TaxTMI 
TaxTMI 
2018 (8) TMI 2026
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave held that the action of the Assessing Officer in treating the same as revenue receipt is against the provisions of the Act and therefore the addition ought to have been deleted." 2. Briefly stated relevant facts of the case are that the assessee is a company engaged in the business of manufacture of Instrumentation, Control, LT Power cables & Speciality Cables. The return of income for the A.Y. 2013-14 was filed on 28.09.2013 declaring total income of Rs. 13,16,89,470/-. Against the said return of income, the assessment was completed by the ACIT, Circle-2(2), Hyderabad vide order dated 01.03.2016 passed u/s 143(3) of the Act at a total income of Rs. 13,68,50,683/-. While doing so, the Assessing Officer brought to tax the subsidy received from Government of Andhra Pradesh as incentive for setting up industry treating as a revenue receipt as against the claim that it is on capital account. In this regard, A.O. placed reliance on the decision of the Hon'ble Supreme Court decision in the case of Sahney Steel & Press Works Ltd (228 ITR 253). 3. Being aggrieved, an appeal was preferred before the CIT(A), who vide impugned order had held it to be revenue receipt holding that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oongarmall vs. CIT (42 ITR 393) in support of the proposition that the method and measure of payment are not the decisive to determine the nature of the subsidy. He further relied on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Chaphalkar Brothers (400 ITR 279) wherein Hon'ble Supreme Court reiterated the same position of law. Learned Counsel for the Assessee also placed reliance on the decision of Hon'ble Calcutta High Court in the case of Principal CIT vs. Shyam Steel Industries Limited (ITA No. 37 of 2018, dated 07.05.2018) and decision of the ITAT Hyderabad "B" Bench in the case of Sanghi Industries (ITA No.979/Hyd/2017 and others, dated 20.04.2018) in support of his contention. 6. On the other hand, Learned Departmental Representative has submitted that the subsidy was granted by the Government of Andhra Pradesh in order to improve the revenues of the Government and it is only reimbursement of the cost of revenue expenditure and therefore the same should be treated as a revenue receipt and in this regard he placed reliance on the following decisions:- 1. Sahney Steels & Press Works vs. CIT 228 ITR 238 (SC) 2. Ponni Sigars and Chemicals ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant. One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Applying the above tests to the facts of the present case and keep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....haracter of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as a trading receipt. The source of the fund is quite immaterial." 14. The Court went on, thereafter, to give a telling example in para 19 of the aforesaid judgment, which is set out herein below:- "For example, if the scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose is to help the assessee to set up its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... season during the incentive period should be furnished on or before 31st December of the succeeding year. Failure to submit utilisation certificate within the stipulated time may result not only in the termination of release of incentive free sale quota, but also in the recovery of the incentive free sale releases already made, by resorting to adjustment from the free sale releases of future years." 17. The Court then referred to the background of the 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 subjectmatter 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature. 21. What is important from the ratio of this judgment is the fact that Sahney Steel was followed and the test laid down was the "purpose test". It was specifically held that the point of time at which the subsidy is paid is not relevant; the source of the subsidy is immaterial; the form of subsidy is equally immaterial. 22. Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugar, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex, has emerged. These complexes offer various entertainment facilities for the entire family as a whole. It was noticed that these complexes are highly capital intensive and their gestation period is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stated that the issue raised in those appeals was covered, inter alia, by the judgment in Ponni Sugars & Chemicals Ltd.case (supra) and the appeals were, therefore, dismissed. 25. We have no hesitation in holding that the finding of the Jammu and Kashmir High Court 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. 26. In coming to the West Bengal cases, we find that the West Bengal Finance Act, 2003 which amended the Bengal Amusements Tax Act of 1922 also provided: The Bengal Amusements Tax Act, 1922. The provision seeks to provide, in order to encourage development of multiplex theatre complex, a very modern and highly capital-intensive entertainment centre, financial assistance to the proprietors of such complex by allowing them to retain, by way of subsidy, the amount of entertainment tax collected against the value of ticket for admission to such multiplex ....