liability computed at Rs. 77,89,99,7437- as per the CAs certificate. Subject to the verification above, the ground is allowed. (d) I also hold that pursuant to introduction of Explanation (10) in section 43(1) w.e.f 01.04.99, any subsidy intended to meet the cost of assets should go to the reduce the actual cost for the purposes of allowance of depreciation u/s 32 of the act. Hence, the amount of sales tax exemption is also to be proportionately reduced from the w.d.v. of the respective block of asset on the basis of cost of project indicators given in the eligibility certificate issued by SICOM. Thus I direct that the amount of sales tax incentives held a capital receipt in an earlier part of this order be considered as a reduction form the block of asset at the admissible amount of depreciation. The AD would give effect accordingly. [Emphasis is ours] 9. Being dissatisfied, the appellant/revenue preferred an appeal with the Tribunal. Via the impugned order dated 22.06.2012, the Tribunal sustained the order passed by the CIT(A). 10. Against thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceuticals (P.) Ltd. v. Assistant Commissioner of Income Tax (2008) 307 ITR 387 (Madras) and Commissioner of Income Tax v. Steel Authority of India Ltd. (2002) 257 ITR 241 (Delhi)] (v) Since the incentive concerned sales tax, the receipt inherently can only be construed as a revenue receipt. (vi) The judgments rendered in PCIT-04 v. Nestle India Ltd., 2023: DHC:4438-DB; CIT v. Ponni Sugars and Chemicals Ltd., (2008) 306 ITR 392 (SC) and CIT v. Chaphalkar Brothers, [2018] 400 ITR 279 (SC), are distinguishable on facts. In paragraph 16 of the judgment rendered in Ponni Sugar s case, the Supreme Court noted that the facts found in Sahney Steel were different. It was noticed that Ponni Sugar, i.e., the appellant, was free to use the money received in its business activity as per its requirements. Likewise, in Chaphalkar Brothers, the subsidy was given to offset the burden of the substantial capital expenditure required for setting up multiplex cinema theatres. (vii) On the other hand, the 1993 Scheme does not impact the capital expenditure component, which would remain the same or even less if the eligible industrial unit moved to a less developed or underdeveloped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of his submission, Mr Vohra relied upon the following judgments: (i) Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) (ii) CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) (iii) CIT v. Chaphalkar Brothers [2018] 400 ITR 279 (SC) (iv) Shree Balaji Alloys v. CIT [2011] 333 ITR 335 (J K) [approved in [2016] 287 CTR 459 (SC)] (v) DCIT v. Munjal Auto Industries Ltd. [2013] 218 Taxman 135 (Guj) [approved by Hon ble Apex Court vide order dated 08.05.2018] (vi) CIT v. Maruti Suzuki India Ltd. ITA No.171 of 2012 (order dated 07.12.2017) (vii) CIT v. Johnson Matthey India (P) Ltd. ITA No. 193 of 2015 (order dated 13.03.2015) (viii) CIT v. Bougainvillea Multiplex Entertainment Centre (P.) Ltd. [2015] 373 ITR 14 (Del) (ix) CIT v. Rasoi Ltd. [2011] 335 ITR 438 (Cal) (x) Sunbeam Auto (P.) Ltd. v. PCIT [2018] 402 ITR 309 (Del) (xi) PCIT v. Nestle India Ltd. [ITA 303 of 2023 (Order dated 04.07.2023)] Analysis and Reasons: 12. We have heard the learned counsel for the parties and perused the record. 13. As would be evident from the narration of facts and the submissions r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to how the incentives received by the assessee in a given case should be treated, for convenience, are extracted hereafter: 18. Mr. Ganesh's further argument was that the three types of refunds contemplated in the scheme, the refund of sales tax on purchase of machinery must be treated as capital. The payment for the purchase of machineries must be of capital nature and the entire payment of sales tax must have been treated as capital expenditure of the Company. If any refund of sales tax paid on purchase of capital goods is made the refund will partake of the character which it had originally borne. Such refunds cannot in any circumstances be treated as trade receipts or supplementary trade receipts. This argument overlooks the basic principle laid down in the cases discussed above. It is not the source from which the amount is paid to the assesses which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's Case (supra) is that if payment in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner in which the subsidy is measured and paid. In other words, the quantification of the subsidy/incentive (whether it is linked to turnover or the cost of a capital asset) would not be a determinative factor in concluding the nature of the receipt. The purpose and the object with which the benefit/incentive/subsidy is extended would determine its character in the hands of the recipient, i.e., the assessee. 17. Against the backdrop of the aforesaid principles, it will be helpful to advert to the purpose and object of the 1993 Scheme. The purpose and object of the 1993 Scheme is best illustrated by referring to the preamble of the 1993 Scheme: 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/Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package Scheme of Incentives. The Package Scheme of Incentives, introduced in 1964, was amended from time to time. The last amended Scheme, commonly known as the 1988 Scheme was operative from 1st Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontribution towards the Cost of Feasibility Study. 19. Each of the incentives referred to above was made admissible to either one or more of the following units categorised as new/pioneer or prestigious. 19.1 A perusal of the definition of new unit/pioneer unit/prestigious unit would show that there is a common denominator: a brand-new unit had to be set up. The only difference was that insofar as the pioneer unit was concerned, it included a large-scale new unit or a large-scale fixed capital investment made by an existing unit. In other words, there was an expansion of an existing unit. 19.2 Insofar as the prestigious unit was concerned, its definition is almost similar to a pioneer unit; the only difference being that it had to be set up in a specific district, i.e., Gadchiroli District. It is common knowledge that Gadchiroli is a problematic area for more than one reason; therefore, setting up an industry in that area is challenging. 20. Besides this, the scheme also refers to a sick unit, which, as per the definition provided in paragraph 3.17 of the scheme, includes a small-scale industrial unit. 21. Therefore, the common thread running through various incent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Group B [Group C], those which are the least developed areas of the State not covered under Group A/Group B/Group C [Group D] and areas which are least developed lacking basic infrastructure and not covered under Group A, Group B, Group C and Group D [Group D+]. 26. The fact that the 1993 Scheme is different from the scheme which the Andhra Pradesh Government framed [which was considered in Sahney Steel] is evident upon perusal of the order passed by the CIT(A). The finding of fact returned by the CIT(A) is that the 1993 Scheme is akin to the 1979 Scheme considered in DCIT v. Reliance Industries Ltd. 26.1 Even though the appellant/revenue did not inform us as to whether the decision of the special bench of the Tribunal rendered in DCIT v. Reliance Industries Ltd was carried further in appeal, we are of the opinion that the frame of the 1993 Scheme clearly indicates that it was mainly envisaged to industrialise underdeveloped and developing areas and not to improve the production capability or profitability of industrial units, which may have been incidental benefits of the said scheme. 27. Apart from the Sahney Steel judgement, Mr Shlok Chandra, on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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