TaxTMI 
TaxTMI 
2010 (2) TMI 916
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....002-03 the total sales made by the assessee in Uttar Pradesh eligible for Sales-tax exemption was at Rs.2,42,43,75,336/- which included sales tax component of Rs.28,28,53,871/-. The assessee in the original return of income included the sales tax component in the total income, but subsequently based upon the judgement of ITAT, Mumbai Special Bench in ITA. No.4045 (Bom.) of 1991 for assessment year 1986-87 claimed the sales tax component as capital receipt by filing revised return of income. The assessing officer treated the sales tax component as revenue receipt in the hands of the assessee relying on the decision of Bombay High Court in the case of Sudichha Chitra v CIT 189 ITR 774 (Bom.) wherein on similar facts subsidy was held to be revenue in nature. In this case Hon'ble Bombay High Court held that the subsidies were not granted for production of or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of the production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The assessing officer also placed reliance on the de....
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....o pay the same to the State Govt. did not exist, such receipts could only be treated as income in the hands of the assessee. The assessing officer accordingly treated the sales tax component of Rs.28,28,53,871/- as revenue receipts. 3. Before the ld. CIT (Appeals) it was submitted that Uttar Pradesh Govt., under Uttar Pradesh State Industrial Policy, 1989 had granted subsidy to new industries to encourage the setting up of new industrial units during a particular period in certain specified areas of U.P. which needed huge capital investment, in the form of sales tax exemption. Since the State Govt. could not give subsidy in cash, the assessee had been granted right to retain the sales tax payable to the State Govt. It was also submitted that the company had set up its manufacturing unit in Greater Noida, U.P. to avail the project set up subsidy/facility under the U.P. State Industrial Policy, 1998. The manufacturing unit was set up with initial investment of Rs.62,05,18,132/- upto 31st March, 1998 and further additional investment of Rs.60,13,83,450/- were made during financial years 1998-99 to 2000-01. It was also submitted that Additional Director of Industries, Greater N....
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....iew of the various incentives given by the U.P. Industrial Policy. He also observed that the industrial policy formulated by the U.P. Govt. included various incentives such as private participation, promotion of exports; wooing NRI investments, strengthening of traditional industries, review of tax structure, preservation of environment and cultural incentive and many others. Therefore, it could not be said that the industrial policy was formulated only in a view to encourage the capital investment in Noida area. He further noted that sales tax could have been collected only after commencement of business and the sales carried out by the assessee company. Therefore, the assistance given by the U.P. Govt. in the form of sales tax subsidy was subsequent to commencement of business and under these circumstances it had to be considered assistance for carrying out the business. As regards the investment of Rs.50 crores by the assessee, the ld. CIT (Appeals) noted that the same was one of the conditions for granting sales tax subsidy, which had nothing to do with the setting up of the industry. Had the assessee made the investment of Rs.50 crores or more without effecting the production ....
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....in industries and thereby achieving industrial goal and development. Relying on the decision of Hon'ble Supreme Court in the case of Ponny Sugars, it has been submitted that the subsidy which is granted with object of promoting capital investment and industrial growth is a capital receipt in the hands of recipient. Therefore, the decision of Hon'ble Supreme Court is squarely applicable to the facts of the assessee's case. Hence, the portion of sales proceeds which is permitted to be retained by reason of grant of sales tax exemption to the assessee is nothing, but capital receipt in its hands on the ground that this amount was permitted to be retained only for the purpose of promoting industrial growth and development. It has further been submitted that whether the amount of sales tax collected is a capital receipt or revenue receipt, the colour and character of the receipt has to be seen in the hands of the recipient. The assessee had received and retained the amount of sales tax collected only in respect of capital investment for promoting the industrial growth. Therefore, the same is in the nature of capital receipt. It has further been submitted that the assessee has a pricing ....
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....es tax from its customers. Reliance Industries Ltd. computed amount of sales tax exemption and deducted it from its sales proceeds and claimed the same as a notional or deemed sales tax subsidy, which was capital receipt. The claim of Reliance Industries Ltd. was upheld by Special Bench of the ITAT. It has, therefore, been submitted that the decision of Special Bench is directly and squarely covers the present case and has to be followed by the assessee and applied in the present case as well. He further submitted that apart from the decision of Special Bench in the case of Reliance Industries Ltd. the decision of Delhi Bench of the Tribunal in the case of Bhushan Steels and Strips Ltd. 91 TTJ 108 (Del.) and the decision of Bombay Bench in the case of Zenith Power Ltd. is also applicable. 7. He also submitted that the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries Ltd. (2006) 286 ITR 1 (P and H) fully supports the case of the assessee. In that case sales tax exemption was treated by the High Court to be a case of sales tax subsidy. The only reason why the assessee's claim was rejected was that the assessee in that case had not placed an....
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....P. Sales Tax no such condition or specific treatment has been given for permitting the assessee to adjust its price. She further submitted that in U.P. Sales Tax the word used is "Sales Tax" and not "Notional Sales Tax". Therefore, these two conditions made the assessee's case distinguishable from Reliance Industries case decided by the Special Bench. She also submitted that the assessee had followed its own "dealer's price" policy, which was uniform all over India. It did not have separate policy for U.P. The assessee was already manufacturing in Greater Noida. It only expanded its manufacturing unit to avail subsidy. She placed reliance on the decision of Hon'ble Supreme Court in the case of Sahney Steel and Press Works (supra) for the proposition that if the payments in the nature of subsidy from public fund are made to assist the assessee in carrying on his trade or business, then they are trading receipts. The character of subsidy in the hands of recipient whether revenue or capital will have to be determined having regard to the purpose for which subsidy is given. She also placed reliance on the decision of Hon'ble SC in the case of Ponny Sugar and Chemicals Ltd. (supra). She....
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....ssee will be issued by the joint/additional director of concerned Development Authority and the same will be produced before the concerned assessing officer. The Addl. Director Industries, Greater Noida Industrial Development Authority, vide letter No.1344 dated 23/06/1999 issued eligibility certificate to the assessee. As per this certificate fixed capital investment is of Rs.51,57,95,446/-. The date of commencement of production is 9/03/1998 and the first sale was affected on 27th March, 1998. The assessee applied for exemption from trade tax [sales tax] vide application dated 10/09/1998. The exemption from trade tax [sales tax] was provided from 27th March, 1998 to 26th March, 2013 for a period of 15 years or till the time the exemption of sales tax was availed of to the extent of 200 per cent of fixed capital investment i.e. Rs.1,02,75,90,892/- whichever was earlier. This certificate also provided the items i.e. Colour TV, Washing machine and Air-conditioners on which exemption from sales tax was provided. Another certificate was issued on 27th September, 2000 vide letter No.1519 in respect of printed circuit voice for CTV number 8,12,000 and Micro-wave Oven 1,00,000. In this c....
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....Orissa Government". The sales tax was not paid to the Orissa Government on the ground that the sales were inter-State sales. The Appellate Tribunal held that where a dealer collected sales tax under section 9-B(3) of the Orissa Sales Tax Act, 1947, as it then stood, the amount of the tax did not form part of the sale price and the dealer did not acquire any beneficial interest therein and that the sum of Rs.7,14,398/- collected by the appellant did not form part of its total income. On a reference, the High Court held that the sales tax collected was part of the trading receipt and was to be included in the appellant's total income since the money realised from the purchaser was employed by the appellant for the purpose of making profit and the appellant did not earmark the amount realised as sales tax and did not put it in a different account or deposit it with the Government in terms of section 9-B(3). On further appeal the Hon'ble Supreme Court held as under:- Held, affirming the decision of the High Court, (i) that, assuming that section 9-B(3) of the Orissa Sales Tax Act, 1947, was valid, the fact that the dealer was compelled to deposit the amount of sales tax....
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....td. 164 Taxman 562 (All.) as discussed below. 12.1 In the case of CIT vs. K. M. Sugar Mills Ltd. (supra) the assessee had paid purchase tax of Rs.20,12,046/- against which it had received a subsidy of Rs.20,11,000/-. The claim of the assessee was that the amount received on account of subsidy was a capital receipt and not liable to tax. This was negative by the assessing officer. In appeal, the ld. CIT (Appeals) observed that the nature of subsidy received by the assessee was different from the subsidy which was held to be a capital receipt by the Madhya Pradesh High Court in the case of CIT vs. Dusadh Industries (1986) 162 ITR 784 because it was neither for encouragement of industries in the backward areas nor for setting up of industries. After referring to the relevant Notification and the fact that the purchase tax, when paid, was claimed as deduction, the ld. CIT (A) held that the refund of the same purchase tax received by the assessee as subsidy was taxable as a trading receipt. On further appeal the Tribunal upheld the findings of the ld. CIT (A) that the subsidy received by the assessee against the payment of purchase tax was a trading receipt in its hands and, the....
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....ent of sales tax for a period of 10 years commencing from the date of production for the first time in the State of Punjab, subject to condition that total sales tax exemption shall not exceed 300 per cent of their fixed capital investment; (ii) Group of industries which are set up in B category area on or after the 1st day of October, 1992 shall be exempt from the payment of sales tax for a period of 7 years from the date of production for the first time in the State of Punjab, subject to the condition that the total sales tax exemption shall not exceed 150 per cent of their fixed capital investment." 12.4 Hon'ble Punjab and Haryana High Court after examining the contention of the assessee and also various decisions at page 25 observed as under:- ".............. In the present case, all that is claimed and is put on record by the assessee is that the sales tax subsidy is being received by it from the State. It is not disputed that the same is being received on recurring basis after the unit came into production. There is no document or material placed on record by the assessee to substantiate its plea that subsidy of the kind under consideration was to enab....
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....eration P. Ltd. vs. ACIT (supra) the collection of sales tax as part of dealer's price would be a trading receipt in the hands of the assessee even if it is assumed that the assessee was authorised to collect and retain with it the sales tax as part of dealer's price. Moreover, there is nothing on record to suggest that sales tax exemption was granted for acquiring of capital assets. Similar view has been taken in the case of U. P. State Handloom Corporation vs. DCIT 42 I.T.D. 436 (All). In this case the assessee received subsidy amount from Govt. under a specified scheme called "Janta Cloth Scheme" in the capacity of trader and it was compensation for loss of profit or for loss on cost of production. It was held that subsidy received by trader under "Janta Cloth Scheme" to compensate trader for loss on cost of production was a revenue receipt. 13.1 In the case of Sahney Steel and Press Works Ltd. and Others (supra) a notification was issued by the Andhra Pradesh Government that certain facilities and incentives were to be given to all the new industrial undertakings, which commenced production on or after 1st January, 1969 with investment capital (excluding working capital....
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....ly as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or bringing into existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly." 13.2 The principle laid down in the case of Sahney Steel and Press Works (supra) is that if the purpose of subsidy is to help the assessee to set up its business or complete a project, the moneys must be treated as having been received for capital purposes. But if moneys are given to the assessee for assessing him in carrying out the business operations and the moneys are given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. The facts of the case before us are similar to the facts of Sahney Steel and Press Works (supra). The purpose of notification issued by Uttar Pradesh Government was to provide sal....
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....the form of subsidy would have been capital receipt in the hands of the assessee, this, in our view, is not correct. We have already discussed that that even the refund of sales tax will be chargeable tax as the same was collected in the course of carrying out the business by the assessee. Hence the alternate submission of assessee deserves to be rejected. 15.2 In view of the above discussion, in our considered opinion, the ld. CIT (Appeals) was justified in treating the sales tax collected by the assessee as trading receipt and hence no interference is called for. 16.1 The next issue for consideration relates to confirming the disallowance of Rs.24,82,307/- being the loss on account of exchange fluctuation on revenue items accounted for in the books of accounts on accrual basis. On a query raised by the assessing officer it was explained that loss on foreign exchange fluctuation occurred on account of settlement of bills for import of trading goods/raw material and also on account of conversion of liability of foreign outstanding bills at the exchange rate prevailing at the close of the year. The assessing officer, however, rejected the contention of the assessee o....
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....value of foreign currency in relation to Indian currency thus was a fate-accompli and such increase in liability as per the exchange rate prevailing on the last date of the financial year was allowable as deduction being not notional or contingent. The decision of Hon'ble Delhi High Court has been upheld by Hon'ble Supreme Court in Civil Appeal No.2206 of 2009 dated 8th April, 2009. Since the facts of the case are identical to the facts of the case for assessment years 1998-99 and 2001-02, respectfully following the precedent, we do not find any reason to interfere with the findings of the ld. CIT (Appeals) and this ground of appeal raised by the Revenue is dismissed. 17.2 The next issue for consideration relates to confirming the addition to total turnover of excise duty and sales tax for the purposes of computation of deduction under section 80-HHC of the Act. The facts of the case stated in brief are that the assessing officer for the purpose of computation of deduction under section 80-HHC of the Act included element of excise duty and sales tax in total turnover. This resulted in reduction in deduction under section 80-HHC of the Act. On appeal the ld. CIT (Appeals) up....