TaxTMI 
TaxTMI 
2011 (9) TMI 561
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.... ground wise dispute for all the three years under appeal on 18-08- 2011. The appeals of the department are now disposed off in the following manner. 4. We will first take up the appeal filed by the department for A.Y. 2004-05 in ITA No. 614/Jp/10. 5. Ground No. 1 is against treatment of Sales Tax incentive as capital receipt. 5.1 Additional Ground has been taken by Department vide application dated 09-12-2010, filed on 21-06-2011 against exclusion of Sales Tax incentive in computing Book Profit u/s 115JB of the Act. 6. Briefly stated, the relevant material facts are like this. Assessee has been granted subsidy in the form of Sales Tax Exemption under Rajasthan Incentive Scheme of 1998 for substantial expansion of its Beawar Unit [20 MTPA to 26 MTPA], in area other than banned area as specified in the Scheme, in the State of Rajasthan, based on eligibility certificate dated 12-09-2002 quantifying the subsidy eligible under the said scheme at Rs. 157.28 Crs. [being eligible fixed capital investment incurred for expansion] to be granted in the form of sales tax exemption and to be availed over a period of 11 years. Thus on 12-09-2002, the Assessee became entitled to the S....
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.... same in its books of account. Here the source of subsidy is sales tax, collected from the customers against sales of goods is in the nature of revenue and the assessee has credited its books of account accordingly. In view of these facts, the same was liable to be treated as revenue receipt for the purpose of computing normal income as well as book profit, as per provision of section 115JB of I.T Act 1961. This view gets support from decision of the Hon'ble S.C in the case of Sahney Steel and Press Works Ltd. (1997) 228 ITR 0253 (SC), where in Hon'ble Supreme Court, inter alia, held as under: "If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The character of the subsidy in the hands of the recipient-whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting....
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....sion of the special bench in the case of Reliance industries is not applicable to the facts of the case. In spite of these facts, the assessee has treated the sales tax subsidy as capital receipt, by claiming the fact that RST/CST Exemption Scheme 1998 is meant for acquiring new assets to expand the existing business. It has further relied on the 2 major decision of the Hon'ble S.C in the case of Ponni Sugars and Chemicals Ltd. (2003) 260 ITR 0605 (Mad.) and decision of the Special Bench in the case of Reliance Industries. The decision of Hon'ble Supreme Court in the case of Ponni Sugars & Chemical Ltd., A.Y. 89-90, is not matching with the facts of the case under question, as the incentive/subsidy provided under the scheme was exclusively for the purpose of repayment of loan borrowed from Public Financial Institutions, for acquiring fixed assets (used for new/expansion of business). The assessee was liable to submit every year (by 31st Dec.) subsidy utilization certificate from C.A. to show that the monies had been so utilized. Failure to submit the utilization certificate would result not only in the termination of scheme but also in recovery of incentive/subsidy allowed to....
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.... income and on other hand it has claimed revenue expenditure in the form of depreciation in respect of those assets for which the government has met the cost by way of sales tax subsidy. It has resulted in excess claim of depreciation in respect of those assets for which the assessee has not incurred the cost. In this regard I would like to bring your kind notice that the intention of the legislator for amending the provision of Section 43(1) was that the assessee should not claim dual benefits i.e. one by not showing the sales tax subsidy as revenue income and another by claiming depreciation on those assets for which subsidy has been granted by the government. This is clear from the Legislative history- 1998-Explanation 10 which was inserted by the Finance (No.2) Act, 1998, with effect from 1-4-1999.The Board Circular explains the amendment in paragraph 22.2 in following words: "where a portion of the cost of an assets acquired by the assessee has been met directly or indirectly by the Central Govt. or a State Govt. or any authority established under any law or by any other person, in the form of a subsidy or a grant or reimbursement (by whatever name called), then, so much of....
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....see's case for A.Y. 2003-04. He, however, reiterated his arguments stated in his 1st submission filed on 21-06-2011 that Revenue has not accepted the decision of the Tribunal and appeal before the Hon'ble Jurisdictional High Court has been preferred. He therefore placed reliance upon the findings and observations made by the A.O. in the assessment orders. In his 2nd submission filed on 18-08-2011, the Ld D/R has raised further issues as reproduced here in above. 9. On the other hand, the Ld Counsel for the assessee filed a chart containing the key submissions and the precedence in its own case. In the written key submission, the ld. Counsel has explained the brief facts which we have already summarized hereinabove in this order. Thereafter, the ld. Counsel of the assessee has made his key submissions in writing in the following manner : I. Assessee's Key Submissions a. Precedent Squarely covered in favour of the assessee by the decision of Hon'ble Jaipur Tribunal in assessee's own case for A.Y. 2003-04 vide order dated 23-12-2009 in ITA No. 942/Jp/2008. Hon'ble Tribunal have examined the scheme in great depth & given following key findings:- (i) The 'purpose' of gran....
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....has duly considered the 'purpose' for which subsidy was given and also discussed each & every issue as raised by the Ld DR and only thereafter has come to the conclusion that the 'purpose test' as laid down by the Hon'ble Apex Court in the case of Sahney Steel and Ponni Sugar are duly satisfied in the present facts of the assessee as the subsidy in question has been provided to the assessee to set up new unit or carry out expansion of existing unit and not for running the business more profitably. The Ld DR has not brought any new facts on record. Further, the subsidy received in the current year is under the same scheme and for the same unit, which has been considered by the Hon'ble Tribunal for A.Y. 2003-04. This being the 2nd year for availment of exemption, the issue is squarely covered in favour of the assessee by the decision of Tribunal in assessee's own case in A.Y. 2003-04. Ld. Counsel for the Assessee also submitted that the decision in the case of L.G. Electronics (supra) is clearly distinguishable on facts. The Ld. Counsel also placed reliance on the CBDT Circular No. 142 dated 01-08-1974 wherein Board has clarified that where the subsidy is primarily given for helping ....
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....n to the extent of 70% of its work force, (iii) Subsidy shall be granted to units which makes fixed capital investment as specified under the Scheme (iv) Subsidy is available only on setting up of new units or on carrying out substantial expansion of the units, as specified under the scheme. Hence, the 'purpose' of granting incentive was to incentivize setting up of a new unit or carrying out expansion of existing unit and not for running the business more profitably. (b) The Tribunal relying upon the decision of Supreme Court in the case of CIT -vs.- Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) have held that whether any incentive is capital or revenue would depend upon the 'purpose' for which subsidy is granted. If the 'purpose' of the subsidy is to enable the assessee to run the business more profitably then the incentive is on revenue account and if the object of the subsidy is to enable the assessee to set up a new unit or expand the existing unit then the incentive is on capital account. This is also equally supported by the decision of the Apex Court in the case of Sahney Steel (supra). (c) In the facts of the Assessee's case, the decision of the Apex Court in....
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....commercial production has started has no relevance in deciding the nature of the subsidy. The decision in the case of Sahney Steel (supra) has been fully examined explained and considered by Special Bench in the case of Reliance Industries (supra), which in turn has been relied upon by Tribunal in Assessee's own case for the immediately preceding AY, i.e. AY 2003-04, In our considered view, the decision of Hon'ble Supreme Court in the case of Ponni Sugars (supra) as well as Sahney Steel (supra) would support the case of the Assessee rather than Revenue. The decision as relied upon by the Ld. DR in the case of LG Electronics (supra) is also clearly distinguishable on facts as in the said case, the Tribunal has given categorical finding of fact that there was nothing on record to show that sales tax exemption was granted for acquiring of capital assets or for setting up of the eligible unit [Para 11 & again at Para 12.5]. In the present case, Tribunal in AY 2003-04 has given clear finding of fact that 'purpose' of granting incentive was to incentivize setting up of a new unit or carrying out expansion of existing unit and not for running the business more profitably. Hence, we ....
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.... of fixed assets. In the present case, the objective is industrialization & employment generation and only for the purpose of quantification of subsidy, it is linked with eligible fixed capital investment. Such case is not covered by Explanation 10 to Sec. 43(1) as held by Hon'ble Mumbai and Visakhapatnam Tribunal. Incidentally similar view has also been taken by Hon'ble Hyderabad ITAT in a recent case in Bajaj Consumer Care Ltd -Vs.- ACIT(2011)[ITA No. 365/Hyd/09]. In the light of the facts of the present case and respectfully following the above mentioned decisions, we reject this contention of Ld DR on merit as well. 11. Now we will deal with the Additional Ground against exclusion of Sales Tax Incentive as capital receipt in computing Book Profit u/s 115JB of the Act. 11.1 At the outset, on additional ground, Ld Counsel for the assessee pointed out that Revenue in its application dated 09-12-2010 for admission of additional ground have sought the same to be admitted inter-alia on the stand that the said ground could not be taken at the time of filing of original appeal. He thus, pointed out that the Revenue need to establish as to why the said ground could not be taken at....
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....entioned by the Assessee in the return of income relates to the computation of Book Profits u/s 115JB of the Act. * That the provisions of the section 115JB of the Act are mandatory in nature and binding. The said provisions have come up for consideration before various courts including the Hon'ble Apex Court wherein it has been categorically held that from the Book Profits as defined under sub section (1) & (2) of section 115 JB, any adjustment prescribed under explanation 1 to the said sub section can only be made. Any other adjustment not prescribed under the said explanation is not permissible in law. * That the reduction of Book Profits by the Assessee by the amount of sales tax subsidy is not in accordance with any of the clauses of explanation 1 to section 115JB. * That the Special Bench of the Hon'ble Tribunal in the case of Rain Commodities Ltd Vs DCIT (Hyd Special Bench) (2010) 41 DTR (Hyd)(SB) 449 has held (Head notes: "Whatever accounting policy adopted for the purpose of preparing the P&L account laid before the company should be adopted for computing Book Profits u/s 115JB of the Act-Capital gains on sale of shares were included in computing the profits pr....
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....lowed by the assessing officer have been given. * Since the present issue is squarely covered by the decision of the Hon'ble Special Bench in the case of Rain Commodities (supra), it is therefore requested that the assessment order may kindly be restored by allowing the subject Ground of appeal." 12.1 On the other hand, the Ld Counsel for the assessee filed a chart containing the key submissions and the precedence in its own case. The same is also reproduced herein below: "I. Department has filed additional ground for exclusion of Sales Tax incentive in computing book profit u/s 115JB of the Act. In written submission filed by Ld DR, department has relied upon decisions in the case of Rain Commodities Ltd. -vs.- DCIT (2010) 41 DTR 449 (Hyd.)(SB) & Growth Avenue Securities -vs.- DCIT (2010) 128 TTJ 426 (Del). II. Assessee's Submission a. Precedents in favour of Assessee: Above additional ground is squarely covered in favour of the assessee by the decision of Hon'ble Jaipur Tribunal in assessee's own case in A.Y. 2003-04 vide order dated 23-12-2009 in ITA No. 942/Jp/2008. b. Non-applicability of decisions relied by the department Sl.No Rain Commodities (....
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....5 MAT levied on companies availing tax incentives and tax concessions under the IT Act and Incentive granted by State Government for expansion of the new unit is neither tax incentive nor tax concession under I. T. Act Rain Commodities (supra) dealt with profits in the form of Capital Gain exempt u/s 47(iv). The said provision is in the nature of tax exemption or concession available under the Income Tax Act. Capital Incentive is neither in the nature of tax incentive nor tax concession available under the Act. It is an incentive for industrialization and not tax incentive or concession under Income Tax Act. The decision of Hon'ble Tribunal in the case of Growth Avenue (supra), which is also relied upon by the Revenue, was rendered prior to the decision of Special bench and has been duly considered by the Special Bench. The said case is also clearly distinguishable from the case of the assessee on the same lines and principles as above and hence not applicable to the case of the assessee. Therefore, the decisions of the Rain Commodities & Growth Avenue (supra) as relied upon by department are clearly distinguishable on facts and hence cannot be applied in t....
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....f the said receipt is credited to P&L account on the basis of sales tax exemption availed during the year, the same does not reflect the result of the working of the company during the period covered by the account as per the requirement of Part-II of Schedule VI. Since in the present case, the same has been credited to P&L a/c, hence it needs to be excluded while computing Book Profit u/s 115JB to fulfill the requirement of Part-II of Schedule-VI. The above exclusion or adjustment in computing Book Profit is permissible in terms of decision of Hon'ble Apex Court in the case of Apollo Tyres (supra) and as per following decisions rendered by various tribunals considering & following the decision of Apex Court (supra): DCIT -vs.- Bombay Diamond Co. Ltd. (2010) 33 DTR 59 (Mum) Facts - The assessee had sold rights of premises owned by it and directly credited the same to capital reserve without routing the same to P&L a/c and did not consider the same for computing Book Profit u/s 115JB. The A.O. added back the same on the contention that the accounts are not in accordance with Part II & Part III of Schedule VI as the said receipt was in the nature of income from investment and w....
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....lity in present case - In the present case, capital incentive though credited to P&L a/c does not represent profit/income pertaining to a particular year. Its credit to P&L account does not reflect the result of the working of the company during the period covered by the account as per the requirement of Part-II of Schedule VI. Hence, it needs to be excluded while computing Book Profit u/s 115JB to fulfill the requirement of Part-II of Schedule-VI. The above exclusion or adjustment in computing Book Profit is permissible in terms of decision of Hon'ble Apex Court in the case of Apollo Tyres (supra). d. Legislative intention of levy of MAT The intention of Legislature in enacting legal provisions always plays a pivotal role in analysing the scope of said provision. On perusal of the Legislative Intention of sec. 115J [CBDT Circular No. 495 dated 22-09- 1987 {168 ITR (St) 87 at Pg. 110}], it can be gathered that the intention of legislature was to levy tax on companies availing tax incentives and tax concessions under the IT Act and pays less tax although they have huge profits in books. Incentive for expansion of industrial unit being capital receipt in nature, is not in the n....
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....ales tax incentive in computing Book profit u/s 115JB. That being the case, it was submitted by the Ld Counsel for the Assessee that the above decision of Jaipur Bench of the Tribunal has attained finality, since the very ground on book profit computation has not been allowed to be agitated by Hon'ble Rajasthan High Court. Incidentally the Order of Jurisdictional High Court in Assessee's own case as stated above has been rendered in October 2010, much after the decisions relied upon by the Ld. DR were rendered by Tribunal. In view of the favourable decisions in Assessee's own case in AY 2003-04, being the precedent decision of Jurisdictional Tribunal and the latest decision of the Jurisdictional High Court, it was submitted that the additional ground filed by the department needs to be outright dismissed. 12.4 On merit, the Ld Counsel submitted that the decisions relied upon by the Ld D/R are clearly distinguishable as the facts in the said cases are different from the facts in the present case. He also submitted that if P&L Accounts are not in accordance with Schedule VI Parts II & III of the Companies Act, it is permissible to make adjustments so as to get Profit as per P&L Ac....
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...., that now stands affirmed by the Hon'ble Rajasthan High Court and we are in respectful agreement with the same. 13.2 Our above view also finds support from the decision of Hon'ble Apex Court in the case of Padmaraje R. Kadambande vs. CIT (1992) 195 ITR 877 (SC), wherein it has been held by the Apex Court that Capital Receipts are not income within the definition of Sec 2(24) of the Act and hence are not at all chargeable under the I.T. Act. A receipt which is neither 'Profit' nor 'Income' and which does not have any element there-of embedded there in, cannot be part of 'Profit' as per Profit & Loss account prepared in terms of Part II of Schedule VI to Companies Act. 13.3 As far as the decisions relied upon by the Ld D/R are concerned, we are unable to follow the same in the present case, as the facts of the said decisions are clearly different from the facts in the present case. It is a settled principle of law as laid down by the Hon'ble Apex Court in the case of Padmasundra Rao (Decd.) vs. State of Tamil Nadu (2002) 255 ITR 147 (SC) that Courts should not place reliance on the decisions without discussing as to how the factual situation fits in with the fact situation of ....
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....t can be arrived at only after excluding this receipt which has been credited to P&L a/c and not otherwise. 13.6 For better understanding of the issue, let us also extract down relevant provision of sec. 115JB as under... "Every assessee, being a company, shall for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 (1 of 1956)." 13.7 On consideration of the above, it is apparent that for the purpose of computing book profit u/s 115JB Profit and Loss a/c shall be prepared as per Part II and III of Schedule VI to the Companies Act. Part II of Schedule VI prescribes the requirements as to Profit and Loss A/c. Clause 2(a) of Part II clearly spells that the profit and loss a/c shall be so made out as clearly to disclose the result of the working of the company during the period covered by the accounts. Hence, in our view, if P&L Accounts do not reflect the true result of the working of the company for the year, it cannot be said to be as per Schedule VI, Part II & III of the Companies Act and it would necessitate corrective adjustment ....
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....he case of Syndicate Bank (supra) [both analyzed in Para 12.1 above], where also Tribunal, after considering the decision of Supreme Court in the case of Apollo Tyres (supra) and explaining the same, have permitted adjustment to the Profit as per P&L Account, so as to comply with Schedule VI, Part II & Part III of the Companies Act, which is a prerequisite for section 115JB. 13.11 In the light of the aforesaid, the additional Ground filed by the Department is rejected and we hold that capital receipt in the form of Sales Tax incentive needs to be excluded from profit as per P&L Account for the year in computing Book profit u/s 115JB of the Act. This Ground of the Department is thus dismissed. 14. Now we will take up the appeal filed by Revenue in ITA No. 615/Jp/2010 for A.Y. 2005-06 and the same is disposed off in the following manner: 15. Ground No. 1 and Additional Ground raised by the Revenue are identical to Ground No. 1 and Additional ground for A.Y. 2004-05 in ITA No. 614/Jp/2010. Both the Grounds preferred by the Revenue are thus rejected and hence decided in favour of the Assessee. For the reasons stated therein, the appeal filed by the Revenue is dismissed. 16.....