2024 (2) TMI 1568 - HC - Income Tax

Sales Tax Incentives Under West Bengal IPS 2010 Are Capital Receipts, Not Income Under Section 2(24) or 115JB

The Calcutta HC held that sales tax incentives received under the West Bengal IPS 2010 scheme constitute capital receipts, not revenue receipts. Relying ... Nature of receipt - Sales tax incentive received from the State Government under West Bengal Industrial Promotion (Assistance to Industrial Units) Scheme in short (IPS) 2010 - capital receipt OR Revenue Receipt - HELD THAT:- As relying on Shanti Nath Detergents Pvt. Ltd. [2023 (4) TMI 114 - CALCUTTA HIGH COURT] no hesitation in holding that the finding of the Jammu and Kashmir High Court on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference. The incentives would have to be held capital and not revenue. Identical issue was also considered by this Court in the case of Pr.CIT vs. Ankit Metal And Power Ltd [2019 (7) TMI 878 - CALCUTTA HIGH COURT] wherein apart from considering the effect of the subsidy, the Court also considered as to whether when a receipt is not in the character of income as defined under Section 2(24) of the Act, whether it can be said to form part of the book profit under Section 115JB. Decided against revenue. ISSUES: Whether the Sales Tax incentive received under the West Bengal Industrial Promotion (Assistance to Industrial Units) Scheme, 2010 (IPS 2010) constitutes a capital receipt or a revenue receipt for income tax purposes.Whether the Tribunal erred in allowing the claim of the Sales Tax incentive as a capital receipt despite the assessee not filing a revised return under Section 139(5) of the Income Tax Act nor giving prior notice to the Assessing Officer regarding the non-taxability of the receipt before completion of assessment. RULINGS / HOLDINGS: The Tribunal correctly held that the Sales Tax incentive under the IPS 2010 scheme is a capital receipt and not a revenue receipt, relying on precedent which established that such incentives aimed at industrial development and employment generation are capital in nature.The Tribunal validly exercised its power under Section 254 of the Income-tax Act to entertain the claim treating the incentive as a capital receipt, notwithstanding the absence of a revised return under Section 139(5) or prior notice to the Assessing Officer; the failure to file a revised return does not preclude the Tribunal from allowing such claims. RATIONALE: The Court applied established legal principles from authoritative precedents, including the Supreme Court's decision in CIT vs. M/s. Chaphalkar Brothers, which held that subsidies granted to promote industrialization and employment are capital receipts.The Court relied on the interpretation of 'income' under Section 2(24) of the Income Tax Act and the exclusion of capital receipts from book profit under Section 115JB, as explained in prior rulings, confirming that capital receipts do not constitute income for tax purposes.The Court distinguished the scope of the Supreme Court's decision in Goetze (India) Ltd. v. CIT, clarifying that it limits the Assessing Officer's power but does not restrict the Tribunal's authority under Section 254 to entertain claims not made before the Assessing Officer.The Court reaffirmed the Tribunal's discretionary power to allow claims regarding the nature of receipts even if procedural formalities such as filing revised returns were not complied with, thereby endorsing a substantive over procedural approach in tax adjudication.