TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 1307
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.... case. 3. The brief facts of this issue is that the ld AO in the course of assessment proceedings observed that the assessee had shown a sum of Rs. 3,72,95,124/- being 75% of sales Tax / VAT as Sales Tax Incentive Receivable under the scheme of State Government. This sum was correspondingly credited to General Reserve of the assessee. The ld AO show caused the assessee as to why the same should not be taxed by invoking the provisions of section 41(1) of the Act. In response to the said notice, the assessee replied that the company was entitled to receive incentives @ 75% of Sales Tax /VAT paid by the assessee company on sale of its finished products under West Bengal Incentive Scheme, 2000. The assessee submitted that the subsidy of Rs. 3,72,95,124/- represented "Industrial Promotion Assistance" allowable to the assessee company in pursuance of "The West Bengal Incentive Scheme 2000" announced by the West Bengal Government vide Notification No. 91CI/H/4F-54/2000 dated 13.2.2001 with effect from 1.1.2000. The said scheme was announced for allowing several incentives to new units and / or existing units in the large / medium/ small scale sector having registration certificate by the....
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....to the Government of West Bengal and passed a book entry for the same by crediting the General Reserve and by debiting the Incentive Receivable to the tune of Rs. 3,72,95,124/- and Rs. 8,05,58,316/- during the Asst Years 2007-08 and 2008-09 respectively. This was recognized in the books based on the claim for sales tax subsidy made by the assessee. WBIDCL after ensuring the compliance made by the assessee for making payment of sales tax / VAT on sale of finished products of the assessee company, wherever applicable, in respect of the eligible unit, released/sanctioned the subsidy to the assessee vide letter No. INC-2000/(511)/I/GENCS/1616 dated 18.8.2008 for a sum of Rs. 395.85 lakhs and letter No. INC-2000/(511)/I/GENCS/3759 dated 20.2.2009 for a sum of Rs. 805.58 lakhs. 4. The ld AO observed that the assessee had collected sales tax but 75% of the same were not paid to the Government. The ld AO placed reliance on the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd reported in 228 ITR 253 (SC) and held that the sales tax incentive / subsidy eligible to be received is a revenue receipt and would be treated as income u/s 41(1) of the Act on the g....
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....er book of the assessee containing the evidence in the form of tax paid challans for sales tax / VAT. Hence we hold that the ld AO had factually erred in stating that the sales tax / VAT were not paid by the assessee. Now the question is whether the said reimbursement of sales tax/ VAT would form part of taxable receipt in the hands of the assessee in the form of a trading receipt. For this purpose, it would be relevant to go into the object of the Incentive Scheme. We find that the Objects of the scheme could be understood from the foreword of West Bengal Incentive Scheme, 2000 issued by the Commerce & Industries Department, Government of West Bengal. For the sake of convenience, the same is reproduced hereunder:- WHEREAS in pursuance of a National Policy the sales tax related incentives have been withdrawn from 1s January 2000. And WHEREAS the State Government have considered it necessary and expedient to extend new types of incentives for promotion of industries in the State from the same date. Now, therefore, the Governor is pleased hereby, in supersession of the West Bengal Incentive Scheme 1999 sanctioned under Commerce & Industries Department's Notification No. 580-CI/....
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....ablishing new sugar factories received a serious setback. A committee appointed by the Government recommended that five possible incentives for making a sugar plant economically viable could be provided for, viz., capital subsidy, larger percentage of free sale of sugar, higher levy sugar price, allowing rebate on excise duty and remission of purchase tax. Following that report, schemes were formulated giving the following benefits : (i) incentive subsidy available only in new units and to substantially expanded units ; (ii) minimum investment for new units and expansion of existing units ; (iii) increase in free sugar sale quota. The benefit of the schemes had to be utilised only for repayment of loans. The Department and the High Court had held that the receipts from the Government under the incentive schemes were in the nature of revenue. On appeal to the Supreme Court : Held accordingly, reversing the decision of the High Court, on this point, that the main eligibility condition in the schemes was that the incentive had to be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of an existing unit. The subsidy received by the ....
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....sion of Hon'ble jurisdictional High Court's order and also the decision of the jurisdictional ITAT, treated the WBIPA receipt as a capital receipt and directed the Assessing Officer to delete the additions for all the three assessment years under appeal. we find no infirmity in his order and the same is hereby upheld. For the sake of brevity, we reproduce the relevant portion of his order as under : "6.3 I have duly considered the A.O's reliance placed on the judicial decisions and reasons for treating the WBIPA as a revenue receipt. The counter submissions made by the appellant have also been carefully examined and considered. The issue that is to be decided is whether the WBIPA receipt is a revenue or a capital receipt. The A.O placed reliance on the following case laws: Sahney Steel & Press Works Ltd. (1997) 228 hR 253 (SC) CIT Vs. Chindwara Fuels 245 ITR 9 (Cal) East India Pharmaceutical Works Ltd. Vs. DCIT (ITA No.587 (Kol) 2006 The appellant placed reliance on the following case laws: CIT Vs. Ponni Sugars & Chemicals Ltd. (SC) ACITVs. Rasoi Ltd. (ITA No. 1467 to 1469 (Cal) 2001 CIT Vs. KlarSehen P. Ltd. (G.A.N. 145106 dt. 12.5.08 (Calcutta High Court) Klar S....
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....ubsidy for carrying on business (conditional), secondly the incentive by way of refund of Sales Tax etc. The facts of the present case are different and are very similar to the case laws relied on by the appellant especially cases decided by ITAT, Kolkata. In the present case the subsidy called as 'Assistance' is given equivalent to 90% of Sales Tax paid and not to equated with Sales Tax refund and other exemptions provided as in the case of Sahney Steel & Press Works Ltd. (supra). The TAT decisions relied on by the appellant clearly distinguished this point and also other conditions and held the 'assistance' receipt is a capital receipt. The notable case among others is the case of 'Rasoi Ltd.'(supra) wherein the Hon'ble jurisdictional ITAT (Kolkata) has discussed the similar issue thread bear distinguishing the Sahney Steel & Press works Ltd. case and held as a capital receipt. This decision has been followed in other cases dealt by Kolkata ITAT bench including the case of KIar Sehen P. Ltd. (supra) which was later upheld by the Kolkata High Court. It is very much relevant to reproduce the relevant extract from the ITAT ( - r in the case of Rasoi Ltd. Vs. DCIT in ITA No. 1080....
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....asures and fulfill certain existence to be allowable to the assessee in carrying for the business itself in a regular manner or even for the purpose of augmenting its pro fits On the other hand, the sole purpose behind the grant of the assistance seems to be "to tide over the financial crises" and 'promotion of industries." Both these activities relate to capital field and cannot be considered to be linked up with the day to day operations of the assessee in any manner. Hence, we are of too view that the incentive received by the assessee, although dependent upon certain conditionalities, is actually gratuitous in nature and forms capital receipt in its hands. The incentive cannot again be considered as provided by the Govt. to the assessee to meet some of its revenue expenses." The above ratio laid down in terms of 'assistance in the form of fresh capitol to tide over the financial crisis', 'enduring effect', 'promotion of industries' etc. has also been followed in the case of Klar Sehen P. Ltd.(supra) for treating the 'assistance' as a capital receipt. Subsequently the Kolkata High Court has also confirmed the decision in the case of Klar Sehen P. Ltd. as under: "Furthe....