TaxTMI 
TaxTMI 
TaxTMI 
2011 (1) TMI 1501
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.... Scheme, 1999 in the aggregate sum of Rs. 1,04,69,262/- was a capital receipt, not chargeable to income tax. The said sum of Rs. 1,04,69,262/- was initially reflected by it under the heading "Deferred Sales Tax" in its Balance Sheet drawn as at 31.03.2003 under the group heading "Unsecured Loans". In note (1) under paragraph 2 of the "Notes forming part of the audited accounts" for the year ending 31.03.2003, it was clearly stated that the appellant company has already moved the State Government of West Bengal for remission of tax for a period of nine (9) years from 01.01.2001, and that the final sanction yet to be received from the state government. The entirety of the said sum of Rs. 1,04,69,262 was transferred by the assessee company to the Capital Reserve Account in the financial year ending on 31.03.2006 corresponding to the assessment year 2006-07. The A.O. while disallowing the same observed that the deferred sales tax of Rs. 1,04,69,000/- exclusively relate to the year under appeal, as against which the assessee company had deposited in the Government Treasury only a sum of Rs. 43,00,000/-. Alleging the sales tax to be trading receipt, the AO observed that the unpaid sum of....
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....upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade and revenue in nature." Even otherwise such assistance is given by the Govt. long after the commencement of the production and hence such assistance in the form of Sales Tax Deferment cannot be treated as capital receipts and this is also supported by judicial decisions as follows :- A. Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd. High Court of Madras - (2003) 179 CTR (Mad) 477 : (2003) 260 ITR 605 (Mad) : (2003) 127 Taxman 188 : "Income-Capital or revenue receipt-Incentives to sugar manufacturer- Incentives conferred under a scheme in form of higher free sale sugar quota and excise duty concession to sugar manufacturers establishing new sugar mills or expanding the existing ones to enable them to discharge the loans taken from public financial institutions-Scheme wholly intended to meet the capital cost incurred by such assessees in setting up the units which they had met by securing loans from public financial institutions-Fact that the incentive is given subsequent to the commencement of production cannot make it a trading receipt. Thus, the incentiv....
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....tion and the amount of the deferred sales tax being the assistance received was added back to the income of the assessee. In appeal, the Ld. CIT(A) was of the opinion that the assistance given by way of sales tax remission is in the nature of capital receipt and accordingly, he directed the Assessing Officer to delete the addition. Aggrieved by the said order, now the revenue is in appeals before us. 3. At the time of hearing before us, the Ld. DR relied on the order of the Assessing Officer and urged before the bench to set aside the order of the Ld. CIT(A) and restore that of the Assessing Officer. 4. On the other hand, the Ld. Counsel for the assessee while relying on the order of the Ld. CIT(A) reiterated his same submissions as submitted before the lower authorities and further submitted through his written submissions as under : "2. The Ld. CIT(A) correctly analysed the facts of the case, and relying on the judgment of the Hon'ble Supreme Court in the case of Ponni Sugar and Chemicals Ltd. 306 ITR 392 and certain other judgments, rightly deleted the addition of Rs. 61,69,000/- made by the Assessing Officer by making disallowance under section 43B of the Income-tax Act. Th....
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....object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The from of the mechanism though which the subsidy is given is irrelevant." Which these observations the Hon'ble Apex court held the subsidy received by the assessee for repayment of loan taken for the purpose of setting up new units and expanding the existing units. 3. If a similar test is applied in the present case, there cannot be any doubt about the purpose and the character of the subsidy granted to the assessee. The Ld. CIT(A)- XII, Kolkata, did exactly that, and analysed the incentive scheme of the West Bengal Government, and was satisfied about the utilization of the subsidy granted by the government the the Form of remission of Sales tax, he observed in his order that the subsidy was given to the assessee subject to the condition that the entire amount of remission was to be utilized for the purpose of making fixed capital investment and repaying loans. Accordingly, the assessee expanded its installed capacity of SSP and SA from 132000 TPA and 49500 TPA to 165000 TPA respectively in 2003-04. The assessee also made a substantial fixex capital investment, and repaid loan....
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....r a period of 13 years, which was later reduced to 9 years. The said certificate clearly specified that the assessee company would be eligible for remission of tax to the extent of Rs. 21,36,93,307.25, being the gross value of fixed capital assets/additional fixed capital assets or Rs. 50 crores, whichever is less, as against its existing fixed capital assets worth Rs. 17,38,50,335. Initially, the validity of the said certificate was from 31.03.2001 to 30.03.2002. the said certificate was renewed and extended from time to time to 30.03.2003, 30,03,2004, 30.03.2005 and 30.03.2006. On being satisfied that no portions of the subsidy received during the relevant F,Y. was utilized for running the business, and that the entire subsidy was utilised in making additions to capital assets and repayment of loans, the Ld. CIT(A)- XII, Kolkata, was convinced that the subsidy received by the assessee in the from of remission of Sales Tax was a capital receipt, and accordingly deleted the addition of Rs. 61,69,000 made by the Assessing Officer. The assessee is strongly of the view that the Ld. CIT(A),s decision is in consonance with the opinion expressed by the highest court of the land, and the....
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....ved that the provisions of Sec. 43B of the Income-tax Act did not have any application in this case, as no portion of Sales Tax was debited by the assessee in the Profit & Loss Account and/or claimed as a deductible business expenditure in the year under appeal. Relying on the decision of the Hon'ble Calcutta High Court in the case of A. W. Figgies & Co. Ltd. vs. CIT (175 CTR 203) and the decision of the Hon'ble Gauhati High Court in the case of India Carbon Ltd. vs. IAC (200 ITR 759) as well as decisions of Pune and Chennai Benches of the Hon'ble ITAT, the Ld. CIT(A) XII, Kolkata, directed the Assessing Officer to delete the addition. The assessee again relies on the above decisions and prays before the Hon'ble Bench to reject the views expressed by the Ld. Assessing Officer and uphold the order of the Ld. C.I.T (Appeals) : XII, Kolkata, wherein the additions made by the Ld. Assessing Officer was delated. 5. We have heard the rival submissions, perused the material available on record and the case laws cited by the Ld. Counsel. We find that the assessee claimed that the incentive in the form of sales tax remission as enjoyed by it under the West Bengal Incentive Scheme, 1999 in ....
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....15 of 2008) The A.O. has primarily relied on the Hon'ble Supreme Court decision in the case of Sahney Steel and Press Works Ltd. (supra.). The A.O. in his order simply quoted the case decision and held that the remission of sales tax was a revenue receipt. A.O. has not analysed the facts nor compared the facts with the facts of the Supreme Court case (Saheny Steel & Press Works Ltd. (supra). On the other hand the Supreme Court in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. (SC) held that the subsidy received from the state government is a capital receipt if the object of the assistance is to enable the assessee to set up a new unit or to expand an existing unit. Before I proceed to discuss the Supreme Court order in the case of Ponni Sugars which is in favour of the appellant, I would first prefer to examine the facts of Saheny Steel & Press Works Ltd. (supra) wherein the Apex Court treated the subsidy as "revenue" in nature. It noticed the following conditions to be fulfilled for getting incentives : - Incentive is conditional upon commencement of production - Incentive is limited to 5 years from the date of commencement of production - Incentives are to be given ....
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....lso relevant to reproduce the relevant extract from the ITAT (Kol.) order in the case of Klar Sehen Pvt. Ltd. Vs. AO, as relied upon by the appellant, which was affirmed by the Calcutta High Court also: "The decision of Hon'ble Madras High Court in Ponni Sugar's case, as referred by the AO, was affirmed by the Hon'ble Supreme Court in favour of the appellant. The AO has also relied upon the decision of the Calcutta High Court in the case of Merino ply and Chemicals Ltd. Vs. CIT which deals with the assistance by the state in the form of re-imbursement of 50% of the actual transport charges incurred and, therefore, this case is not relevant on th facts and circumstances of the instant case. The AO has also relied upon the decision of the Andhra Pradesh High Court in the case of CIT Vs. Tirumala Bricks and Tiles Factory. In the said case, it was held that the incentive granted by the Andhra Pradesh Government was for the purpose of setting up new industrial units and/or effecting substantial expansion of the existing units in backward areas. The quantum of subsidy offered was 10 per cent of the fixed capital subject to a maximum of 10 Iakh. The incentive granted by the State was ....