2020 (3) TMI 220 - AT - Income Tax

Tribunal rules excise duty refund and interest subsidy as non-taxable capital receipts under Income Tax Act

The tribunal held that the excise duty refund and interest subsidy were capital receipts, not taxable under normal provisions, and should not be included ... Revision jurisdiction under section 263 - capital receipt vs revenue receipt - purpose test - computation of book profit under section 115JB - non-income receipts excluded from book profits/MAT - binding effect of coordinate bench and confirmed precedentRevision jurisdiction under section 263 - binding effect of coordinate bench and confirmed precedent - Validity of the Principal Commissioner of Income Tax's assumption of revision jurisdiction under section 263 to reopen regular assessments on the ground that excise duty refunds and interest subsidy credited to reserves should have been treated as revenue and included in computation. - HELD THAT: - The Tribunal reviewed the settled test for exercise of revision jurisdiction - that the assessment must be both erroneous and prejudicial to the revenue - and applied relevant precedents and coordinate-bench decisions. The impugned receipts arose under the New Industrial Policy scheme applicable to the assessee's Jammu & Kashmir units and had already been held to be capital receipts by this Tribunal's coordinate benches (and by the Jammu & Kashmir High Court as affirmed), distinguishing the scheme considered in CIT v. Meghalaya Steels Ltd. In view of these binding and directly applicable decisions, the Assessing Officer's conclusion to treat the receipts as non-income in the regular assessment was a tenable view and not an erroneous assessment attracting section 263 revision. The PCIT therefore erred in assuming revision jurisdiction and directing inclusion of those receipts. [Paras 6]PCIT's assumption of revision jurisdiction under section 263 was held to be erroneous and reversed; regular assessments restored.Capital receipt vs revenue receipt - purpose test - computation of book profit under section 115JB - non-income receipts excluded from book profits/MAT - Whether excise duty refunds and interest subsidy, held to be capital receipts, must nevertheless be included in book profits for the purpose of section 115JB merely because they were credited to reserves or to the profit and loss account. - HELD THAT: - The Tribunal applied the purpose test for characterisation of receipts and the established proposition that receipts which are not in the nature of income cannot be treated as income for computing book profits under section 115JB. Reliance was placed on coordinate-bench precedents (including Binani Industries and other Tribunal and High Court decisions) which distinguish items that are not income at all from items that are income but exempted under specific provisions. Since the impugned receipts were held to be capital in character by applicable precedents and not income, including them in book profit would both tax non-income and distort the real working results that MAT seeks to capture. Consequently, they must be excluded while computing book profits under section 115JB. [Paras 6]Excise duty refund and interest subsidy, being capital receipts and not income, are excluded from book profits under section 115JB.Final Conclusion: The Tribunal allowed the assessee's appeals for assessment years 2013-14 and 2014-15, holding that the PCIT erred in invoking revision under section 263 and that the excise duty refunds and interest subsidy (held to be capital receipts by binding precedents) are not includible in book profits under section 115JB; the regular assessments were restored. Issues Involved:1. Whether the excise duty refund and interest subsidy received by the assessee should be treated as capital or revenue receipts.2. Whether these receipts should be included in the computation of book profits under section 115JB of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Treatment of Excise Duty Refund and Interest Subsidy:The Principal Commissioner of Income Tax (PCIT) treated the excise duty refund and interest subsidy as revenue receipts, citing the Supreme Court's decision in CIT vs. Meghalaya Steels Ltd. The PCIT issued show-cause notices and concluded that the Assessing Officer (AO) had completed the assessments without adequate enquiries, thus causing prejudice to the interest of the Revenue.The assessee argued that these receipts were capital in nature, referring to the tribunal's earlier decisions in its own cases for assessment years 2010-11 to 2012-13 and the Jammu & Kashmir High Court's decision in Balaji Alloys. The tribunal in the present case agreed with the assessee, reiterating that the excise duty refund and interest subsidy were capital receipts not chargeable to tax under normal provisions. The tribunal referenced the purpose test laid out by the Supreme Court in Ponni Sugars & Chemicals Ltd., concluding that these incentives were aimed at accelerating industrial development and generating employment, thus serving a public purpose and not merely operational incentives.2. Inclusion in Book Profits under Section 115JB:The PCIT also argued that these receipts should be included in the computation of book profits under section 115JB since they were credited to the profit and loss account. The tribunal examined whether non-revenue receipts could form part of book profits for MAT purposes. It referred to several judicial precedents, including the ITAT Kolkata Bench's decision in Binani Industries Ltd. and the Supreme Court's decisions in Indo Rama Synthetics (I) Ltd. and Apollo Tyres Ltd.The tribunal concluded that receipts not in the nature of income should not be included in book profits under section 115JB, even if credited to the profit and loss account. It emphasized that the purpose of MAT provisions is to bring out the real profit of companies, and including non-revenue receipts would distort this objective. The tribunal upheld the CIT(A)'s decision that the excise duty refund and interest subsidy, being capital receipts, should not be included in book profits under section 115JB.Conclusion:The tribunal reversed the PCIT's orders, holding that the excise duty refund and interest subsidy were capital receipts not chargeable to tax under normal provisions and should not be included in the computation of book profits under section 115JB. The tribunal restored the AO's original assessments for the assessment years 2013-14 and 2014-15.