TaxTMI 
TaxTMI 
2017 (12) TMI 1758
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....09. The grounds raised by the Department in the said appeal read as under : "1. On the facts and circumstances of the case, the Hon'ble CIT(A), Aurangabad has erred in deleting the addition of Rs. 86,37,639/- on account of disallowance Sec. 80IA. As the assessing officer disallowed at Rs. 86,37,638/- on the basis of decision of Honorable Supreme Court in the case of Liberty India Ltd. Vs. CIT (2009) 225 CTR 233 (SC). The CIT(A) has ignored the fact that the source of subsidy & incentive is the Govt. law & decision & orders issued by the Govt. Further, he has ignored that sub-section 80IA(5) starts with obstinate clause. 2. The appellant craves to leave to add, amend or alter any grounds of appeal on or before hearing of the case." 3. In ITA No. 2389/PUN/2012 the Department has assailed the order of Commissioner of Income Tax (Appeals) dated 21-09-2012 for the assessment year 2009-10 by raising following grounds of appeal : "1. The CIT (A), Aurangabad has erred in deleting the addition made by the Assessing Officer, on account of disallowance of 80IA at Rs. 97,99,999/-. 2. The CIT (A), Aurangabad has erred in considering that the sales tax incentive received by the assessee....
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....eme, various categories/groups have been formed. The power generation unit of assessee falls under Group-II power project as determined by the Maharashtra Electricity Regulatory Commission. The assessee is eligible to receive tariff @ Rs. 2.50 per unit, subject to rate revision of 10 paisa every year. The assessee falls in aforesaid tariff rate as the assessee opted for sales tax subsidy for power generation. If the assessee would not have received any subsidy, then the assessee would have been in Group-III and eligible for tariff @ Rs. 3.50 per unit, subject to rate revision of 15 paisa per year. The ld. AR pointed that from the frame work of scheme it is amply clear that the sales tax subsidy received by assessee is part of sale price paid by the State Government for purchase of electricity. The sales tax subsidy received is in a way reimbursement of cost of electricity produced. This clearly shows that sales tax subsidy is inextricable linked to the activity of generation of power and hence, eligible for deduction under the provisions of section 80IA(4) of the Act. The ld. AR vehemently supporting the findings of Commissioner of Income Tax (Appeals) asserted that subsidy has fir....
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.... and Another reported as 394 ITR 192 has held that subsidy in the form of sales tax incentive is a capital receipt. The ld. AR to further support his alternate contention draws strengthen from the following decisions : i. Commissioner of Income Tax Vs. Chaphalkar Brothers, 351 ITR 309 (Bom); ii. DCIT Vs. Inox Leisure Ltd., 351 ITR 309 (Guj). 5.5 The ld. AR further pointed that the Hon'ble Supreme Court of India in the case of Commissioner of Income Tax Vs. M/s. Shree Balaji Alloys in Civil Appeal No. 10061 of 2011 decided on 19-04-2016 approving the decision of Hon'ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys & Ors. Vs. Commissioner of Income Tax & Ors. reported as 333 ITR 335 has held that subsidy/grant is capital in nature hence, it is not chargeable to tax. 6. On the other hand Shri Vivek Aggarwal representing the Department vehemently supported the findings of Assessing Officer in disallowing the benefit of deduction u/s. 80IA on the subsidy received by assessee in the form of Sales Tax incentive. The ld. DR submitted that the Co-ordinate Bench of the Tribunal in the case of M/s. Patankar Wind Farm Pvt. Ltd. Vs. Dy. Commissioner of Income Tax in ITA N....
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....eliance on the following decisions : i. Shri Umesh M. Joshi Vs. Income Tax Officer in ITA No. 4287/Mum/2010 for assessment year 2006-07 decided on 23-12-2011 (Mum.-Trib.); ii. Lap Finance and Consultancy P. Ltd. Vs. Addl. Commissioner of Income Tax in ITA No. 1292/PN/2010 for assessment year 2006-07 decided on 28-02-2012 (Pune-Trib.); iii. Chandu Laxman Chavan Vs. ITO in ITA No. 371/PN/2012 for assessment year 2005-06 decided on 28-05-2013 (Pune-Trib.). 7. We have heard extensive submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered various decisions on which reliance has been placed by respective sides. The Department in both the appeals has raised solitary issue assailing the findings of Commissioner of Income Tax (Appeals) in allowing benefit of deduction u/s. 80IA(4) of the Act to the assessee on sales tax subsidy received on power generation. The questions that have emerged for adjudication from the submissions made by both the sides are: (i) Whether sales tax subsidy received by assessee on generation of power is capital or revenue in nature? and (ii) If the sales tax subsidy is held to ....
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.... is not intended to be granted for creation of or bringing into existence any new asset. It is also clear that there is no prescribed criteria as to the manner in which such incentives are to be utilized. The claim of the assessee is that the sales-tax benefit is granted having regard to the qualifying investment, which is stated to be towards investments in plant and machinery, new building, land development, technical development and design of wind products. According to the appellant, the incentive being linked to the qualifying investment shows that it is intended as a recoupment of the fixed cost already incurred by the assessee and, therefore, such incentives are to be regarded as capital in nature. In our considered opinion, such purpose, as articulated on behalf of the appellant is not emerging from the Scheme of the State Government. Rather, the emphasis on of the grant of sales-tax benefit is on actual running of the plant and that too under prescribed efficiency levels. In fact, in the Resolution dt 1.10.1999 staggered plant load factors achieved by the unit entitled the unit to varying levels of sales-tax benefit. Therefore, it could not be said that the sales-tax benef....
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....e form of sales tax incentive is capital receipt. The ld. AR has not drawn any parity between the sales tax subsidy held as Capital in the said case and the sales tax subsidy in question in the appeals in hand. Merely for the reason that that the subsidy therein was in the nature of sales tax incentive would not ipso facto lead to conclusion that all Sales Tax Subsidies would be capital in nature. The "purpose test‟ as expounded by Hon'ble Apex Court in the case of Commissioner of Income Tax Vs. Ponni Sugars & Chemicals Ltd. & Ors. (supra) has to be applied to determine the nature of subsidy. Garden Silk Mills Vs. Commissioner of Income Tax and Another (supra), the assessee had set up the unit in a backward area, which made it entitled to receive 75% of the Capital investment over a period of eight years from the date of commencement of commercial production. The sales tax exemption was fixed at Rs. 50.07 crores being 75% of Capital investment. The Hon'ble Gujarat High Court held that scheme is oriented towards and was subservient to the investment in fixed capital assets. The purpose of the sales tax incentive was not to give assessee assistance in carrying out the business ....
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....igible for deduction under section 80IB / 80IC of the Act. However, in the facts of the case before us, the assessee is in receipt of sales tax subsidy, which undoubtedly, is a revenue receipt in the hands of the assessee, but the said subsidy does not in any manner reduce the cost of production of industrial undertaking. It is a benefit given to the industrial undertaking for establishing the wind energy generation units in the State of Maharashtra, but the same does not have a direct nexus between the subsidy on the one hand and the manufacturing activity of the industrial undertaking on the other hand. In the absence of a direct and first degree nexus between the subsidy on the one hand and profits of the industrial undertaking on the other hand, where such subsidy does not reduce the cost of production, we hold that the sales tax subsidy received by the assessee is not eligible to the deduction under section 80IA of the Act. The sales tax subsidy received by the assessee is an Incentive subsidy and is not an operational subsidy and consequently, does not affect profits of the business and is not linked to the profits of industrial undertaking and hence, is not deductible in ter....
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....ri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head "income from other sources." A perusal of above observations of Hon'ble Supreme Court of India unambiguously show that the "subsidies‟ refer to subsidies that were s....
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.... assessee. Accordingly, we find no reason to remit this issue back to the file of Assessing Officer. 17. Thus, in the view of our above findings and the decision of Pune Bench of the Tribunal in the case of M/s. Patankar Wind Farm Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) we hold that the sales tax subsidy received by the assessee is revenue in nature and not eligible for claiming deduction u/s. 80IA of the Act. Accordingly, the second question in appeals is answered in negative and against the assessee. The impugned orders are set aside and both the appeals by Revenue are allowed. ITA Nos. 169 & 170/PUN/2016 (A.Ys. 2003-04 & 2006-07) 18. ITA Nos. 169 & 170/PUN/2016 are directed against the orders of Commissioner of Income Tax (Appeals)-2, Pune for the assessment years 2003-04 and 2006-07, respectively. Both the impugned orders are dated 18-01-2016. In both the appeals the assessee has impugned the findings of Commissioner of Income Tax (Appeals) in rejecting assessee‟s claim of deduction u/s. 80IA on the Sales Tax benefit (subsidy). 19. Dr. Prayag Jha & Shri Prateek Jha appearing on behalf of the assessee submitted that the authorities below have failed to ap....