TaxTMI 
TaxTMI 
2012 (2) TMI 604
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.... on transfer of Sales Tax Incentive constitutes the income derived from the business of generation of electricity from the Wind Mill owned and operated by the appellant and consequently the same qualifies for deduction u/s 80IA of the I.T. Act, 1961. 3. The ld AO having held that the Sales Tax Incentive received by the appellant being a trading receipt, the ld CIT(A) ought to have held that an amount of Rs. 56,87,500.00 received by the appellant on transfer of Sales Tax incentive qualifies for deduction u/s 80IA of the I.T. Act, 1961. The said deduction may please be allowed to the appellant as claimed in the return of income. 4. Without prejudice to Grounds of appeal Nos 1 to 3 above and by way of an alternate submission it is submitted that it may please be held that the Sales Tax Incentive received by the appellant under Policy on Wind Power generation issued by Govt. of Maharahstra on 12.3.1998 is Capital subsidy granted by Govt. of Maharashtra as an incentive for installation and operation of Wind Mills for power and therefore the same is exempt from income tax. 5. It may please be held that the bank interest of Rs. 1,93,915.00 received by the appellant from Saraswat Co-....
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....atrix. The relevant portion of the order is reproduced below:- "13. Having been considered the above submissions, we find that the issue raised in Ground No. 1 as to what would be the initial A.Y for the purposes of Section 80IA(5) of the Act has been decided in favour of the assessee by the Pune Bench of the Tribunal in the case of Poonawalla Stud and Agro Farm Pvt. Ltd. Vs. ACIT (Supra). In that case after discussing the issue in detail, the Tribunal has come to the conclusion that the initial 'A.Y' for the purpose of claiming deduction u/s. 80IA was the first year in which the assessee claimed the deduction u/s. 80IA (1) after exercising his option as per the provisions of 80IA (2) of the Act. It was held that the Ld CIT(A) has erred in holding that the initial A.Y for the purposes of Section 80IA(2) r.w.s. 80IA (5) was the year in which the assessee started generating electricity from the wind mill activity. We also find that the issue raised in Ground No. 2 regarding the eligibility of the assessee to claim deduction u/s. 80IA undiminished by unabsorbed losses and depreciation also set off in earlier years against the other income, is fully covered by the decision of....
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....bound by the decision of the Hon'ble Madras High Court on an identical issue in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra). We thus respectfully following the decision taken by the Hon'ble Madras High Court in that case on an identical issue under almost similar facts, hold that when the assessee exercising the option, only the losses of the year beginning from the initial A.Y. are to be brought forward and not the losses of earlier year which have been already set off against the other income of the assessee. The revenue cannot notionally bring forward any loss of earlier years which has already been set off against any other income of the assessee and set off the same against the current income of the eligible business. We thus set aside the orders of the authorities below and direct the A.O to allow the claimed deduction u/s. 80IA without bringing the notionally brought forward any loss or depreciation of earlier years which has already been set off against other income of the assessee. The decision of Pune Bench of the Tribunal in the case of Prima Paper Engineering P.Ltd. Vs. ITO (Supra) cited by the Ld. DR is also not helpful to the revenue sin....
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....pellant is an HUF which is, inter alia, engaged in a range of business activities viz. manufacture and sale of Manickchand Zarda, Pan Masala, construction activities, manufacturing of tiles etc. including generation and sale of power. In the course of its activities, the assessee company set up wind mills in the State of Maharashtra for generation of wind power. The Government of Maharashtra in terms of its policy on wind power generation granted various benefits, including sales-tax benefit. In terms of the procedure for availing sales-tax benefits on non-conventional energy generating projects, such as wind mills, assessee was also entitled to the facility of transferring the sales-tax benefit to the third party. The assessee after obtaining the requisite permission from the State Government transferred the sales-tax benefit entitlements to a third party and the consideration thereof amounting to Rs. 63,74,291/- was claimed as a capital receipt. 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 ge....
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....after, transmission losses will be leviable at the rate of 1%. (4) Third Party Sale: Promoters will be permitted to sell exportable power to any two (industrial or commercial) consumers per MW. Wheeling charges for this will be leviable at the rate of 2%. (5) Evacuation Arrangement: MSEB shall initially bear the expenditure for erection of high tension sub-station and transmission infrastructure. MEDA shall recover 50% of this expenditure from wind power project promoters and will give it to MSEB. Developers shall bear the cost of transmission lines from the sub-station to the project and all other related equipment. (6) Approach Roads: MEDA shall bear the cost of construction of roads to the project sites. MEDA would be entitle to Government grants for this expenditure. (7) Capital Subsidy : Wind Power Projects will be granted status of small scale industries. MEDA shall give a subsidy upto 30% or the fixed capital investment (limited to Rs. 20 lakhs) 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 whi....
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....nded that investments in plant and machinery, new building, land development, technical development and design in a wind power project would constitute qualifying investment and a promoter shall be entitled to sales-tax benefits upto the amount of such qualifying investment. Such sales-tax benefit was to be given in six equal instalments over a period of six years, th i.e. 1/6 of the qualifying investment amount every year on the condition that the plant successfully operates every year with a minimum of 12% plant load factor. In terms of such broad framework of the sales-tax benefit, the State Government issued separate detailed instructions about the modus operandi to avail such benefits, by way of Government Resolution dated 1.10.1999 (supra)s. The relevant portion of the said Resolution dated 1.10.1999 is as under: "Preamble: With a view to encourage installation of wind energy generator units, State Government has published a policy vide above mentioned Government Resolution. 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....
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.... And for every year, th such benefit will be limited to 1/6 of the qualifying investment. However, in any one year, Plant Load Factor of 12% is not achieved then that years' sales tax benefit will get cancelled and that unit will have to lose sales tax benefit for that year forever. Any two years' sales tax benefit will not be allowed to deduct together to claim in one year. To avail the sales tax benefits the period will be counted for continuous 6 (six) st st years. The financial year period will be from 1 April to 31 March. 4. The facility of transferring the sales tax benefit to the third party The promoters of the project, if sell electricity to the third party, for such third party, transferring of sales tax benefit will be permitted. The promoters of the project can choose the third party for this facility and it will be applicable for that year only. However, no permission will be given during that period to change the name of the third party. Third party units can avail the benefit upto the amount mentioned in paragraph 1. For this, "Eligibility Certificate" will be given by Director, Maharashtra Energy Development Agency. Promoters of the project will be all....
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....and the "Eligibility Certificate". 8. Sales tax benefit can be availed on the finished product as well as on the raw materials used and its procedure shall be as per Package Scheme of Incentive (PSI), 1993 and amendment thereon from time to time. 9. The promoter will not be eligible for sales tax benefit for use of second hand machinery and on old wind electric generator. If such cases are noticed, then the Director, Maharashtra Energy Development Agency has right to cancel "Entitlement certificate" and "Eligible Certificate". 10. The sites approved by Ministry of Non-conventional Energy Sources, Government of India, New Delhi will be eligible for sales tax benefit. The 'No Objection Certificate' will be issued by Maharashtra Energy Development Agency only after submission of undertaking from the concerned manufacturer and promoter that the machinery used for wind generation project is new. 11. There is no restriction for expansion of projects. However, capacity of the wind energy generator should be minimum 200 Kw 12. Procedure for availing the sales tax benefit will be applicable to all projects such as the Wind Energy Generator Units/Wind - SPV - Diesel Hybrid,....
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....ist. Satara and such benefit amounting to Rs. 63,74,291/- pertaining to the year under consideration has been claimed as a capital receipt. Factually speaking, on the aspect of the assessee having received the said amount in terms of the Scheme of the State Government as sales-tax benefit under the aforesaid Government Resolutions, is not in dispute. 12. In order to examine the taxability of such amount, it would be appropriate to refer to the propositions based on the case laws referred to us. In the case of Sahney Steels (supra), the question before the Hon'ble Supreme Court was whether the subsidy received by the assessee therein from Andhra Pradesh Government was taxable as a revenue receipt or not. The Andhra Pradesh Government had notified certain facilities and incentives for all the new industrial undertakings commencing production on or after 1.9.1969 with investment capital (excluding working capital) not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production and such concession was also available for subsequent expansion of 50% and above of the existing capacities, provided such expansion was....
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....reated as having been received for a capital purpose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistant for the purpose of the trade.............." "In the case before us, the subsidies have not been granted for production or for bringing into existence any new asset. The subsidies were granted year after year only after 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. Applying the test of Viscount Simon in the case of Ostime (1946) 14 ITR (Suppl) 45 (HL), it must be held that these subsidies are of revenue character and will have to be taxed accordingly." 13. Another decision which has been referred to is the judgment of the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra). In this case also, the issue related to the character of subsidy received by sugar factories . The Hon'ble Supreme Court reiterated the parameters applied in the earlier....
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....tive subsidy. The form or the mechanism through which the subsidy is given are irrelevant............... One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of the incentive subsidy, we are satisfied that such payment received by the assessee under the scheme was not in the course of a trade but was of capital nature." 14. Another decision relied upon by the appellant is in the case of Reliance Industries Ltd. (supra). In this case, the facts were that the Patalganga unit of the assessee was located in a notified....
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....ts existing policy for the purposes of promoting wind energy generation in the State of Maharashtra. This policy has been formulated in the background of the fact that the earlier policy of the State Government on generation through non conventional sources in January, 1996 did not achieve the desired results. In the said policy, nine different incentives have been laid out, which have been extracted by us in earlier part of this order. The dispute before us is in relation to the sales-tax benefits. The Preamble of the policy itself reflects the area which is sought to be addressed by the policy which is "the problems being faced by promoters of wind energy generation". It is quite clear that the sales-tax benefit is not intended to be granted for creation of or bringing into existence any new asset. It is also clear that there is no prescribed criteria as to the manner in which such incentives are to be utilized. The claim of the assessee is that the sales-tax benefit is granted having regard to the qualifying investment, which is stated to be towards investments in plant and machinery, new building, land development, technical development and design of wind products. According to....
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....by the assessee under the instant Scheme are in the course of carrying on its trade more profitably and therefore such receipt cannot be characterized as capital in nature. Thus, the assessee fails on this Ground." 6. Though the learned Counsel for the assessee stated that similar issue has been adjudicated by the Tribunal in the case of Rashiklal M Dharavi (HUF) (supra) against the assessee, however, it was pointed out that while adjudicating the issue, the Tribunal has not considered the preamble of the Government Resolution dated 1.10.1999 (supra) and, therefore, its decision that the character of subsidy received being in the nature of revenue receipt, was required to be reviewed, and that it should be held as a capital receipt. 7. We have considered the plea set-up by the appellant and find that the relevant portion of the Government Resolution dated 1.10.1999 as also the Resolution of the State Government dated 12.3.1998 have been duly considered, inasmuch as the relevant portion has been extracted by the Tribunal in its order. Be that as it may, in view of the precedent which has been rendered in identical factual situation, we find no reasons to deviate from the said prec....
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.... the Hon'ble Bombay High Court in the case of Cooper Engineering Ltd v.CIT 135 ITR 597 (Bom), the Assessing Officer held that the expenditure of Rs. 2,18,712/- incurred by the assessee was not for the purpose of business, and was disallowed under section 37(1) of the Act. In appeal, the Commissioner of Income-tax (Appeals) upheld the disallowance made by the Assessing Officer. According to the Commissioner of Income-tax (Appeals), the assessee could not establish the requisite nexus to establish that the expenditure in question was wholly and exclusively incurred for the purpose of business of the assessee. Against this decision, the assessee is in further appeal before us. 11. Before us, the learned Counsel for the assessee has vehemently pointed out that the lower authorities have mis-directed themselves in denying the claim of the assessee for deduction of expenses on account of foreign travel incurred by one of its directors. It was pointed out that the assessee duly explained before the lower authorities the reasons which prompted the Director to undertake the foreign tour which was primarily to explore business opportunities for the assessee company. The learned Counsel ....