TaxTMI 
TaxTMI 
2013 (10) TMI 600
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....stinguishable or irrelevant. 2. The Learned Commissioner of Income Tax (Appeals) ought to have held that the entitlement of sales tax exemption is a valuable right and hence a 'capital asset' and income from sale thereof if taxable can only be taxed only under the head 'capital gains' and not under the head 'business income'. He further ought to have held that the cost of acquisition for the said right is unascertainable and hence even the charge under the head 'capital gains' fails. 3. The Learned Commissioner of Income Tax (Appeals) erred on facts and in law in not holding that the receipt of Rs.46,66,665 on account of sale of sales tax exemption entitlement are directly related to and derived from Wing Mill and hence are entitled to deduction u/s.80-IA of the Act. 4. The Learned Commissioner of Income Tax (Appeals) erred on facts and in law in not allowing deduction u/s.80-IA(4) by merely relying on the Goetze India's case [284 ITR 323 (SC)] and on the ground that the audit report in form 10CCB was not furnished. The reasons assigned for disallowances are untenable. 2. The first issue is with regard to treating sale proceeds of Sales Tax incentives entitlement to third parti....
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....At this stage, it would be appropriate to briefly touch upon the Resolution of the State Government dated 12.3.1998 (supra), the relevant portion of which is reproduced as under:- "PREAMBLE The State Government has a policy to promote generation of energy through nonconventional sources to supplement the ever increasing demand of electricity in the State. It was found after a survey that there is an immense potential for generation of wind power in the State. Surveys conducted by MEDA in association with MNES, New Delhi and IITM, Bangalore indicate that the potential is about 300 to 400 MW.Eight different sites have been selected for this purpose and further survey is being carried out. The State Government had enunciated its policy on generation through non conventional sources in January, 1996. This policy however could not attract the promoters. During the intervening period, the Government of India had issued certain guidelines regarding wind energy generation. These guidelines from Government of India, wind power generation policies of other State Governments and the problems being faced by promoters of wind energy generation were under active consideration of the State Gov....
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....to the Promoters subject to a condition that wind power plant has successfully operated with a minimum 12% Plant Load Factor for at least one year. (8) Entry Tax/Octroi Refund: Entry Tax/Octroi as paid y promoters while making capital expenditure will be reimbursed by MEDA. (9) Sales Tax Benefits : Investments in plant and machinery, new building, land development, technical development and design in a wind power project would be considered as qualifying investment. Promoter shall be entitled to sales-tax benefits upto the amount of qualifying investment. This benefit would be given in 6 equal instalments over a period of 6 years (1/6 of the qualifying investment amount every year) only under the condition that the plant has successfully operated every year with a minimum of 12% Plant Load Factor. This benefit may also be available to any other company associated with the promoters. Detailed instructions about the modus operandi about Sales Tax benefits will be separately issued by the Finance Department. By order and in the name of the Governor of Maharashtra. Sd/-(L.V.Nilesh) Deputy Secretary to Government" 10. A perusal of the Preamble to such Resolution reveals that the....
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....tion. According to the said policy sales tax benefit is available, equivalent to the qualifying investment on wind energy generation projects. To avail the sales tax benefit a procedure has been laid down by the Finance Department vide Notification No. STA 1098/CR-45/Taxation 2, dated 24.8.1998 and Notification No VKN-1298/CR-33/Taxation-1 dated 24.8.1998. However, even after release of the said Notifications the Industrialists have expressed certain difficulties which have been brought to the notice of the Government. Taking into consideration the requests of the wind power promoters as well as their difficulties, the proposal for modified detailed procedure for availing sales tax benefit was under consideration of the Government. Government Resolution: Considering the difficulties of the industrialists and with a view to make available sales tax benefit, Government has decided to simplify the procedure as follows: 1. The sales tax benefit will be available on electricity generating units in relation to achievement of plant load factor as follows: S.No. Plant Load Factor Sales tax benefit equivalent of 1//6th of qualifying investment Without Bank Guarantee With Bank Guarante....
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....1. For this, "Eligibility Certificate" will be given by Director, Maharashtra Energy Development Agency. Promoters of the project will be allowed to choose, a the most two names of the third party units to get the sales tax benefit. The "Entitlement Certificate" for units of third party will e certified by Commissioner of Sales tax. Amount of sales tax benefit is related to the wind energy generation and they are not related to the amount of electricity sold to the third party. After obtaining the "Entitlement Certificate" for sales tax benefit the promoters of the project can transfer to the third party to whom they have sold the electricity. Amount of sales tax benefit is related to the qualifying investment and plant load factor. The electricity sold to the unit/units of third party can avail sales tax benefit limited only to the qualifying investment and plant load factor. The electricity sold to the unit/units of third party can avail sales tax benefit limited only to the qualifying investment as mentioned in paragraph 1. 5. After satisfying the condition of average plant load factor, sales tax benefit can be availed by the eligible wind energy generation unit in the immediat....
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....les tax benefit will be applicable to all projects such as the Wind Energy Generator Units/Wind - SPV - Diesel Hybrid, Self Starting Generator (Hybrid Stand Alone System) and as per Maharashtra Governments' declared policy published in this connection. By the order and on behalf of Governor of Maharashtra Sd/- (P.D. Karkhanis) Section Officer (Energy)." 11. As is evident, the said Resolution deals with the manner in which the intended sales-tax benefits can be availed of by the promoters. It is clear that the sales-tax benefits can be availed by all projects which are commissioned as well as connected to the transmission lines from two months after the date of publication of the said Resolution. It is also provided that the Sales-tax benefit is available on electricity generating units in relation to achievement of plant load factor. The procedural requirement also entails that the sales tax benefit will be available for the promoters from the date of obtaining of "Entitlement Certificate" for a period of continuous six years, and for every year such benefit will be limited to 1/6th of the qualifying investment. It is also provided that in any one year, if plant load factor o....
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.... for subsequent expansion of 50% and above of the existing capacities, provided such expansion was located in a city or town or panchayat area other than that in which the existing unit was located. The Hon'ble Supreme Court noticed that the salient feature of the Scheme formulated by the Andhra Pradesh Government was that the incentives were not available unless and until production had commenced and that the same was limited to a period of 5 years from the date of commencement of production. The Hon'ble Supreme Court noted that all the incentives are production incentives in the sense that the company would be entitled to these incentives only after it goes into production and that the Scheme was not to make any payment directly or indirectly for the setting up of industries. On factual analysis of the Scheme, it was inferred that the subsidies were operational subsidies, inasmuch as they were "given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable." The Hon'ble Supreme Court observed that the character of subsidy whether revenue or capital will have to be determined, having re....
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....o the character of subsidy received by sugar factories . The Hon'ble Supreme Court reiterated the parameters applied in the earlier judgment of Sahney Steel (supra). As per the Hon'ble Supreme Court, the character of the receipt of a subsidy in the hands of the recipient has to be determined with regard to the purpose for which the subsidy has been granted. The following discussion is important to notice: "On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only 6 after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided again....
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....ce Industries Ltd. (supra). In this case, the facts were that the Patalganga unit of the assessee was located in a notified backward area. The sales-tax liability of the assessee was exempted by the State Government and under the Scheme of incentives, assessee was not required to pay any sales-tax to the Government. The contention of the assessee was that non-payment of sales-tax be considered as a subsidy by the Government, which is of capital in nature. The Special Bench of the Tribunal found that the incentives were provided for following four objects, namely, development of backward regions of the State of Maharashtra; dispersal of industries; promotion of industries for employment oriented units; and, providing local employment to SC/ST. The Tribunal observed that in order to decide the character of receipt the purpose of granting subsidy was relevant, while the mode of payment and the application of money for capital or revenue purposes was irrelevant. Therefore, as per the Special Bench the decisive factor was the objects with which the incentive was given and, therefore, such subsidy was held to be a capital receipt. The said decision has also been further approved by the H....
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....ded against the assessee. The learned representative however has sought to defend the claim of the assessee but fairly submitted that in view of the available precedent, the legal position presently is against the claim of the assessee. In this background, we hereby reproduce the relevant portion of the order of the Tribunal in the case of Sri Umesh M. Joshi, Mumbai Vs. The ITO, 6(3)(2), Mumbai (supra) in order to appreciate the reasoning prevailing with the Tribunal to hold the issue against the assessee : "6. We have considered the rival submissions and also perused the relevant material on record. In the case of Liberty India (supra), the Hon'ble Supreme Court held that sections 80IA and 80IB are a code by themselves and they provide for allowing of deduction in respect of profits and gains derived from the eligible business. It was held that the connotation of the words "derived from" is narrower as compared to that of the words "attributable to" and by using the expression "derived from" the Parliament intended to cover the sources not beyond the first degree. It was held that DEPB/duty draw back are incentives which flow from the relevant schemes framed by the Central Govern....
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..... 2 was answered by the Hon'ble Guwahati High Court in favour of the assessee wherein the issue involved was whether central excise refund received by the assessee was eligible for deduction u/s. 80IB of the Income-tax or not. The said issue was altogether different from the issue involved in the present case relating to sales-tax benefit or incentive received by the assessee. In the case of The Total Packaging Services (supra), the issue involved was recovery of excise duty paid by the assessee in the earlier years on the purchases against the excise duty payable on sales made during the subsequent years and the same being similar to the one involved in Question No. 2 before the Hon'ble Guwahati High Court in the case of Meghalaya Steel Ltd., (supra), the coordinate bench of the Tribunal followed the said decision of Hon'ble Guwahati High Court and decided the issue in favour of the assessee. In the present case, the issue involved relating to sales-tax benefit or incentive under the relevant scheme of the Government on the other hand, is similar to the one involved in Question No. 1 raised before the Hon'ble Guwahati High Court in the case of Meghalaya Steel Ltd. (supra) relating....