TaxTMI 
TaxTMI 
2020 (5) TMI 45
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.... ii) Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the addition made on account of technical know-how fees amounting to Rs. 40,72,070/- on the basis the decision of the Hon'ble ITAT dated 26.09.2013 for AY 2009-10. iii) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for A Y 2008-09 in the case of the assessee itself and deleting the addition of Rs. 5,60,12,370/- holding the sales tax subsidy as capital receipts in nature. iv) Whether on the facts and circumstances of the case, the Ld.CIT(A) has erred in treating the sales tax subsidy as capital receipts in nature despite the decision of Hon'ble Delhi High Court in the case of CIT vs. Vardhman Industries Ltd. vide consolidated order dated 13.07.2017 in ITA No.681/2004, 708/2004. 755/2004 & 725/2004, 398 ITR 216 wherein sales tax subsidy has been held to be a revenue receipt. v) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC) and ....
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....ed the assessee to justify as to how the expenditure was revenue expenditure and why i t should not be treated as capital expenditure. In response to the same, the assessee submit ted that the main objective of the agreement was to increase the productivity and to reduce the reject ions from the current levels. Thus i t was pointed out that the objective was to effect the economy and efficiency in manufacturing and, therefore, had been rightly claimed as revenue expenditure. I t was contended that the company had not acquired any capital asset in the nature of exclusive user of technology information. The assessee further submitted that identical issue had been decided in favour of the assessee by the I .T.A.T. in earlier years. The A.O. did not accept the content ion of the assessee. Referring to the collaboration agreement , the A.O. held that the assessee had purchased/acquired technical know-how to completely overhaul its design, plant and manufacturing systems thus getting enduring benefit of permanence and durability. The A.O. held that technical know-how obtained by the assessee was l inked to substantial modernization and expansion of existing unit/technique and procedure o....
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....rder of the A.O. 11. After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has been decided in assessee's favour and against the Department vide aforesaid referred to order dt. 27/05/2019 in ITA No. 756/Chd/2018 wherein the relevant findings have been given in para 2 to 6 which read as under: 2. Ground Nos. i ) to iv) , i t was contended, related to the same issue of treatment of sales tax subsidy received by the assessee, whether capital or revenue in nature and the same read as under: "i) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in following the decision of the Hon'ble ITAT dated 21.10.2015 for AYs 2003- 04, 2004-05 & 2008-09 in the case of the assessee itself and deleting the addition of Rs. 1,84,45,151/- holding the sales tax subsidy as capital receipt in nature. ii) Whether on the facts and in the circumstances of the case the decision of the Hon'ble Supreme Court in the case Ponni Sugar and Chemicals Ltd. and treating the sales tax subsidy as capital receipts in nature was wrongly followed despite the....
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....had arisen in the case of the assessee in the preceding year also, wherein the matter had travel led up to the Hon'ble High Court who had remanded the issue back to the I .T.A.T. and who in turn had decided the issue in favour of the assessee in remand. The Ld.CIT(A) after going through the order of the I.T.A.T. in the case of the assessee in ITA No.897/Chd/2006, ITA No.341/Chd/2007 and ITA No 756/Chd/2011 for assessment years 2003-04, 2004-05 and 2008-09, found that the issue of sales tax subsidy had been decided by the I .T.A.T. in favour of the assessee holding the same to be capital in nature. Accordingly, the addition made by the A.O. was deleted by the Ld.CIT(A) . Relevant findings of the CIT(A) at page 12 of the order are as under: "I have gone through the Hon'ble ITAT's order in the case of the appellant in ITA No. 897/Chd/2006, ITA No. 341/Chd/2007 & ITA No. 756/Chd/2011 for A.Y 2003-04, A.Y 2004-05 and 2008-09 wherein the matter has been adjudicated as under: "In these cases, the assessee have received Sales Tax Subsidy from Punjab Govt. under the scheme named 'Industrial Policy & Investment Code, 1996'. We have gone through ....
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....itlement to Electricity Duty Exemption as deduction from the Book Profits u/s 115JB being in the nature of capital receipts. The deduction of Rs. 560.12 Lacs and Rs. 225 Lacs may kindly be allowed from the Book Profits u/s 115JB. The assessee craves leave to add, alter and amend the above grounds of appeal before the same are heard or disposed of. It is respectfully prayed that the relief may kindly be allowed to the assessee keeping in view of the aforesaid grounds of appeal. 15. Vide Ground No. 1 the grievance of the assessee relates to the confirmation of disallowance of Rs. 225 Lacs made by the A.O. on account of Electricity Duty Exemption claimed by the assessee as capital in nature. 16. The facts related to this issue in brief are that the assessee is in the business of manufacturing of Automotive Wheel Rims and filed the return of income on 28/09/2013 declaring an income of Rs. 36,36,217/- which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Subsequently, a search and seizure operation under section 132 of the Act was carried out on 04/10/2012 on the business and residential premises of the M/s St....
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....s following mercantile system of accounting; therefore it has booked its entitlement to electricity duty exemption in its books of account for the year under consideration whereas the same has not been received by the assessee. Therefore electricity duty exemption entitlement has been reduced from taxable income while filing the tax return. It is a well settled principal that the entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act. The entries in the books of accounts are made as per the accounting methods regularly adopted by the assessee. However such entries in the books of accounts are not decisive or conclusive for determining the real income for tax purposes. Further submitted that although assessee has claimed the electricity duty exemption under the aforesaid policy of the state govt, which was approved by the authorities vide letter dated 19.03.2012 and on the basis of which assessee has included the entitlement in its income, however as per the procedure, the eligibility of the assessee for Electricity Duty exemption is to be judged by a separate empowered committee. The department is in the pr....
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....hich may or may not materialize and its money value is not the income of the assessee at this stage. Therefore the deduction on account of Electricity Duty Exemption may please be allowed to the assessee since it is still merely at the consideration stage which has not been granted to or received by the assessee. It is well settled law that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount. Therefore, income certainly accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. Without prejudice to our stand as aforesaid it is further submitted that the Company is entitled for electricity duty exemption on account of expansion at the existing unit in the state of Punjab. The said electricity duty exemption is available under the Industrial Incentive Scheme of Govt, of Punjab with a view to promote growth of Industry in the state and to push and support for consolidation and expansio....
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....eating the entitlement of Electricity Duty Exemption as capital receipt is also not acceptable. It is seen that in the case of CIT vs Siya Ram Garg (HUF), the Hon'ble Punjab & Haryana High Court has adjudicated the issue of an agro based subsidy which is not in the case of the assessee, therefore not applicable to the case of the assessee. 5.3.4 Therefore, an amount of Rs. 2,25,00,000/- on account of entitlement to Electricity Duty Exemption is treated as its revenue receipt/business income and added to the net taxable income of the assessee. 18. Being aggrieved the assessee carried the matter to the Ld. CIT(A) who confirmed the addition by observing as under: Hon'bIe Calcutta High Court in a recent judgment in the case of PCIT-I Kolkata v/s Shyam Steel Industries Ltd. dt. 07.05.2018 in ITA 37 of 2018 has discussed the "purpose test" expanded in a recent judgment of Hon'ble Supreme Court reported at 400 ITR 279 (CIT v/s Chaplakha Brothers). In the referred case, the terms of the scheme under which the subsidy was made available to the appellant were found relevant and discussed by the Hon'ble Court as follows:- "Clause B.6.1 of....
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....igh Court that the incentive would have to be invariably regarded as a revenue receipt. Hence, the addition made by the A.O. in this regard is confirmed. 19. Now the assessee is in appeal. 20. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the incentive in the form of electricity duty exemption had been granted to the assessee with a view to build a conducive industrial climate to attract fresh investment and also to facilitate the growth and expansion of the industry in the state. It was further submitted that the assessee company was following mercantile system of accounting therefore it had booked its entitlement to electricity duty exemption in its books of accounts for the year under consideration whereas the same had not been received by the assessee, therefore the electricity duty exemption entitlement had been reduced from taxable income while filing the income tax return. It was further submitted that entries in the books of accounts are not decisive or conclusive for claiming any deduction or expenditure under the Income Tax Act, the entries in the books of accounts are made as per the ac....
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....d Chemicals reported at [2008] 306 ITR 392 (SC) 21. In his rival submissions the Ld. CIT DR reiterated the observations made by the authorities below and strongly supported the impugned order passed by the Ld. CIT(A). It was further submitted that since the assessee had booked the entitlement as income on accrual basis in its books of accounts which are maintained on regularly employed methods and were being audited regularly, therefore, the assessee cannot escape the liability to tax by changing its stand. It was also submitted that the income became taxable on the date when the same was recorded in the books of accounts therefore electricity duty exemption was rightly treated as revenue receipt and taxed during the year under consideration. 22. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is not in dispute that the assessee in view of Industrial Policy 2003 of the State Government of Punjab became eligible for claiming the electricity duty exemption. However the claim of the assessee was that the said entitlement although accrued but had not been received during the year under consideratio....
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....n the present case where the lower operational costs by way of subsidy on consumption of power helps in the quicker realisation of the capital expenditure or the servicing the debt incurred for such purpose. * In view of the acceptance of the wider ambit of the "purpose test" and the scheme in this case being available only to new units and units which have undergone an expansion, the real purpose of the incentive in this case has to be seen as a capital subsidy and has to be regarded, as such, as a capital receipt and not a revenue receipt. * In the result, the revenue's appeal is dismissed. 23.2 A similar view has been taken by the Hon'ble Rajasthan High Court in the case of Pr. CIT Vs. M/s Nitin Spinners Ltd. in ITA No. 31/2019 order dt. 19/09/2019 (supra) wherein it has been held as under: "9. As far as the electricity subsidy is concerned, the third ground i.e. electricity subsidy under the Raj as than Investment Promotion Scheme was held to be a capital receipt by the CIT(A). It was held that this was granted in larger public interest and it was linked to capital interest, a similar scheme was that the amounts received in the similar scheme h....