2019 (7) TMI 878 - HC - Income Tax

State industrial-unit incentives reimbursing energy charges treated as capital subsidy; excluded from s115JB book profit and not taxable

Incentives received under state schemes, though computed as reimbursement of energy charges, were held to be capital receipts because the determinative ... Characterization of receipt - subsidy receipt under West Bengal Incentive Scheme, 2000 and ‘West Bengal Incentive to Power Intensive Industries Scheme, 2005’ - capital v/s revenue receipts - HELD THAT:- The mode of computation/form of subsidy is irrelevant. The mode of giving incentive is re-imbursement of energy charges. The nature of subsidy depends on the purpose for which it is given. Hence the assessee draws support from the decisions already discussed earlier as the same principle will apply here. Thus, the entire reason behind receiving the subsidy is setting up of plant in the backward region of West Bengal, namely, Bankura. Accordingly we hold the aforesaid incentive subsidies are ‘capital receipts’ and is not an ‘income’ liable to be taxed in relevant assessment year 2010-11 on the basis of discussion made above and further taking into consideration the definition of Income u/s 2(24) where subclause (xviii) has been inserted including ‘subsidy’ for the first time by Finance Act, 2015 w.e.f. April, 2016 i.e assessment year 2016-17. The amendment has prospective effect and had no effect on the law on the subject discussed above applicable to the subject assessment years. MAT computation - whether the aforesaid incentive subsidies received from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit u/s 115 JB? - HELD THAT:- In this case since we have already held that in relevant assessment year 2010-11 the incentives ‘Interest subsidy’ and ‘Power subsidy’ is a ‘capital receipt’ and does not fall within the definition of ‘Income’ u/s 2(24 and when a receipt is not on in the character of income it cannot form part of the book profit u/s 115JB In the case of Appollo Tyres Ltd. [2002 (5) TMI 5 - SUPREME COURT] the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation u/s 115JB - For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit u/s 115JB. Power of the Appellate Tribunal u/s 254 - Tribunal entertaining / allowing the claim which was made by the assessee before the AO by filing a revised computation instead of filing a revised return - HELD THAT:- As in the case of CIT Vs. Britannia Industries Ltd. [2017 (7) TMI 502 - CALCUTTA HIGH COURT] held that Tribunal has the power to entertain the claim of deduction not claimed before the AO by filing revised return. Respectfully following the aforesaid decision as well as the view already taken by us in this case that the aforesaid subsidies are capital receipt and not an ‘income’ and not liable to Tax Tribunal in exercise of its power u/s 254 justified this claim though no revised return u/s 139 (5) was filed before the AO. We answer both the question Nos. 1 and 2 in negative and in favour of assessee . Issues Involved:1. Whether the incentives received by the assessee under the West Bengal Incentive Schemes should be treated as capital receipts or revenue receipts.2. Whether the subsidies should be included in the Book Profit under Section 115JB of the Income Tax Act, 1961.3. Whether the Tribunal was correct in allowing the claim of deduction by the assessee through a revised computation instead of a revised return.Issue-wise Detailed Analysis:1. Nature of Incentives:The primary issue was whether the incentives received by the assessee, namely 'Interest subsidy' under the West Bengal Incentive Scheme, 2000, and 'Power subsidy' under the West Bengal Incentive to Power Intensive Industries Scheme, 2005, should be treated as capital receipts or revenue receipts. The Tribunal had held these subsidies as capital receipts based on the purpose test, which is a determining factor in judging the character of the subsidy. The purpose test, as laid out by the Supreme Court in the cases of Sahney Steel and Ponni Sugars, indicates that if the subsidy is given to set up a new unit or expand an existing unit, it is a capital receipt. The court found that the subsidies in question were granted to promote industrialization in backward areas, specifically for setting up new industries or expanding existing ones, thus qualifying them as capital receipts.2. Inclusion in Book Profit:The second issue was whether these subsidies should be included in the Book Profit under Section 115JB of the Income Tax Act, 1961. The court held that since the subsidies were capital receipts and not income as defined under Section 2(24) of the Act, they should not be included in the Book Profit. The court distinguished this case from the Apollo Tyres case, where the income was taxable but exempt under a specific provision. Here, the subsidies were not in the nature of income at all, and thus, could not be included in the Book Profit for computation under Section 115JB.3. Revised Computation vs. Revised Return:The third issue was whether the Tribunal was correct in allowing the claim of deduction by the assessee through a revised computation instead of a revised return. The revenue relied on the Goetze (India) Ltd. case, which restricts the power of the Assessing Officer to entertain claims without a revised return. However, the court noted that this restriction does not apply to the powers of the Appellate Tribunal under Section 254 of the Income Tax Act. The Tribunal, therefore, was justified in entertaining the claim of deduction even though the assessee did not file a revised return.Conclusion:The court dismissed the revenue's appeal, holding that the subsidies in question were capital receipts and not liable to be taxed. These subsidies should not be included in the Book Profit under Section 115JB, and the Tribunal was correct in allowing the claim of deduction through revised computation. The court's decision was based on the purpose test and the nature of the subsidies as capital receipts, aligning with established legal precedents.