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2019 (7) TMI 1762

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.... the case of Sahney Steel & Press Works Ltd. 4. For these and such other grounds as may be urged at the time of hearing, the order of the CIT(A) may be vacated and that of the AO be restored. 3. In the appeal filed by Revenue, the only issue raised is against treatment of subsidy received by assessee and whether the same is capital or revenue in nature. 4. Briefly, in the facts of the case, the assessee was engaged in the business of manufacturing and sale of industrial gases such as oxygen, Nitrogen, Liquid gases, specialty gases, air separation plants, etc. For the year under consideration, the assessee had filed return of income declaring total income of Rs. 212.34 crores. The case of assessee was picked up for scrutiny. The Assessing Officer show caused the assessee as to why capital subsidy of Rs. 10.19 crores should not be treated as revenue receipt. The assessee had credited the same to capital reserve in the Balance Sheet. However, on going through the scheme of subsidy, the Assessing Officer observed that in both the units, subsidies were received after commencement of commercial production and hence, was nothing but support given by the Government to augment the source....

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....he scheme the appellant has received capital investment subsidy of 4 crores (5% of fixed capital investment subject to maximum of 4 crores) and 75% of Commercial taxes (VAT and CST) paid. From the perusal of Jharkhand State Industrial Policy 2001, it is seen that the broad objectives of the policy is to promote economic activity and to ensure maximum capital investment. Accordingly, special package for Mega unit was formulated which is known as Jharkhand Mega Project Incentive Rules 2005. As per this Mega Project new industrial unit was defined to be such industrial unit where investment in fixed assets consisting of land, civil construction, plant and machinery and other capital equipment is more than Rs. 50 crores and has gone into production on or after 15/11/2000. As per the above scheme capital investment subsidy was to be given in the following manner: i. Within three months of commencement of commercial production of the Industry, following Capital Investment Subsidy shall be given on the basis of geographical classification: Region % of Fixed Capital Investment Maximum amount Rs. A 5% 4 crores B 10% 7 crores C 15% 10 crores ii. After commencement of the Said ....

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....presentative for the assessee that in the hands of assessee, subsidy was received on account of two units; one in Jharkhand for which copy of scheme is placed at pages 61 to 77 of Paper Book, second unit was at Jejuri and the assessee received incentive under the Package Scheme of Incentive, 2007, copy of which is placed at pages 102 to 116 of Paper Book. It was also pointed out that in addition to capital incentive, rebate was allowed on account of 75% of taxes paid over a period of seven years. Reliance was also placed on ratio laid down by Hon'ble Supreme Court in CIT Vs. Chaphalkar Brothers (2018) 252 TAXMAN 360 (SC). 8. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and the ratio laid down by Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. Vs. CIT (supra). 9. We have heard the rival contentions and perused the record. We find the issue of taxability or not of subsidies has been decided by Hon'ble Apex Court in several cases. The latest decision being in CIT Vs. Chaphalkar Brothers Pune (supra), wherein it has been laid down that purpose test has to be applied to determine whether the subsidy received....

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.... incentive scheme and to the fact that the Sampat Committee was set up to examine the question relating to the economic viability of new sugar factories. The Court then found in para 9 of the judgment that the Sampat Committee referred to the fact that the increase in the cost of new sugar factories was because of increase in the cost of plant and machinery. The Committee then stated that five possible incentives for making a sugar plant economically viable could be provided. It is two of such incentives referred to that was the subject-matter for decision before this Court. In Para 10 this Court found: "We have examined in this case the 1980 and 1987 Schemes. Essentially all the four Schemes are similar except in the matter of details. Four factors exist in the said Schemes, which are as follows: (i) Benefit of the incentive subsidy was available only to new units and to substantially expanded units, not to supplement the trade receipts. (ii) The minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units. (iii) Increase in the free sale sugar quota depended upon increase in the production capacity. In other words, the extent of the incre....

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....he form of subsidy is equally immaterial." 12. The Apex Court noting the facts before it observes, where the object of scheme was to encourage development of Multiplex Theatre Complexes, merely because the scheme kicks in only post construction, would not change the object of scheme to construct Multiplexes. The Apex Court also held that We have no hesitation in holding that the finding of the Jammu and Kashmir High Court in Shri Balaji Alloys vs. C.I.T. (2011) 333 I.T.R. 335 (J&K) on the facts of the incentive subsidy contained in that case is absolutely correct. In that once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference. 13. Now, coming to facts of the present case, the scheme of State of Jharkhand, wherein State Policy for Mega Projects was announced vide Notification No.2371 i.e. Jharkhand Mega Project Incentive Rules, 2005. The copy of same is placed at pages 78 to 82 of Paper Book. The said scheme was promulgated to boost industrial development in the State of Jharkhand for settin....

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....ment (commercial taxes) subsidy sanction is given by Screening Committee meetings held on 02.12.2010 & 22.03.2011 under chairmanship of Chief Secretary, Jharkhand to following mega industrial units as accepted by Ministry in its meeting dated 30.08.2011: .... Inox Air Products Limited FY 2008-09 Rs. 116.49 lacs & FY 2009-10 Rs. 457.33 lacs." 16. The purpose of above scheme was to establish new units in Jharkhand and hence purpose of scheme was in capital field i.e. to establish manufacturing unit in Jharkhand. Merely because the incentives were received in the form of sales tax waiver, would not change the purpose of grant of subsidy. 17. The assessee has also received subsidy under the Maharashtra PSI 2007 Scheme for Jejuri plant. In respect of said scheme, the Pune Bench of Tribunal has already decided the issue of receipt of subsidy in the case of Innoventive Industrial Limited Vs. DCIT (supra). The said ratio has been applied in the case of Innoventive Industrial Limited itself in later year in ITA No.1360/PUN/2016, relating to assessment year 2011-12 vide order dated 12.12.2018. The relevant findings of Tribunal are as under:- "6. On perusal of record and after hearing th....