TaxTMI 
TaxTMI 
2016 (7) TMI 608
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....made by the AO on account of subsidy received from Government of W.B. through WBIDCL. 2. That the Ld. CIT(A), Asansol has erred in law and on facts by allowing the disallowance of Rs. 10,38,005/-, made by the AO on account of interest subsidy received as revenue receipt. 3. That the Ld. CIT(A), Asansol has erred in law and on facts by allowing the disallowance of Rs. 11,14,841/-, made by the AO on account of Revenue receipt." The assessee has raised the following grounds:- "(1) For that the Id. CIT (A) erred in law in not accepting the claim of the assessee about normal depreciation at Rs. 1,00,41,737/- calculated on total amount of actual cost of fixed asset before deducting therefrom amount of Rs. 1,09,73,000/- being capital subsidy received and wrongly so deducted to arrive at allowable depreciation earlier at Rs. 8395787/-. (2) For that the Ld. CIT(A) erred in law as well as in facts in sustaining the action of the Ld. A.O. in rejecting the claim made by the assessee that the sum of Rs. 40,30,061/- receivable by the assessee on account of setting up a new industry under the nomenclature of Subsidy on Interest on Term Loan - which was inadvertently reduced by the assess....
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....he aforesaid Incentive Scheme, a capital subsidy of Rs. 1,09,73,000/- on account of investment made by the assessee for the establishment of its sponge Iron factory at Jamuria vide its letter no. INC- 2000(386)/II/GENCS/4597 dated 19/21-03-2007. The above subsidy of Rs. 1,09,73,000/- was sanctioned in terms of Para 8.1 of the said Incentive Scheme, according to which an eligible industrial unit located in a Group "B' area and set up in the State on or after the 1st January, 2000 would be entitled to State Capital Investment Subsidy @ 15% or the Fixed Capital Investment subject to a limit of Rs. 150.00 lakhs. This amount of subsidy was not relatable to any specific asset. The said amount of Rs. 1,09,73,000/- was reduced from the cost of Plant & Machineries due to inadvertence, and the Depreciation in the Return of Income was claimed accordingly. The assessee made a claim before the Ld. AO for setting right the matter and requested him to grant depreciation on the full value of cost prior to deduction of State Capital Subsidy. The Ld. AO added the said Capital Subsidy to the Income of the Assessee treating the same having been received on revenue account. He, however, did not inc....
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....chineries. This additional depreciation was claimed on the Plant & Machineries installed during the year only. In doing so, the assessee did not consider the Plant & Machineries installed in the earlier year but after the mandated date of 31-03-2005. Non receipt of Subsidy on Term Loan II : It has been already submitted in the preceding paras that the assessee has considered the Interest Subsidy receivable from the Government of West Bengal on the amount of Interest paid by the assessee by way of deducting the same from the total amount of interest paid by the assessee on Term Loan I as well as Term Loan II. On the Term Loan II, the assessee had at that time considered an amount of Rs. 10,38,005/- as subsidy. When the actual disbursement of subsidy was made, it was seen that the Government of W.B. has not allowed the claim of subsidy in respect of the Term Loan II. It was claimed that the said subsidy amount of Rs. 10,38,005/- would never be received by the assessee at any at any future date. In other words, the said subsidy of Rs. 10,38,005/- has not accrued to the assessee at all at any point of time. Revised Return During the course of hearing for assessment, the assessee ....
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....nnot be extended for claim of additional depreciation. Aggrieved, both assessee and revenue are in appeals before us on the respective grievances. 7. The Learned AR argued that the West Bengal Incentive Scheme, 2000 as formulated by the Government of West Bengal for the growth of industries in the State of West Bengal. This fact is clear in the foreword attached to the Scheme itself. In the Foreword, the Government of West Bengal stated that as there is strong need for fiscal support for the promotion of industry in the State Government decided to introduce the "West Bengal Incentive Scheme, 2000". Thereafter, it went on to divide the entire State into 3 (three) categories for the purpose of the incentives. Districts have been grouped as 'A' (Calcutta Municipal Corporation). "B" (Howrah. Hooghly, North 24- Parganas, South 24- Parganas, Burdwan, Nadia & Midnapore districts) and 'C' (Murshidabad, Birbhum. Purulia, Bankura, Malda, Coach Behar, North Dinajpur, South Dinajpur, Jalpaiguri and Darjeeling districts) and quantified the amount of "fiscal support" payable in each of the categories. It means that the State Government wants to extend the help to the industries ....
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....ped as 'A' (Calcutta Municipal Corporation), 'B' (Howrah, Hooghly, North 24 Parganas, South 24 Parganas, Burdwan, Nadia & Midnapore districts) and 'C' (Murshidabad, Birbhum, Purulia, Bankura, Malda, Cooch Behar, North Dinajpur, South Dinajpur, Jalpaiguri and Darjeeling districts." 8.1. We hold that where subsidy was given to offset the cost of an asset, such payment would fall within the expression 'met', whereas the subsidy received merely to accelerate the industrial development of the state cannot be considered as payments made specifically to meet a portion of the cost of the asset. A careful perusal of the West Bengal Incentive Scheme 2000 shows that the scheme was intended to accelerate industrial development of the state and the incentive was given for setting up of industries in West Bengal and for the purpose of determining the amount of subsidy to be given, cost of eligible investment was taken as the basis, though it was not specifically intended to subsidise the cost of the capital. Under these circumstances, we are of the view that incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus....
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....oint, that the main eligibility condition in the schemes was that the incentive had to be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of an existing unit. The subsidy received by the assessee was not in the course of a trade but was of a capital nature." 8.3. We also find that the Hon'ble Calcutta High Court in the case of CIT vs Rasoi Ltd reported in (2011) 335 ITR 438 (Cal) had held as under:- "If the object of a subsidy scheme is to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit, the receipt of the subsidy is on capital account. It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure. Held, dismissing the appeal, that the object of the subsidy was the expansion of business capacities, modernization, and improving marketing capabilities and thus, those were for assistance on capital account. Merely because the amount of subsidy was equivalent to 90 ....
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....CIT Vs. Chindwara Fuels 245 ITR 9 (Cal) East India Pharmaceutical Works Ltd. Vs. DCIT (ITA No.587 (Kol) 2006 The appellant placed reliance on the following case laws: CIT Vs. Ponni Sugars & Chemicals Ltd. (SC) ACITVs. Rasoi Ltd. (ITA No. 1467 to 1469 (Cal) 2001 CIT Vs. KlarSehen P. Ltd. (G.A.N. 145106 dt. 12.5.08 (Calcutta High Court) Klar Sahen P. Ltd. Vs. ITO (ITA No. 2069 to 2071 (Kol) of 2004) EMCEE Pharmaceuticals (P) Ltd. Vs. Dy. CIT (ITA No. 1941 (Kol)/2004) Mendine Pharmaceuticals (P) Ltd. (ITA No. 2403/Koh/2003) The department has been relying on the Hon'ble Supreme Court decision in the case of Sahney Steel and Press Works Ltd.(supra). The Calcutta High Court in the case of CIT vs. Chindwara Fuels (supra) has followed the Apex Court decision. This decision has also been followed by Hon'ble ITAT, Kolkata in the case of East India Pharmaceuticals Works Ltd. (supra). The A.O in his assessment order simply quoted the case laws and held that WBIPA receipt is a capital receipt. The A.O has not analysed the facts nor compared the facts with the facts of the Supreme Court case (Sahney Steel & Press Works Ltd.(supra). On the other hand the Hon'ble ITAT, Kolkata....
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....ress works Ltd. case and held as a capital receipt. This decision has been followed in other cases dealt by Kolkata ITAT bench including the case of KIar Sehen P. Ltd. (supra) which was later upheld by the Kolkata High Court. It is very much relevant to reproduce the relevant extract from the ITAT ( - r in the case of Rasoi Ltd. Vs. DCIT in ITA No. 1080/Cal/98 dt. 18.5.01: "7. So far as the present case before us is concerned, the notification No. 1460 - F.Y. dated 27th May 1994 recites the Resolution of the Govt. of West Bengal, Starting as follows: "Whereas certain industries in the State have been passing through an acute financial crisis and it has been considered necessary to extend financial assistance to tide over such crisis for promotion of such industries, it has been decided in the public interest to formulate a scheme to allow financial assistance to the manufacturing units in West Bengal of such." It is clear from the above preamble to the Resolution that the scheme for allowing assistance to industries is to help them to tide over the financial crisis faced by the industries and for promotion of the industries themselves. The Scheme of the Govt. of West Bengal....
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....n the form of fresh capitol to tide over the financial crisis', 'enduring effect', 'promotion of industries' etc. has also been followed in the case of Klar Sehen P. Ltd.(supra) for treating the 'assistance' as a capital receipt. Subsequently the Kolkata High Court has also confirmed the decision in the case of Klar Sehen P. Ltd. as under: "Further we have perused the order passed by the Tribunal. We have found that the Tribunal has extensively dealt with the matter including the facts, materials and evidence placed before the Tribunal or adjudication. We do not find any reason to interfere with the order so passed by the learned Tribunal nor the order so passed by he learned Tribunal suffers from any legal infirmity nor we find any substantial question of law is involved in the appeal." 6.4 Decision: The facts of the case and the issue involved in the present case is similar to facts of the cases decided by the jurisdictional Kolkata Tribunal and High Court. I find in the later years (A.Y. 2001-02) in the appellant's own case my predecessor following the jurisdictional ITAT decisions [Rasoi Ltd., Mendine Pharm. Ltd. (supra)} held the WBIPA as capital receipt. I am also of th....
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....015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia)shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted :] Provided 36[further] that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the in....