TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 44
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....ce it was received as Industrial Promotion Subsidy under Package Scheme of Incentive, 2007 (hereinafter referred to as 'PSI, 2007'). The Assessing Officer rejected the claim of the assessee and held the refund of Sales Tax as revenue receipt. Accordingly, the Assessing Officer made addition of Rs. 44,70,347/- in A.Y. 2009-10 and Rs. 18,89,12,990/- in A.Y. 2010- 11 on account of refund of sales tax. 3. Aggrieved by the assessment order for the respective assessment years the assessee filed appeals before the CIT(A). The CIT(A) vide impugned orders rejected the appeals of the assessee and upheld the findings of Assessing Officer. Now the assessee is in second appeal before the Tribunal assailing the findings of CIT(A) in treating the refund of sales tax as revenue receipt instead of Capital subsidy as claimed by the assessee. 4. The assessee has impugned the findings of CIT(A) by raising following grounds of appeal : "a. The Learned CIT(A) erred on facts in treating subsidy received under the Mega Project under Package scheme of incentives, 2007 as chargeable to tax as against the assessee claim of capital receipt. The Learned CIT appeal failed to appreciate the nature of the sche....
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....orandum of understanding was executed between Government of Maharashtra and the assessee. As per the memorandum of understanding, the assessee was required to invest approximately Rs. 117 crores in the new project at Village Sanaswadi, Taluka Shirur, District Pune and offer employment to 510 persons. On complying with the aforesaid conditions under PSI, 2007, the assessee was eligible to claim following incentives : (1) Electricity duty exemption for the period of 7 years from the date of commencement of commercial production. (2) 100% exemption from payment of stamp duty. (3) Industrial Promotion subsidy equivalent to 75% of eligible investments (as defined in PSI, 2007) made w.e.f. 28-03-2007, within such period as stipulated in the PSI, 2007. The Industrial Promotion Subsidy was limited to 75% of assessee's eligible investments less the amount of benefit availed at Sl.Nos. [1] and [2] as per the period prescribed therein or to the extent of taxes paid to the State Government within a period of 7 years, whichever is lower. 6. The Department of Industries, Government of Maharashtra issued "Eligibility Certificate for Mega Project" to the assessee on 17-03-2009. The said eligi....
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....by way of refund of sales tax is in the nature of 'incentive' and not 'subsidy'. The CIT(A) has erred in observing that the sales tax refund received by the assessee as subsidy is Revenue in nature, whereas, under PSI, 2007 it is in the nature of subsidy for setting up of industry in lesser developed areas of the State. The ld. Authorised Representative submitted that the Hon'ble Apex Court in the case of Ponni Sugars and Chemicals Ltd. (supra) has held that the nature and purpose of subsidy has to be examined in the context of particular claim, form or mechanism through which the subsidy is given is irrelevant. The ld. Authorised Representative asserted that the CIT(A) has erred in holding that out of the two criterias set out for claiming subsidy, i.e. investment criteria and employment criteria, the assessee has fulfilled employment criteria only. The ld. Authorised Representative pointed that a perusal of eligibility certificate would show that the assessee had made investment of Rs. 94 crores upto 05-12-2008 and the period for making investment to the extent of Rs. 117 crores was upto 27-03-2012. The ld. Authorised Representative referred to letter from the department of Indus....
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....hree Balaji Alloys and Others Vs. CIT, 333 ITR 335 (J&K) (3) CIT Vs. Chaphalkar Brothers, 351 ITR 309 10. The Ld. Authorised Representative referring to the decision of CIT Vs. Chaphalkar Brothers (supra) submitted that the Hon'ble Jurisdictional High Court reiterating the ratio laid down by the Hon'ble Apex Court in the case of Ponni Sugars and Chemicals Ltd. (supra) has held that purpose for which the subsidy was given is relevant factor to determine whether the same is Capital or Revenue receipt. If the object of subsidy was to enable the assessee to set up a new unit then the receipt of subsidy would be on capital account. The ld. Authorised Representative prayed for setting aside the findings of CIT(A) and allowing the appeals of the assessee. 11. On the other hand, Shri Shashi B. Prasad representing the Department vehemently supported the findings of CIT(A) in holding the refund of sales tax as revenue receipts. The ld. Departmental Representative submitted that the alleged subsidy is neither utilized by the assessee to acquire capital asset nor to set up any industrial unit or for payment of any loan taken for setting up of the unit. The incentive received by assessee in ....
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.... of windmill was held to be revenue receipt, as the incentive was given to overcome the problems faced by the properties during operational stage. It was not a case where subsidy was given for setting up of windmill unit. The subsidy was given for efficient running of the business. Thus, the facts are distinguishable, therefore, the ratio laid down in the case of Rasiklal M. Dhariwal (HUF) would not apply in the facts and circumstances of the present case. 14. In respect of setting aside the judgement of Hon'ble Bombay High Court by the Hon'ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., the ld. Authorised Representative submitted that the Hon'ble High Court had upheld the findings of Special Bench of the Tribunal. One of the questions raised before Hon'ble High Court in the appeal filed by the Department was : "(D) Whether on the facts and in circumstances of the case and in law, the Hon'ble Tribunal was right in holding that sales tax incentive is a capital receipt." The Hon'ble High Court held that the object of subsidy was to set up a new unit in backward area to generate employment. The Hon'ble court further held that in view of the fact that the subsidy is ....
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....the global competitive edge to the State's industry. The policy envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced Regional Development and Employment Generation through Greater Private and Public Investment in industrial development. The Package Scheme of Incentives 2007 outlines the eligibility criteria, quantum of incentives and monitoring mechanism for administering the incentives." 16. A further perusal of the scheme reveal that the State of Maharashtra been classified into different areas marked as Group A to Group D+, depending upon the development in the specified areas. The Classification of Areas under the scheme is given below : "1.3 Classification of Areas : For the purpose of the 2007 scheme, the classification of the areas of the State shall be as indicated below : (i) Group A: comprising the developed areas, viz, Mumbai Metropolitan Regional (MMR) and Pune Metropolitan Region (PMR). (ii) Group B : comprising the areas where some development has taken place. (iii) Group C : comprising the areas, which are less developed than those covered under Group B. (iv) Group D : comprising the lesser developed ....
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....mble to PSI, 2007 shows that the incentives are offered by the State Government to the entrepreneurs for making investment and setting up of new industries in the lesser developed areas of the State of Maharashtra. The scheme envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced regional development and employment generation through greater private and public investment in industrial development. In other words, through this scheme the State Government intends to attract investments in those area which are less developed so as to create a balanced development in the State and generate even employment opportunities throughout the State. Thus the prime motive behind PSI, 2007 is setting up of new industries. 20. A perusal of the terms and conditions of the Memorandum of Understanding reveal that the incentive/benefits under the scheme are offered to the assessee subject to the compliance of certain conditions. The benefits are in the form of exemption from payment of Electricity Duty, 100% exemption from payment of Stamp Duty on purchase of land etc., the Industrial Promotion Subsidy is given to the extent of 75% of eligible....
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....iod of investment available with the assessee is from 28-03-2007 to 27-03-2012. Thus, there was still time available with the assessee to make further investment. The assessee vide letters dated 28-03-2007 and 31-11-2011 had requested the Government to consider the level of investment at Rs. 562 crores instead of Rs. 117 crores and to provide employment to around 1937 persons instead of 510 persons at industrial unit set up by the assessee at Village Sanaswadi, Taluka Shirur, District Pune. The Department of Industries, Energy and Labour, Government of Maharashtra vide letter at page 132 of the paper book has agreed to apply the incentives on the additional investment of Rs. 445 crores, i.e. investment upto Rs. 562 crores. The period for granting Industrial Promotion Subsidy was also increased from 7 years to 9 years. Thus, it is unambiguously clear that the assessee had reached the level of investment and had even gone much beyond the initial level of investment of Rs. 117 crores. Therefore, the said objection raised by the CIT(A) in rejecting the claim of the assessee is unwarranted. 22. To be eligible to claim the benefit of scheme the assessee was required to obtain eligibilit....
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....aid down certain principles to determine the nature of subsidy, they are : (a) The object of subsidy scheme - If the scheme was to enable the assessee to run the business more profitably then the receipt is on Revenue account. If the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand existing unit then the receipt of subsidy is on capital account. (b) The form or mechanism through which the subsidy is given is irrelevant. The purpose for which the amount received as subsidy is utilized. (c) The purpose for which the amount received as subsidy is utilized. The underlying factor which determines the nature of subsidy is the purpose for which the subsidy is given. The mode of payment of subsidy does not determine the nature of subsidy. 24. In the case of Shree Balaji Alloys and Others Vs. CIT (supra), the Hon'ble High Court of Jammu & Kashmir had occasion to deal with the issue determining the nature of subsidy, i.e. whether Capital or Revenue. In the said case the subsidy was received by the assessee under the scheme with twin objects, viz., (i) acceleration of industrial development in the State of Jammu & Kashmir, and (ii) generation of Em....
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.... for setting up an industry in the backward area. Therefore, in each case, one has to examine the nature of the subsidy. The judgment of this Court in Sahney Steel & Press Works Ltd. Etc. (supra) was on its own facts; so also, the judgment of this Court in Ponni Sugars & Chemicals Ltd. (supra). The nature of the subsidies in each of the three cases is separate and distinct. There is no straightjacket principle of distinguishing a capital receipt from a revenue receipt, It depends upon the circumstances of each case. As stated above, in Sahney Steel & Press Works Ltd. Etc. (supra), this Court has observed that the production incentive scheme is different from the scheme giving subsidy for setting up industries in backward areas." 18) Now coming to the findings of the Tribunal on the issue, we find that the Tribunal has referred to various paras appearing in the two judgments to support its view that the receipts in the hands of the assessees were production incentives and thus revenue receipt and not capital receipt. This, however, appears to have been done without appreciating that the observations made in those paras were in the context of the schemes as such, which the apex Co....
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....Hon'ble the Prime Minister at Srinagar on April 19, 2003, was, for creation of one lac employment and self employment opportunities in Jammu and Kashmir State. 23) To achieve the purpose and objective referred to herein above, it was, inter alia, provided in the Central Excise Notifications that the exemptions contained in the Notifications would be available only on production of Certificate from General Manager of the concerned District Industry Centre to the Jurisdictional Deputy Commissioner of the Central Excise or the Assistant Commissioner of Central Excise, as the case may be, to the effect that the unit had created Required Additional Regular Employment, which would not, however, include employment provided by the industrial units to Daily wagers or Casual employees engaged in the Units. 24) A close reading the Office Memorandum and the amendment introduced thereto with para No.3 appearing in the Central Excise Notification Nos.56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of emp....
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....with the Tribunal in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30) For all what has been said above, the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence Revenue Receipt, cannot be sustained, being against the law laid down by Hon'ble Supreme Court of India in Sahney Steel and Ponni Sugars cases (supra). 31) The finding of the Tribunal that the incentives were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the assesses." In the instant case also the Government of Maharashtra through PSI, 2007 intends to achieve industrialization with twin objects of (1) Balanced Regional Development, and (b) Employment Generation. Thus, the ratio l....
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....e has placed reliance on the decision of Coordinate Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT (supra). In the said case, the State Government for the purpose of promotion of wind energy generation in the State of Maharashtra had granted certain benefits to the persons who had set up windmill. The policy to grant further incentives to windmill owners was formulated in the background of the fact that earlier policy of the State Government on generation through non-conventional sources did not achieve the desired results. In the subsequent policy the sales tax benefits were granted to the windmill operators to mitigate the problems faced by the promoters of wind energy generation. In the background of these facts the Tribunal held that the sales tax benefit was not intended to be granted for creation or bringing into existence a new asset. The Tribunal held that the object of the scheme was to promote generation of energy through non-conventional sources and the same is sought to be achieved by the Government in the form of supporting the units to perform more efficiently and profitably. Thus, in view of the above facts the Tribunal held that the incenti....