TaxTMI 
TaxTMI 
2017 (3) TMI 1807
X X X X Extracts X X X X
X X X X Extracts X X X X
....cheme 2000 (WBIS 2000)and Rs. 20,16.,226/- received from IFCI Ltd on account of interest subsidy refund under the Technology Up-gradation Fund Scheme (TUFS). These amounts were credited in the profit and loss account under the head "Other income". However, in the computation of total income the Assesee excluded the aforesaid subsidies on the ground that these were capital receipts not chargeable to tax. 4. The AO called upon the assessee to explain as to how the aforesaid subsidies were capital receipts not chargeable to tax. The assessee explained before the AO that the aforesaid subsidies were capital receipts not chargeable to tax for the following reasons:- 1. Subsidy received under TUFS of Rs. 20,16,226/-: "(a) The Assessee explained the objective of TUFS was to meet the challenges of post quota regime which requires industry to become more competitive, cost effective and quality oriented. With this background, Govt. of India launched a Technology Upgradation Fund Scheme (TUFS) for textile and jute industries w.e.f. 01/04/1999 for a period of 5 years i.e. upto 31/03/2004 which was subsequently extended upto 31/03/2007. (b) The Assessee explained that TUF Scheme aims at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra no. 11.2A of WBIS 2000, which provided that additional interest subsidy will be granted if the eligible industrial unit is able to generate direct employment of 200 or more which clearly shows that the basic motive for giving the subsidy was promotion of industry for development of the backward region where there is scarcity of employment opportunity. (d) The Assessee submitted that the object for which the subsidy was given is decisive as to whether its capital or revenue in nature. If the subsidy is given for setting up or expansion of the industry, it will be capital receipt, irrespective of the modality or the source of funds through or from which it is given and if monies are given for assisting the assessee in carrying out the business operations only after, and conditional upon, the commencement of production, it shall be revenue receipt. 5. In support of the above submission, the assessee referred the following judicial pronouncements: (i) CIT-vs.- Balrampur Chinni Mills Ltd. (1999) 238 ITR 445 (Cal.) (ii) DCIT-vs.- Reliance Industries Ltd. (2004) 88 ITO 273 (Mum.)(SB) (iii) CIT-vs.- Ponni Sugars & Chemicals Ltd. (2008) 174 Taxman 87 (SC) (iv) Kalpana Palace-v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re the deduction of the subsidy amount is not allowed. 7. On appeal by the assessee the CIT(A) held that the subsidies were capital subsidies not chargeable to tax. As far as subsidy received under TUFS is concerned the CIT(A) observed as follows :- "On perusal of the objective of the 'The Technology Upgradation Fund Scheme (TUFS)' issued by the Ministry of Textiles, Govt. of India, it is seen that to improve the overall health of the textile industry which contributes significantly to the Indian economy and provides sizable employment opportunity it was decided to provide adequate capital to textile companies at internationally comparable rates so that major modernization programme through technology up gradation could be carried on by them. Hence the interest subsidy was not provided to the Appellant to carry out or support its day to day business operations but was for capital expenditure made in modernizing its existing plant & machinery through technology upgradation so that they could compete with global textile industries and contribute to the Indian economy. The Hon'ble Supreme Court in the case of Ponni Sugars had categorically held that the character of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to be capital receipt by ITAT Kolkata in DCIT -vs.- M/s Pricewaterhouse Coopers Pvt. Ltd. ITA No. 2033/Kol/2013 order dated 13.7.2016 wherein it was held that WBIS, 2000 was intended to accelerate industrial development of the state. The incentive given under the scheme was for setting up of industries in West Bengal. Hence interest subsidy received under WBIS 2000 shall be treated as capital receipt. Reference was made to several other decisions of the Hon'ble Apex Court in the case of CIT -vs.- Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392(SC) wherein it has been held that it is the purpose of the incentive which decides its nature and not the modality or the source thereof. Reference was also made to the decision of Jurisdictional High Court in CIT - - Rasoi Ltd. (2011) 335 ITR 438 (Cal) wherein it has been held that subsidy received for expansion of capacities, modernization and improving the marketing capabilities to tide over the crises for promotion of industry in the state is to be treated as capital in nature. Reference was also made to the following other decisions in the case of Shree Halaji Alloys & Ors. -vs.- CIT (2011) 333 ITR 35 (J&K) wherein it has been held th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (FUFS) of Ministry of Textiles, Government of India. The assessee claimed the said subsidy to be capital receipt but the Assessing Officer did not accept the same and added back the same to the income of the assessee holding the same to be revenue receipt. On appeal, the CIT(A) upheld the plea of the assessee, which view has been affirmed by the Tribunal with the following observations :- "Having regard to the aforesaid, in our view, it is quite clear that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. 10. Considered in the aforesaid light, in our view, the facts of the instant case are on all fours comparable to those considered by the Hon 'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra) and therefore, a natural corallary is that the nature of the subsidy in question is capital. Therefore, bot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a. The relevant clause of the agreement under which the subsidy was given is as under:- "Para 8. - to prevent misutilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended 10 the loan amount. " 7. In view of above, the view taken in Sahney Steel & Press Works Ltd. & 015., could not be applied in the present case, as in said case the subsidy was given for running the business. For determining whether subsidy payment was 'revenue receipt' or 'capital receipt'. character of receipt in the hands of the assessee had to be determined with respect of the purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel & Press Works Ltd. & Ors. itself and reiterated in later j....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th Dinajpur, Jalpaiguri and Darjeeling districts)." Some of the special features of the 2000 Scheme: 1. Capital Investment Subsidy for all categories of units. Industrial units to get State Capital Investment Subsidy on the investment made in the fixed capital depending on the location: Group B - @ 15% to the limit of Rs. 150.00 lakhs Group C - @ 25% to the limit of Rs. 250.00 lakhs 2. Interest Subsidy @ 50% of interest liability to the limit of Rs. 100.00 lakhs per year for: Group B - 5 years Group C - 7 years ............. There are several subsidies provided under the WBIS 2000. In the present case we are concerned with the "Interest Subsidy" which is contained in para-2 of the Foreward to the WBIS 2000 referred to above. 11. The law with regard to circumstances under which subsidy received can be treated as capital receipt not chargeable to tax has been laid down in several judicial pronouncements. The Hon'ble Supreme Court in the case of Ponnisugars Ltd. (supra) has emphasized the need to look into the purpose for which subsidy in question is granted and if the purpose is to enable the assessee to run a business from profitability then the receipt is on r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Sahaney Steel & Pres Works Ltd., supra. The issue is also covered by the Tribunal's decision as noted above Accordingly, we confirm the order of CIT(A) and this issue of revenue's appeals for both th years is dismissed." 13. The Hon'ble Calcutta High Court in case of CIT Vs. Rasoi Ltd. [335 ITR 438] has in a similar case of receipt of subsidy held as follows: "In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent. of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sales tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT reported in [1961] 42 ITR 392 (SC) " AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature. " 14. Identical subsidy under the Wes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....should be brought to tax without setting off the loss of the 100% EOU. The plea of the Assessee however was that the issue whether loss of EOU unit whose total income is exempt can be set off against profit of the non-exempt non-10B unit, has been settled by the Hon'ble Kolkata Tribunal in favour of the assessee in its own case vide order dated 28-03-2008 for AY. 2004-05 in ITA No. 1658/Kol/2007, wherein the Hon'ble Tribunal held that the said losses of EOU unit needs to be adjusted with the income of other units. 18. The AO however held that the claim of the assessee cannot be accepted as the Revenue has not accepted the stand of the Tribunal and preferred an appeal before the Hon'ble Calcutta High Court u/s 260A of the Act. Thus, following the stand taken in earlier years, unabsorbed depreciation amounting to Rs. 22,28,363/- relating to EOU Unit was not allowed to be set off with the profit of the other businesses in the current year also. 19. On appeal by the assessee, the CIT(A) following the order in assessee's own case in A.Y.2006-07 held that the set off of unabsorbed depreciation of 100% EOU with the profits of non EOU unit should be allowed. Aggrieved by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- Mindteck (India) Ltd. vs ITO: 151 ITD 251 (Bang) - HoneyweIl International (India) (P) Ltd. -vs.- DCIT (2007) 108 TTJ 924 (Del) - DCIT vs Birla Soft Ltd : [2014] 32 ITR{T) 117 (Del) - Sonata Software Ltd vs ACIT : IT A No. 8032/Mum/2011 (Mum) - Sandoz (P.) Ltd vs DCIT : [2013]145 ITD 551 (Mum) - Navin Bharat Industries vs ACIT : 90 ITD 1 (Mum) - Sovika Infotek Ltd vs ITa: 23 SOT 271 (Mum) - Patni Computers Systems Ltd vs DCIT : 135 ITD 398 (Pune) 21. Attention was also drawn to CBDT vide Circular No. 279/Misc/M-116/2012-ITJ dated 16-07-2013, has clarified that income/ loss from various sources i.e. eligible and non eligible units under the same head of income are to be aggregated in accordance with the provisions of Sec. 70. 22. The learned counsel for the Assessee also brought to our notice that in the revised return of income filed for AY 2005-06, the Assessee withdrew the claim for deduction u/s.10B of the Act in exercise of an option given to the Assessee u/s.10(8) of the Act which provides as follows: "(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d installation." 25. This ground of appeal relates to the claim of the Assessee for additional depreciation u/s.32(1)(iia) of the Act. The undisputed facts are that the original cost of the new machinery purchased and installed by the Assessee after 31.3.2005 but before 1.4.2006 in the 100% EOU and DTA unit Rs. 29,77,470 and Rs. 2,41,30,615. The WDV of these machineries as on 1.4.2006 was Rs. 24,51,920/- and Rs. 1,81,50,266/- respectively. The Assessee availed of additional depreciation @ 20% on the original cost of the machinery at Rs. 5,95,494/- and Rs. 48,26,123/- respectively in AY 2006-07. In AY 2007-08 also the Assessee claimed additional depreciation at 20% of the original cost viz., Rs. 5,95,494 and Rs. 48,26,123 respectively in all depreciation totaling Rs. 54,21,617/-. 26. According to the AO, the deduction u/s.32(1)(iia) of the Act is granted only to "new" plant and machinery and once depreciation is granted in the 1st year in which the machinery is installed or put to use, the machinery ceases to be a new machinery and therefore additional depreciation cannot be allowed. The plea of the Assessee however was that Section 32(1)(iia) of the Act merely provides that furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1.4.1981 reads thus (the sub-section existed upto 31.3.1988 and was deleted thereafter): "(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) {exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then in respect of that previous year :" Sec.32(1)(iia) of the Act as reinserted by finance (No.2) Act, 2002 w.e.f. 1.4.2003, reads thus: "(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay of increase in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the relevant statutory provisions. 30. The CIT(A) after considering the aforesaid scheme and history of the provisions of Sec.32(1)(iia) of the Act, deleted the addition made by AO observing as follows :- "I have considered the submissions of the Ld. A/R and find substance in the contention of the Appellant. On a conjoint reading of the provisions of section 32(1)(iia) inserted by Finance (No. 2) Act, 1980 and reinserted by Finance Act, 2002 it is evident that the said sections specifically restricted the allowability of additional depreciation in the year of installation of P&M. However, in the section 32( 1 )(iia) amended vide Finance Act, 2005 Legislature had omitted the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Clause (iia) to Sec. 32(1) was first introduced vide Finance (No. 2) Act, 1980 w.e.f. 01-04-81 and was applicable till AY 1987-88. The clause was subsequently re-introduced vide Finance Act, 2002 w.e.f. 01-04-03. On perusal of clause (iia) to Sec. 32(1) as existed during the aforesaid period, it could be seen that the legislature conferred the benefit of additional depreciation only in the first AY when the asset was installed and first put to use. However vide Finance Act, 2005, clause (iia) to Sec. 32(1) was amended w.e.f. 01-04-06 wherein the condition of claiming additional depreciation only in the initial AY was deleted. It was submitted that since the specific condition for claim of additional depreciation in one year has been done away with, it should be construed as the intention of the legislature to allow additional depreciation in subsequent years as well. Reliance was placed on the following decisions wherein it has been held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. Even if there is a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation :- - Oriss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01.04.2006. The plain language of the section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground no.3 raised by the revenue. 33. Ground No.4 raised by the revenue reads as follows :- "4. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing assessee's claim of deduction of Rs. 31,68,895/- on account of profit from sale of fixed asset while computing book profit u/s. 115JB ignoring the provision introduced by the Finance Act, 2008 with retrospective effect from 01.04.2001 and thereby has erred in deleting the addition of Rs. 31,68,895/-." 34. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income which has to be excluded from the net profit as per profit and loss account, set out in the explanation below Sec.115JB(2) of the Act. 36. On appeal by the assessee the CIT(A) held as follows :- "In this regard the Appellant has placed reliance on the decision of Mumbai Tribunal in :the case of Frigsales (India) Ltd. 4 SOT 376 (Mum) wherein it had been held that capital gain on sale of depreciable asset exempt u/s 50 cannot be taxed as income under the provisions of section 115JA. The appellant has also placed reliance on the decision of Suraj Jewellary 21 SOT 79 (Mum.) wherein it was held that even where for computing MAT profit u/s 115JB of the Act, the business profit shown in the Profit and Loss Account is to be adopted, in case the said profit includes certain receipts which are not in the nature of income, the same are to excluded before making any calculation on this account. The Appellant has also placed reliance on the decision of the Jurisdictional ITAT in the case of Sutlej Cotton Mills Ltd. 45 ITD 22 (Cal.)(SB) wherein it was held that the Profit & Loss Account of a company is concerned with items of income & expenditure and therefore, any profit by realisat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....did not agree with the findings of the AO and after referring to the provisions of sub-s. (4) of s. 115JA he deleted the addition made by the AO under the Act, any receipt in the nature of income alone is taxable. Sec. 115JA is also part of the Act. No doubt, it starts with a non obstante clause and overrides the other provisions of the Act but that is only confined to determination of total income. It only substitutes total income based on book profits but it does not enlarge the scope of taxable income or total income which is chargeable to tax. A receipt, which is not in the nature of income, cannot be taxed as income under s. 115JA. When the accounts are prepared in accordance with Part-II and Part-III of Sch. VI of the Companies Act while making adjustments as per the provisions of s. 115JA, to compute book profits, the amounts which are not taxable or exempt are excluded, because such amounts do not really reflect a receipt in the nature of income and, therefore, such amounts cannot form part of the profit reflecting real working results. For example, if the assessee receives an amount for a non-competent covenant which have been held by the Courts to constitute a capital rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 115JA is not an independent code and the Legislature in their wisdom has brought sub-s. (4) of s. 115JA on the statute to make s. 115JA also a part of the Act. Regarding relevance of the decision relied on by the Revenue in the case of Indo Marine Agencies (Kerala) (P) Ltd. vs. Asstt. CIT (supra) and CIT vs. Veekaylal Investment Co. (P) Ltd. (supra). These cases were rendered as per the provisions of s. 115J which is self-contained code. As has been held in a number of cases, whereas s. 115JA is not self-contained code. Sub-s. (4) has been inserted first time and it has made s. 115JA also a part of the Act. Therefore, exemptions allowed under one provision of the Act, cannot be taken away by another provision of the Act. In the above cases, there is a capital gain which was taxable under s. 45 of the Act. So, the Hon'ble Courts decided that once income under s. 45 is includible in the taxable income, why the same income should not be included in the book profits determined under s. 115JA of the Act. But in the present case, the capital gains earned by the assessee are exempt under s. 50 of the Act and they will not form part of the taxable income. Therefore, this exempted income ....