TaxTMI 
TaxTMI 
2018 (1) TMI 785
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....ustment in the transfer price of power captively consumed. ii) That on the facts and in the circumstances of the case the ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the AO on account of Education Cess amounting to Rs. 1,42,79,859/-. iii) That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and erred in confirming the disallowance made by the AO on account of profit on sale of investment amounting to Rs. 1,76,22,643/- & profit on sale of fixed assets amounting to Rs. 1,18,52,588/- while computing book profit u/s 115JB of the Act." ITA No. 181/JP/2016 (Ground of Revenue's appeal): "In view of the facts and circumstances of the case, the Ld. CIT(A), Ajmer has erred in : i) Deleting the disallowances made by the AO on account of sales tax subsidy by treating the amount of Rs. 31,86,07,921/- as capital receipts instead of revenue receipt; ii) Deleting the disallowance made by the AO on account of sales tax subsidy by treating the amount of Rs. 31,86,07,921/- as capital receipt and the same is not includible in the book profit u/s 115JB of the IT Act, without appreciating the facts of th....
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..... It was submitted that the above view has also been again upheld by the Tribunal in assessee's own case for AY 2010-11 vide order dated 27.04.2016. 5. It was submitted that the fact of the present case is similar to AY 2010-11. In the said year, transfer price rate was adopted by considering rate of sale of power through one of the mode. However, AO adopted the rate by considering average of sale to all the mode. Similarly in the present case, rate has been adopted by considering AALC of one of the unit whereas AO adopted the rate by considering average of AALC of all the units. Hence disallowance made in present case needs to be quashed since Departmental appeal has been dismissed in AY 2010-11 by stating that as long as the assessee has adopted a 'Market Value' as the transfer price, it is sufficient compliance of law. Substitution of another market rate by the AO is not permissible. 6. It was submitted that only contention of CIT(A) is that the Tribunal order of earlier year is not applicable since in the present case, market value adopted of Jaipur unit does not represent relevant geographical area. The said fact does not hold good since the eligible power units of assessee....
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.... 'market value' as adopted by AO is the most appropriate since it represents price charged by the State Grid to various customers including the assessee. Hence, the same should be considered. The AR of the assessee submits that the value adopted by assessee represents 'market value' since it is based on real transactions between unrelated parties and the details for the same are available in public domain. The issue before us is whether in such situations where there are two or more market values available and if the Assessee has adopted a 'value' which is 'market value', whether it is permissible for the Revenue to still replace the same by another 'market value'....... 11. At this stage, it is necessary to refer to the relevant provisions of the Act i.e. Sec 80IA(8), which states that- "Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible ....
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....ng out the comparable cases from the vast database available in the public domain. Once the assessee has adopted the same, the AO has to examine whether the same is market price or not. AO has the power to adopt the market price only when the price adopted by the assesee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also substantial and hence it cannot be said that the assessee has hand picked some transactions, which are beneficial to it. The DR submitted that since the assessee has itself drawn power from the grid, the grid rate represents the 'best market value' & hence the same should only be adopted. We are not agreeable to the above contention of the department. No doubt the grid rate is market value but there is no concept of 'best' market value in law. If by using the said adjective, Revenue seeks to infer that grid rate is the only market value in the present context, such inference is also clearly not tenable. Further, in case there are options, the option favorable to the Assessee is to be adopted.....
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....een brought on the statue books by the Finance Act, 2009 and which overrides the provisions of section 80IA(8) of the Act. Unlike section 80IA(8) which defines market value commonly for both sale and purchase by the eligible undertaking, section 80A(6) provides for separate market value with reference to sale and purchase by the eligible undertaking. Another fundamental change which has been brought-in is that the market value is made subject to statutory or regulatory restrictions, if any. In the context of present case where electricity has been generated and captively consumed, determination of the market value for claiming tax exemption has been aligned with the regulatory mechanism in terms of Electricity Act 2003 and related tariff regulations where the rate at which the electricity is supplied by the generating company to the distribution company is not the same at which the electricity is supplied by the distribution company to the consumers. The assessee company has determined the market value at annual average landed cost of electricity purchased from the Grid for its Jaipur unit i.e. Rs. 6.51 per unit whereas the AO has determined the market value at Rs. 5.36 per unit ba....
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....arket value of such goods or services as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market We also refer to the amendment brought in by the Finance Act, 2009 in section 80A of the Act where sub-section 6 has been specifically brought on the statue book by the legislation which reads as under: Amendment of section 80A. 29. In section 80A of the Income-tax Act,- (a) after sub-section (3), the following sub-sections shall be inserted, and shall be deemed to have been inserted with effect from the 1st day of April, 2003, namely:- '(4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C-Deductions in....
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....; (ii) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any. We now refer to the Notes to the clauses to the Finance Bill 2009 and the relevant notes in relating to section 80A(6) reads as under: "The proposed sub-section (6) provides that notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of Chapter VIA under the heading "C-Deductions in respect of certain incomes", where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the marke....
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...., shall be allowed if the deduction has not been claimed in the return of income; These amendments will take effect retrospectively from the 1st April, 2003, and will accordingly apply in relation to assessment year 2003-04 and subsequent years. Further it is also proposed to amend section 80A to provide that the transfer price of goods and services between the undertaking or unit or enterprise or eligible business and any other undertaking or unit or enterprise or business of the assessee shall be determined at the market value of such goods or services as on the date of transfer. Further, the expression "market value" has been defined to mean,- (a) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (b) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restricti....
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....r noted that the authorities below have not examined the matter after taking into consideration the provisions of section 80A(6) of the Act. As we have stated above, the provisions of section 80A(6) will override the provisions of section 80IA(8) read with the explanation thereto. If we examine and compare the provisions of section 80IA(8) and 80A(6), it is noted are as follows: 1) Unlike section 80 IA(8), section 80A(6) starts with non obstante clause and provides that notwithstanding anything contrary contained in chapter VI-A, application of arm's length price is mandatory for computing profits eligible for deduction, of the eligible unit. 2) Market value, in section 80-IA(8) is defined commonly both for transfer and acquisition by the eligible unit. Section 80A(6) provides for separate market value with reference to transfer or acquisition by the eligible unit. 3) Determination of market value is made subject to statutory or regulatory restrictions, if any. In this context, it would be relevant to refer to decision of the Hon'ble High Court of Calcutta in case of Commissioner of Income-tax, Kolkata - III vs. ITC Ltd [2016] 7 ITR OL 166 (Cal) where the Hon'ble High Co....
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....he judgment in the case of Thiru Arooran Sugars Ltd. (supra) has no manner of application for the simple reason that the Court in that case was concerned with the question as to the market value of sugarcane grown by the assessee at home. The Supreme Court was of the opinion that the sugarcane grown at home would be deemed to have been sold to the sugar mill at the same rate at which sugar cane was purchased by the sugar mill. That obviously is correct because if the sugarcane grown at home had not been sold to the sugar mill of the assessee itself, the sugarcane would have been sold in the open market. The rate of sale in the open market would be the same at which sugarcane was purchased by the sugar mill of the assessee. But in the case before us the electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. The rate at which electricity could have been sold to any such company is not the same at which such companies sale electricity to the consumers. The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generatin....
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....he case of the assessee. In the interest of justice and fair play, following our decision in case of Chambal Fertilizers (supra) and given the provisions of section 80A(6) which overrides section 80IA(8) and are clearly applicable in the instant case and have not been considered by the authorities below, we deem it appropriate to set aside the matter back to the file of the Assessing officer to examine the same afresh taking into consideration the above discussions. 13. Regarding ground No. 2 of assessee's appeal, briefly the facts of the case are that the assessee has claimed deduction on account of education cess (EC) & secondary and higher education cess (SHEC) on Income tax & Dividend Distribution Tax amounting to Rs. 1,42,79,859/-, as eligible revenue expense u/s 37 of the Act while computing total income for the year under consideration. The AO disallowed the above claim on contention that EC & SHEC are in effect additional surcharge and if surcharge is not allowable as revenue expenditure, then education cess should be treated similarly while computing total income. 14. The ld. CIT(A) affirmed the contention of the AO that education cess is in the nature of additional surc....
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....e International Holdings BV-vs.-UOI (2012) 341 ITR 1 (SC) 19. The said omission was clarified by CBDT Circular No. 91/58/66 - ITJ (19) dated 18-05-1967, wherein it has been stated that the effect of the omission of the word 'cess' from Sec. 40(a)(ii) is that only taxes paid are to be disallowed from AY 1962-63 onwards and not the Cess. Since Circular is binding on the Department as also held by Hon'ble Apex Court in the case of Commissioner of Customs-vs.-Indian Oil Corpn. Ltd. (2004) 267 ITR 272 (SC), cess should not be disallowed while computing total income for the year under consideration. 20. Reliance in this regard is placed on the decision of Duncans Industries Ltd.-vs-JCIT (2003) 87 ITD 457 (Kol), wherein relying on CBDT Circular No. 91/58/66-ITJ (19) it has been held that cess does not fall within the prohibitory items of deduction under sec. 40(a)(ii). 21. Further, the issue whether tax shall include cess, has been decided by Hon'ble Lucknow Tribunal in DCIT-vs.-Yuvraj Singh (ITA No. 408/Lkw/2011 dated 23.12.2013) wherein it has been held that for computing tax effect, cess should not be considered as part of tax as it does not fall within the characteristics of tax. ....
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.... surcharge, it partake the nature and character of tax and thus disallowable under the provisions of section 40(a)(ii) of the Act. The relevant discussion and findings are reproduced herewith: "62. We have heard the rival contentions of both the parties and perused the material available on the record. In order to appreciate the alternate contentions raised by both the parties, we refer to the provisions of section 40(a)(ii) of the Act which is the subject matter of examination before us which reads as under: Section 40(a)(ii) - Amounts not deductible. 40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied i....
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....e net agricultural income shall be aggregated and the amount of income-tax shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income; (ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in the said paragraph A, as if the net agricultural income as so increased were the total income; (iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax in respect of the total income: Provided that the amount of income-tax so arrived at, as reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided in that Paragraph and the sum so arrived at shall be the income-tax in respect of the total income. In cases to which the provisions of Chapter XII or Chap....
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....tes specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated,- (a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of such tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds eight hundred and fifty thousand rupees; (b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax; (c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such tax. (7) In cases in which tax has to be collected under the proviso to section 194B of the Income-tax Act, the collection shall be made at the rates specified in Part II of the First Schedule, and shall be increased, by a surcharge for purposes of the Union, calculated in the manner provided therein. (8) In cases in which tax has to be collected under section 206C of the Income-tax Act, the collection shall be made at the rates sp....
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....115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, "advance tax" computed under the first proviso shall be increased by a surcharge for purposes of the Union, calculated,- (a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of "advance tax" where the total income exceeds eight hundred and fifty thousand rupees; (b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such "advance tax"; (c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such "advance tax". (10) In cases to which, Paragraph A of Part III of the First Schedule applies, where the assessee has, in the previous year or, if by virtue of any provision of the Income-tax Act, income-tax is to be charged in respect of the income of a period other than the previous year, in such other period, any net agricultural income exceeding five thousand rupees, in addition to total income and the total income exceed....
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....e universalised quality basic education, calculated at the rate of two per cent of such income-tax and surcharge." We now refer to the Notes to clauses of the Finance Bill 2004 which provides as under : "It is also proposed that the amount of income-tax as specified in sub-clauses (4) to (10) of clause 2 of the Finance (No. 2) Bill, 2004 and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on Income-tax" so as to fulfil the commitment of Government to provide and finance universalised quality basic education, calculated at the rate of two per cent, of such income-tax and surcharge. The Education Cess on Income40 tax shall be payable during the previous year beginning on 1st April, 2004." We now refer to the Memorandum explaining the Finance Bill 2004: "2. Subject to certain exceptions, which have been indicated while dealing with the relevant provisions, the Bill follows the principle that changes in the provisions of the tax laws, should ordinarily be made operative prospectively in relation to the current inc....
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....regate of such incomes paid or likely to be paid exceeds Rs. 8,50,000; (ii) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent, of such tax; and (iii) in the case of every artificial juridical person, at the rate of ten per cent, of such tax. An additional surcharge, to be called the Education Cess to finance the Government's commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge. III. Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 2004-2005 The rates for deduction of income-tax at source from "Salaries" during the financial year 2004-2005 and also for computation of "advance tax" payable during that year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income-tax during the financial year 2004-2005 on current incomes in cases where accelerated assessments have to....
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....position of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be. Education Cess on imported goods 84. (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under section 12 of the Customs Act, 1962 (52 of 1962) and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including- (a) the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act, 1975 (51 of 1975); (b) the countervailing duty referred to in section 9 of the Customs Tar....
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....meal. If primary education and the nutritious cooked meal scheme can work hand in hand, I believe there will be a new dawn for the poor children of India." On perusal of the Finance Bill and the relates notes to the clauses and the memorandum explaining the Finance Bill, it is clear that income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge for the purposes of the Union. Further, as per section 2(11), the amount of income-tax shall be further increased by an additional surcharge for the purposes of the Union to be called the "Education Cess on income-tax". We have also gone through the Finance Act 2004 and found that the provisions therein regarding education cess are parimateria to the provisions contained in the Finance Bill 2004. Even the subsequent Finance Acts contains identical provisions except the fact that another additional surcharge for the purposes of Union, to be called the "Secondary and Higher Education Cess on income tax" has been introduced which has the same character as that of education cess. The nature of education cess is therefore clearly additional surcharge for the purposes of th....
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....on such goods under the Central Excise Act, 1944 or the rules, as the case may be." Though the same has been stated in the context of Central Excise Act, in our view, the same equally applies in the context of the Income tax Act given that the nature and character of levy of education cess is identical across all tax legislations. We now refer to the judgement of the Hon'ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). In this case, the assessee who carried on the business of raising coal from coal mines and selling it, paid road and public works cess under the Bengal Cess Act, 1880 and education cess under the Bengal (Rural) Primary Tax Act, 1930, in relation to the coal mines, which it had taken on lease. The cess was leviable under the respective statutes on the annual net profits to be calculated on the average annual net profits for the last three years, for which the accounts had been made up. The question was whether these cesses paid by the assessee under the aforesaid Bengal Acts fell within the mischief of section 10(4) of the Income-Tax Act, 1922 and it was held as under: "Now it is quite clear that the afore....
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....ct and the two Cess Acts the applicability of section 10(4) cannot be attracted. But even according to the decided cases such cesses cannot fall within section 10(4). " It is thus clear that Section 10(4) of the 1922 Act excludes only cess, rate or tax which is levied on the profits or gains of any business, profession or vocation, or is assessed at a proportion of or on the basis of such profits or gains, in accordance with the provisions of section 10 of the Act. The "road and public works cess" levied under the Bengal Cess Act, 1880 and "education cess" levied under the Bengal (Rural) Primary Tax Act, 1930 was thus held as not a cess levied as part of the tax under the Income-Tax Act and accordingly, it was allowed as a permissible deduction. If we were to read the provisions of section 10(4) being pari-materia with the provisions of section 40(a)(ii) and apply the ratio of the aforesaid Supreme Court judgement in the context of education cess, it will supports the view that the education cess presently levied under the Income-Tax Act, 1961 could not be allowed as a deduction under section 40(a)(ii) of the Act. The reason for the same is that as we have already held above ....
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....ade by the assessing officer in this regard. Thus, disallowance of Rs. 19,72,00,814/-is hereby confirmed. Thus, this ground stand dismissed." As regards the Circular No.91 / 58 / 66 - ITJ (19), dt.18.5.1967, the effect of omission of the word "cess" from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessments for the years 1962-63, onwards. In this regard, in the first place, it has to be seen that "cess", as contemplated in the aforesaid Circular, relates to the cess which is leviable under some other Statutes and which is a charge on the profits of the assessee, as in the aforesaid case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). Secondly, the present education cess has been levied much after the date of the aforesaid Circular and more importantly, the education cess, as contemplated under the Finance Act, is nothing but a part of income-tax, chargeable under the provisions of the Act. Therefore, the aforesaid Circular is not relevant in the present context. The case of Duncans Industries Ltd rendered in the context of cess levied under the West Bengal Rural Employment Production Act, 1976 and the West Bengal Primary....
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....cally provided for. 64. In light of above discussions and the facts and circumstances of the case, we are of the view that ld CIT(A) has rightly disallowed the claim of education cess as an allowable deduction under section 40(a)(ii) of the Act. In the result, ground taken by the assessee is dismissed." 26. Our above view has been fortified by a recent decision of the Hon'ble Supreme Court in case of SRD Nutrients Private limited vs Commissioner of Central Excise, Guwahati (Civil Appeal No. 2781-2790 of 2010 dated 10.11.2017) wherein the issue for consideration was where the appellant was entitled for refund of education cess and higher education cess which was paid along with excise duty once the excise duty itself was exempted from levy. The Hon'ble Supreme Court has held that education cess and higher education cess would partake the character of excise duty and entitled to the refund where excise duty itself was exempted from levy. While laying down the said legal proposition, the Hon'ble Supreme Court has also affirmed the decision of Hon'ble Rajasthan High Court in case Banswara Syntex limited and has held as under: "20) One aspect that clearly emerges from the reading....
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....er to the Larger Bench which it did not do. In the impugned judgment, while preferring to follow the view taken in Jindal Drug Ltd. the Tribunal has not given any reasons for adopting this course of action. The Rajasthan High Court in the case of Banswara Syntex Ltd. while holding that surcharge taken in the form of Education Cess shall also be refundable has given the following reasons in support of the said view: "15. The very fact that the surcharge is collected as part of levy under three different enactments goes to show that scheme of levy of Education Cess was by way of collecting special funds for the purpose of Government project towards providing and financing universalised quality of basic education by enhancing the burden of Central Excise Duty, Customs Duty, and Service Tax by way of charging surcharge to be collected for the purpose of Union. But, it was made clear that in respect of all the three taxes, the surcharge collected along with the tax will bear the same character of respective taxes to which surcharge was appended and was to be governed by the respective enactments under which Education Cess in the form of surcharge is levied & collected. 16. Apparen....
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.... per cent ad valorem of the motor vehicle for the purposes of the levy and collection of the automobile cess must be made that was being calculated since automobile cess was to be levied and calculated as if it was excise duty. As a fortiorari, the Education Cess and Higher Education Cess levied @ 2% of the excise duty would partake the character of excise duty itself." 27. In light of above discussions, respectfully following the decision of the Hon'ble Supreme Court in case of SRD Nutrients Private limited (supra) where education cess and higher education cess have been held to partake the character of excise duty, the legal proposition so laid down by the Hon'ble Supreme court will apply with equal force in the context of income tax, and following our decision in case of Chambal Fertilizers (supra) wherein we have held that across all tax legislation - direct taxes as well as indirect taxes on goods and services, the nature and character of education cess and higher education cess is clearly tax and nothing else, we are of the considered view that the assessee's claim of deduction on account of education cess (EC) & secondary and higher education cess (SHEC) on income tax & di....
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....- "Whether on the facts and circumstances of the case, the tribunal was justified in holding that the sales tax subsidy received by the assessee of Rs. 18,48,85,506/- in the form of Sales Tax Exemption was a capital receipt and not a revenue receipt ignoring the basic purpose for which the same was given which itself provides that the subsidy was given to the assessee to enhance the production, employment and the sale in the State of Rajasthan which are all post operational activities." 33. While considering the above substantial question of law, the findings of the Hon'ble Rajasthan High Court are as follows: "6. We have heard counsel for the parties. 6.1 In view of the contentions which have been raised by the counsel for the department and discussions made by the AO as well as CIT(A) in our considered opinion, the tax liability, we have considered original purpose for which the Scheme has been floated by the State Government by going through the Scheme. 6.2 It is very clear that because at the relevant time the State Government need employment generation therefore it has come out with the Generation of Employment for which capital investment was necessary and therefo....
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.... 80-IA by Rs. 137,34,88,344/- by making adjustment in the transfer price of power captively consumed. ii) That on the facts and in the circumstances of the case the ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the AO on account of Education Cess amounting to Rs. 7,03,53,342/-. iii) That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the A.O on account of gift expenses to the tune of Rs. 4,13,437/-. iv) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and erred in confirming the disallowance made by the A.O on account of profit on sale of investment amounting to Rs. 60,37,35,196/- & profit on sale of fixed assets amounting to Rs. 2,23,82,657/- while computing books profit u/s 115JB of the Act." ITA. No. 182/JP/2016 (Ground of Revenue's appeal):- "i) Deleting the disallowance made by the AO on account of sales tax subsidy by treating the amount of Rs. 1,31,82,58,251/- as capital receipts instead of revenue receipt; ii) Deleting the disallowances made by the AO on account of sales t....
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.... of sales tax subsidy and has not offered the same to tax. In support, reliance was placed on the decision of the Coordinate Benches of the Tribunal for earlier years rendered in the context of sales tax subsidy. The AO also applying the same analogy as in case of sales tax subsidy given that these receipts are also borne out of the same scheme of the Rajasthan Government and the fact that the decision of the Coordinate Benches are under challenge before the Hon'ble High Court, brought these receipts to tax and also added the same to compute the book profits u/s 115JB of the Act. 44. On appeal, the ld CIT(A) held that both sales tax subsidy and electricity duty exemption has been received under the Rajasthan Invesment Promotion Policy of 2003, following the orders of the Coordinate Bench for AY 2006-07 to 2009-10, he deleted the addition so made by the AO. Now, the Revenue is in appeal against the said findings of the ld CIT(A). 45. During the course of hearing, the ld AR submitted that the matter relating to sales tax subsidy has already been decided by the Hon'ble Rajasthan High Court in assessee's favour and given that electricity duty exemption also flows from the same scheme....
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....able to all units, other than those covered in the list of ineligible units subject to the fulfillment of the following conditions:- (i) To claim wage/employment subsidy the unit shall provide:- (a) Direct employment to at least then persons in case of a new unit and (b) Twenty five percent additional direct employment subject to a minimum of ten persons in case of diversification, modernization or expansion. (c) The unit shall be eligible for interest subsidy and/or wage/employment subsidy only if it commences first commercial production/operation during the operative period of the scheme. Clause-7: Subsidies: In case of new investment made, the sum total of interest subsidy and wage/employment subsidy would be subject to a maximum limit of fifty percent of the tax payable and deposited under the Rajasthan Sales tax Act, 1994, the Central Sales tax Act, 1956 and Value Added Tax Act as and when introduced in the state; Provided that the maximum limit of 50% prescribed under clause 7(1)(a) and clause 7(i)(b) may be raised by the BIOI to sixty percent in such cases where the investments exceed Rs. 100 crore but are less than or equal to Rs. 200 crores, and this ma....
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....the Govt. of Maharashtra, which begins commercial production in November, 1982. The incentive was in the form of exemption from liable for payment of sales tax for a period of 5 years commencing from 8-6-83 and ending on 7-6-1988. The assessee's claim was that the quantum of the sale tax liable would be claimed as deduction on the basis of that it is a capital receipt or on the basis of that it should be treated as liability under the sales tax liability. But since, it was exempted from payment of sales tax, the same should be treated a paid within the meaning of section 43B so as to adjusted against the amount of subsidy, which the assessee would have received from the statement government. In that year the assesee was exempted from the payment of purchase tax of Rs. 10,82,175/- and sales tax of Rs. 4,29,89,686/- making the total to Rs. 4,40,71,858/-. The Spl. Bench finally decided the issue in favour of the assessee. The Spl. Bench did consider the ratio laid down in the judgment of Supreme Court in Sahiney Steel and Press Works Ltd's case, which is as under:- "If any subsidy is given, the character of the subsidy in the hands of the recipients-whether revenue or capital-will ....
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....tricity duty is linked with the quantum of investment made by the Assessee. The pre condition for availing such incentive is essentially investment made by the assessee. In the Sahney Steel and Press Works Ltd.(supra), the Hon'ble Supreme Court examined the issue and laid down principles on the basis of which a subsidy given to the assessee is required to be categorized. If it is an operational subsidy same would fall within the ambit of revenue and if it is a subsidy for a purpose of setting up and expansion of industry that would be within the ambit of capital. Admittedly, in the present case, it is not the case of subsidy given by the State Government but it is a sort of incentive in the form of waiver of electricity duty but this waiver is dependent upon the investment made by the assessee and production of power. The ld. CIT(A) has followed the decision of Spl. Bench of this Tribunal rendered in the case of DCIT vs. Reliance Industries Ltd. (Supra) in that case there was incentive in the form of exemption from liability of payment of sales tax for a period of 5 years. In the present case, it is the waiver of the electricity duty. The revenue's case is that had this waiver was ....
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....pra) lies in the fact that it has discussed any analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. The test that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, on has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is not dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy assistance is gi....