2011 (1) TMI 1501 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on sales tax remission as capital receipt, dismissing revenue's appeals.

The Tribunal upheld the CIT(A)'s decision, treating the sales tax remission as a capital receipt, thus dismissing the revenue's appeals. The judgment ... Disallowance of deduction claimed u/s 43B - ''incentive'' sales tax remission - nature of receipt - the assessee claimed that the incentive in the form of sales tax remission as enjoyed by it under the West Bengal Incentive Scheme, 1999 was a capital receipt, not chargeable to Income Tax. the AO treated the said amount as revenue receipt only. He also stated that even otherwise the sales tax collected by the assesee has not been paid within the due date of filing of return and hence as per the provision of section 43B the amount needs to be added back to the income for the year. Hence, he dismissed the assessee’s contention and the amount of the deferred sales tax being the assistance received was added back to the income of the assessee. In appeal, the Ld. CIT(A) was of the opinion that the assistance given by way of sales tax remission is in the nature of capital receipt and accordingly, he directed the Assessing Officer to delete the addition. Aggrieved by the said order, now the revenue is in appeals. HELD THAT:- I am of the opinion that the assistance given by way of sales tax remission is in the nature of capital receipt. Accordingly, I direct the A.O. to delete the addition. In this view of the matter and in the absence of any contrary material brought on record by the revenue at the time of hearing before us, we do not find any infirmity in the order of the Ld. CIT(A) and the same is hereby upheld. Therefore, the appeals of revenue for all the years are dismissed. Issues Involved:1. Deletion of addition on account of remission of sales tax received.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Remission of Sales Tax Received:The core issue in these appeals is the deletion of the addition on account of remission of sales tax received by the assessee under the West Bengal Incentive Scheme, 1999. The facts of the case, as presented by the Assessing Officer (AO), indicate that the assessee claimed the sales tax remission amounting to Rs. 1,04,69,262/- as a capital receipt, not chargeable to income tax. Initially, this amount was reflected under 'Deferred Sales Tax' in the Balance Sheet as of 31.03.2003 under 'Unsecured Loans'. The assessee later transferred this amount to the Capital Reserve Account in the financial year ending 31.03.2006.The AO disallowed this claim, treating the deferred sales tax as a trading receipt and adding Rs. 61,69,000/- to the income of the assessee under section 43B of the Income Tax Act, alleging that the unpaid sum was not included in the income of the assessee. The AO's decision was based on the premise that the sales tax remission was not for capital expansion or creation of new assets but to overcome a financial crisis, thus treating it as a revenue receipt. The AO relied on the Supreme Court's decision in Sahney Steel & Press Works Ltd. vs. CIT, which held that subsidies granted to assist in running a business more profitably are revenue receipts.In contrast, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the sales tax remission was a capital receipt, relying on the Supreme Court's decision in CIT vs. Ponni Sugars & Chemicals Ltd., which emphasized the purpose of the subsidy. If the subsidy is for setting up or expanding a unit or repaying loans, it is a capital receipt. The CIT(A) found that the assessee used the remission for fixed capital investments and repaying loans, thus treating it as a capital receipt.During the hearing, the Departmental Representative (DR) supported the AO's order, while the assessee's counsel reiterated the submissions made before the lower authorities, emphasizing the CIT(A)'s correct application of the Supreme Court's judgment in Ponni Sugars & Chemicals Ltd.The Tribunal examined the facts and the judicial precedents cited by both parties. It noted the differences between the present case and the Sahney Steel case, highlighting that the sales tax remission in the present case was conditional upon making fixed capital investments and repaying loans, aligning with the principles set out in Ponni Sugars & Chemicals Ltd. The Tribunal also considered other relevant judicial decisions supporting the assessee's position.The Tribunal concluded that the CIT(A) correctly treated the sales tax remission as a capital receipt, as the subsidy was used for capital purposes, and not for running the business. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeals for all the years involved.Conclusion:The Tribunal upheld the CIT(A)'s decision, treating the sales tax remission as a capital receipt, thus dismissing the revenue's appeals. The judgment emphasized the purpose of the subsidy, aligning with the Supreme Court's decision in Ponni Sugars & Chemicals Ltd., and distinguished the facts from the Sahney Steel case. The Tribunal found no infirmity in the CIT(A)'s order, supporting the view that the remission was used for capital investments and loan repayments, not for operational purposes.