TaxTMI 
TaxTMI 
2018 (12) TMI 629
X X X X Extracts X X X X
X X X X Extracts X X X X
....without appreciating the legal and factual matrix of the case. 2. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) is correct in holding the nature of sales tax subsidy received by the assessee is capital receipt relying upon decision of the jurisdictional High Court in the case of CIT vs Reliance Industries Ltd. (CEA No 1299/2008) dated 15.04.2008 which has not attained finality and not properly appreciating the ratio of decision in the case of Sahaney Steel and Press Works Ltd vs CIT(1997)(228 ITR 253)(SC) which clearly laid down that the subsidy received after commencement of business without any specific instruction for its use towards the capital utilized for establishing the business constitutes revenue receipt. 3. Briefly stated, the facts of the case are that the assessee-company filed its return of income for the assessment year (AY 2011-12) on 28.09.2011 declaring total income of Rs. Nil, claiming current year's business loss of Rs. 158,78,56,843/-. The nature of business of the assessee is designing, developing, manufacturing, marketing and selling of automobile vehicles, construction equipment, machinery and its parts. The assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kage Scheme of Incentives' had been formulated and for which the impugned subsidy had been granted was for either setting up a new unit of for expanding an existing unit in the developing regions (as opposed to the developed regions) of the State. The Ld. CIT(A) further observed that the Finance Act, 2015 has inserted clause (xviii) in section 2(24) of the Act w.e.f. 01.04.2016 to provide that any subsidy received shall be chargeable to tax as income. As per CBDT Circular No. 19 of 2015 dated 27.11.2015, it has been clarified that this position shall take effect from 01.04.2016 and accordingly in the impugned assessment year, there is no explicit legislative sanction available for charging to tax the subsidy in question. Referring to the judgment of the Hon'ble Supreme Court in CIT v. Ponni Sugars & Chemicals Ltd. 306 ITR 392, CIT v. P.J. Chemicals Ltd. 210 ITR 830 and Sahney Steel & Press Works Ltd. v. CIT 228 ITR 253, the Ld. CIT(A) noted that the 'purpose' for which any subsidy had been granted would be important. If the purpose for which the subsidy had been granted was either for setting up a new industrial unit or for expanding an existing industrial unit, the subsidy had to....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., exemption from stamp duty, Industrial Promotion Subsidy (IPS) measured as lower of eligible fixed capital investment and taxes paid to the State Government within a period of 20 years, as per para 13 of the EC (v) Chakan is a highly developed area, (vi) the quantum of incentives within the approved limit will be decided by a High Powered Committee, as per para 5.10, (vii) not much of addition has been made to fixed assets in these years, as per financial statements of FYs 2010-11 and 2011-12 (viii) subsidy was credited to the P&L account and claimed as a deduction from the profit for the year, as per computation of income, (ix) by crediting subsidy to the P&L account, the assessee has reduced expenses which were otherwise debited to the P&L account and in respect of which subsidy was given, (x) the Ld. CIT(A) has made some observations at para 5 of his order which are contrary to the facts. 6. Per contra, the Ld. counsel of the assessee argues that the Ld. DR did not read out the 3rd para of the Preamble which refers to the purpose for which subsidy is given and further submits that (i) on perusal of para 3.6, it will be seen that no subsidy is available in respect of Group A, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to Mega Projects, considering size of investment committed by the investors. It is further submitted that an addition of Rs. 482.03 crores was made to fixed assets in FY 2010-11 and Rs. 270.33 crores in FY 2011-12 and only after confirming these investments and satisfaction of other eligibility conditions was the EC issued. The Ld. counsel argues that IPS was not in respect of any item of expenditure debited to the P&L account. No exemption was claimed in respect of electricity duty and hence there was no question of debiting P&L with electricity duty and claiming deduction for the same and claiming the same figure as subsidy. Stamp duty exemption availed was in respect of land which is not debited to the P&L account. It is stated that IPS is availed in the form of VAT and GST payable on finished goods and spares sold by the assessee. Also VAT and GST on sales are collected from the customers and paid as sales tax dues. The fact remains that VAT and GST are almost universally accounted for as balance sheet items and hence not debited to the P&L account. It is stated that subsidy is received from the Department of Industries and not as refund of sales tax from the Sales Tax Depar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refund of sales tax on raw materials, machineries and finished goods. Thus the present case is distinguishable from the decision in Sahney Steel & Press Works Ltd. (supra), relied on by the Ld. DR. In Bhushan Steels & Strips Ltd. (supra), relied on by the Ld. DR, the U.P. Government in exercise of powers u/s 4A of the U.P. Sales Tax Act, 1948 r.w.s. 221 of the General Clauses Act, 1904 granted exemption from payment of the sales tax in respect of any goods manufactured in an industrial unit which is a new unit located in a specified backward area, and such exemption was allowed for a period of six years. In the year 1990, a new subsidy regime for industrial promotion was evolved. This envisioned various incentives to new units that were to be encouraged in certain parts of the State. The assessee's unit came up in a backward area and thus the enterprise setting up a new unit, could claim sales tax exemption for a certain number of years. The scheme did not place any condition but merely stated that the collection could be retained to the extent of 100 per cent. of capital expenditure. The Assessing Officer held that the amount received by way of sales tax exemption was taxable. On....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issued by the implementing agency, after ascertaining that the eligible unit has complied with the provisions of the Scheme and has commenced commercial production. So, IPS is given only after the capital investment has been made and commercial production has started. Thus the instant case is distinguishable from the decision in Bhushan Steels & Strips Ltd. (supra), relied on by the Ld. DR. 7.1 Let us recapitulate the facts briefly. The assessee is a 100% subsidiary of Mahindra & Mahindra Ltd. Between 2008 and 2010, it set up a plant for the manufacture of four wheelers, trucks and construction equipment. Commercial production from this new unit started on 13.01.2010. As per page 40-68 of the P/B, the Government of Maharashtra, Industries, Energy and Labour Department, continuing with the practice followed by it since 1964, passed a resolution on 30.03.2007, enhancing what is popularly known as the Package Scheme of Incentives 2007. As per the EC issued by the Directorate of Industries on 24.01.2011, the assessee was entitled to IPS equivalent to 100% of the eligible amount of fixed capital investment made by it or the taxes paid by the assessee to the GOM within a period of 20 ye....