TaxTMI 
TaxTMI 
2021 (8) TMI 982
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....ances of the case and in law the Ld. CIT(A) was justified in holding that Fertilizer Subsidy received by the Assessee being Capital in nature and is not chargeable to tax without appreciating- (a) That, as per NBS Policy, the basic purpose/Objective of the Concession Schemes for P & K Fertilizers has been to provide P & K Fertilizers to the farmers at affordable rates, to increase food productivity; and, (b) That, the concession Scheme was also aimed at ensuring reasonable rate of return on investments made by the entrepreneurs in the fertilizer sector and to encourage competition among fertilizers companies; thereby establishing the fact that the Fertilizer Subsidy received by the Assessee is Revenue in nature and is chargeable to tax." 2. Insofar as ground No. 1 is concerned, the dispute is with regard to the direction of the first appellate authority in allowing the assessee's claim of education cess. 3. The assessee at the time of filing return of income has debited an amount of Rs. 14,17,072, to Profit & Loss Account on account of Education Cess in view of the provisions of section 40(a)(ii) of the Income Tax Act, 1961 (for short "the Act")....
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....the CBDT Circular also, the other favourable decision of the Court as per the present position of law. 8.2.5 I have gone through the CBDT Circular and the above recent decisions on the said issue. On-going through the same, it is observed that, the impugned issue of allowability of education cess is covered by the recent decisions in the case of Chambal Fertilisers and Chemicals (supra) and ITC Ltd. (supra) and respectfully following the said decisions, CBDT Circular and the binding precedent, the claim of the education cess is allowed in computing the total income of the assessee. This additional ground of appeal is thus allowed." 5. The Revenue being aggrieved by the aforesaid order of the learned CIT(A), filed appeal before the Tribunal. 6. Before us, the learned Departmental Representative has filed the following written submissions in connection with the assessee's claim of Education Cess. "The assessee has relied upon the Hon'ble Bombay High Court's (Goa Bench) judgment in Sesa Goa Ltd. (2020) 117 taxmann.com 96 (Bombay). A careful perusal of the Sesa Goa case (supra) reveals that the Hon'ble High Court relied upon the Hon'ble Rajas....
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....#39; u/s. 40(a)(ii) of the Act. The expression 'rate or tax levied on the profits and gains of any business' was interpreted by the Hon'ble Supreme Court in the case of Smith Kline & French (India) Ltd. vs. CIT [1996] 85 Taxman 683 (SC). The education cess under consideration would be squarely covered by the interpretation of section 40(a)(ii) of the Act by the Hon'ble Supreme. (iii) The operative part of the judgment of the Hon'ble Rajasthan High Court in the Chambal Fertilisers case (supra) is reproduced as under: "12. We have heard counsel for the parties. 13. On the third issue in appeal No. 5212018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue No. 3 is required to be reversed and the said issue is answered in favour of the assessee....
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....ts, namely, the amount by which the total income of a company as reduced by certain types of income and certain sums and the income-tax and super-tax payable by it exceeds a sum often per cent of the capital reserves and certain borrowed moneys or a sum of Rs. 2 lakhs, whichever is higher ...... Section 4 is the charging section. It says: 'subject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the first day of April, 1964, a tax (in this Act referred to as the surtax) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule'. The expression 'chargeable profits' is defined in clause (5) of section 2. It reads: 'chargeable profits' means the total income of an assessee computed under the Act, for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule. It is thus clear beyond any doubt that the surtax is levied on the profits of a company, i.e., on the profits above the pre....
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.... Inasmuch as the surtax is computed on a basis different from the basis prescribed in the Act, it is contended, it cannot fall within the four corners of section 40(a)(ii). It is not possible to agree with this contention either. The said decision was rendered with reference to sub-section (4) of section 10 of the Indian Income-tax Act, 1922 which corresponds to sub-clause (ii) of clause (a) of section 40 of the present Act. The question therein was whether the amount payable as () road and public works cess levied under the Bengal Cess Act, 1880 and (ii) the education cess levied under the Bengal (Rural) Primary Education Act, 1930 falls within the mischief of section 10(4). This Court held that they do not. A perusal of the decision shows that the road and public works cess was levied on immovable property to provide for construction and maintenance of roads and other works of public utility. Under section 5 of the Bengal Cess Act, 1880 all immovable property, with certain exceptions, was subjected to payment of road cess and public works cess. Section 6 of the Bengal Cess Act provided that the said cesses shall be assessed on the annual value of lands and, until provisi....
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.... of profits or gains of any business, profession or vocation in accordance with the provisions of section 10 of the Act ...... These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under section 10 of the Act. It is not possible to see, therefore, how section 10(4) could be applicable at all in the present case". The learned counsel pointed out that this Court has in the said decision approved the decision of the Privy Council in CIT v. Gurupada Dutta [1946] 14 JTR 100 and has further observed that the Parliament must be deemed to have accepted the view taken by the Privy Council by not changing the language of the relevant provision in the Act section 40(a)(ii)." It is most respectfully and humbly submitted that the Hon'ble Supreme Court judgment in the Smith case (supra) specifically laid down the scope for operation of the provisions of section 40(a)(ii) of the Act in detail and the nature of cess/surcharge to which it would apply and covers the field in this regard. The CBDT circular No. 91 of 1967, bearing number 91/58/64-ITJ(19), dated 18.05.1967, being an old circul....
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.... instance of the Revenue. Thus, the Revenue fails on this ground. 9. The issue arose out of ground No. 2 is, whether or not the learned CIT(A) was justified in holding that Fertilizer Subsidy received by the assessee being capital in nature and is chargeable to tax. 10. The assessee during the year under consideration was engaged in the business of manufacturing of chemicals and fertilizers. The assessee also involved in manufacturing various fertilizers for which the Government was providing certain subsidies under Nutrient Based Subsidy (NBS) Policy for P & K fertilizers w.e.f. 1st April 2010. During the year, the assessee received fertilizer subsidy for an amount of Rs. 14,79,86,182, which has been credited to Profit & Loss Account. The Assessing Officer treated the subsidy as incentive which has been added to the income of the assessee which was charged to tax. Being aggrieved, the assessee carried the matter before the first appellate authority and submitted detailed information before the learned CIT(A). 11. The learned CIT(A) relying upon various judicial pronouncements held that once the subsidy are treated as capital receipt and not chargeable to tax has also to b....
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....Kadambande vs. CIT (1992) 195 ITR 877 (SC), Hon'ble Rajasthan High Court in the case of Shri Cement Ltd. (Appeal No. 85/2014 and 204/2010 dated 22-08-2017, Hon'ble Bombay High Court in the case of CIT v. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014, dated 04-01-2017) and Hon'ble Mumbai Tribunal in the case of Alok Industries Ltd. v. DCIT (ITA No. 1017/Mum/2017, dated 21-05-2018) and Shivalik Venture Pvt. Ltd. v. DCLT (ITA No. 2008/Mum/2012, dated 19-08-2015). 8.3.13 Attention is drawn on the following decisions of the Tribunal/High Courts/Apex Court in the submission filed, wherein it has been held that subsidy treated as capital receipt shall not taxable even in book profit u/s. 115JB: i. In CIT v. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014, dated 04-01-2017) (Born) (HC) wherein it has been held that, a) The issue raised in this question is consequential to question No. (i). We have already held that the subsidy received by the respondent assessee from the State of Bihar was in the nature of capital receipt. Hence the same cannot be added to arrive at book profits of the respondent assessee under Section 1151 of the Act. (b....
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....falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s. 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point. 28. In view of the foregoing discussions, we find merit in the contention of the assessee that the profit arising on transfer of capital asset to its wholly owned Indian subsidiary company is liable to be excluded from the Net profit.... since the said profit does not fall under the definition of "income" at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. 8.3.14 I have considered the submission and the contention of the appellant carefully, since the subsidy received is capital in nature and not chargeable to tax in computing the total income as per the normal provisions of the Act, the said subsidy is not termed as Income to be fall under the section 4 of the Income-tax Act being the charging section. As stated by the Apex Court Padmaraje R. Kadambande (supra) wherein it has been held that Capital Rec....
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....odernization, balanced fertilization and growth of indigenous fertilizer industry, competitiveness amongst the fertilizer companies. He held that the 'purpose' of the introduction of the scheme was to encourage and industrial growth of the fertilizer industry as a whole and thus it fulfils the purpose test as laid down by the Apex Court. It is most respectfully and humbly submitted that the assessee is availing subsidy under the NBS policy meant for all Phosphatic and Potassic (P & K) fertilizers (page No. 218 of the assessee's paper book). The Id. CIT(A) failed to comprehend the 'purpose' of the NBS policy, which is an integral part of the organically evolving fertilizer policy. The underlying main purpose is to make the fertilizer available to farmers at reasonable price so that consumption of the same does not come down affecting the food production. It is evident from the 'fertilizer policy' which contained NBS (Nutrient Based Subsidy) policy. The relevant part of the same, which is part of the paper book submitted by the assessee at page Nos. 208 to 217, is reproduced below: Fertilizer Subsidy Policy for Phosphatic & Potassic (P & ....
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....e, Government of India decontrolled all Phosphatic ad Potassic (P & K) fertilizers namely DAP, MOP, NPK complex fertilizer and SSP with effect from 25th August, 1992 which were under Retention Price Scheme ('RIS') since 1977 except Urea which continued to remain under RPS. Since subsidy was retained on the Nitrogenous fertilizers (Urea) while phosphatic fertilizers were decontrolled, the prices of phosphatic Fertilizers in the market became comparatively high. As a result, production and consumption of nitrogenous fertilizer increased and consumption of P & K fertilizer decreased. This led to severe imbalance in consumption of nitrogenous, phosphatic and Potassic fertilizers. Fearing imbalance fertilization of the soil, unaffordability by farmers due to increase in phosphatic and potassic fertilizer prices, Government of India announced ad hoc concession Scheme for phosphatic and potassic fertilizers from Rabi 1992 to cushion the impact of price hike with a view to encourage balanced fertilizers consumption. 2.2 The basic purpose/objective of the Concession Scheme for P & K fertilizers to the farmers at affordable prices so as to increase the food productivity in t....
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....erly basis w.e.f. 1.4.1999. The total delivered cost of the fertilizers being invariably higher than MRP indicated by the Government, the difference between delivered price of fertilizers at farm gate level and the MRP was compensated by Government in the form of subsidy. 3.2 The Government introduced a new methodology for working out subsidy on complex fertilizers w.e.f. 1.4.2002 based on the recommendation of TC. The complex manufacturers were divided into two groups based on feed stock for sourcing nitrogen i.e. GAS and Naphtha. With passage of time, DAP industry started using different raw materials such as Rock Phosphate for producing phosphoric acid. DOE framed a proposal suggesting methodology to link phosphoric acid and price with international DAP price. The matter was referred to Expert Group under chairmanship of Prof Abhijit Sen. The report of this Group was submitted in October 2005 and considered by Inter-Ministerial group. TC conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. Based oil TC report, the subsidy was calculated on monthly basis till 31.3.2010. 4. MRP of P &K fertilizers under concessi....
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....t introduced Nutrient Based Subsidy (NBS) Policy for P & K fertilizers w.e.f. 1.4.2010. 6. Nutrient Based Subsidy ('NBS') Policy (w.e.f. 1.4.2010): 6.1 The Department is implementing NBS Policy for P & K fertilizers w.e.f. 1.4.2010. Under the NBS Policy, a fixed rate of subsidy (in Rs. Per Kg basis) is announced on nutrients namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S) by the Government on annual basis. The salient features of NBS Policy are as under: * An Inter-Ministerial Committee (IMC) has been constituted with Secretary (Fertilizers) as Chairperson and Joint Secretary Level representatives of Department of Agriculture & cooperation (DA C), Department of Expenditure (DOE), Planning commission and Department of Agriculture Research and Education ('DARE). This Committee recommends per nutrient subsidy for 'N', 'P', 'K and '5' before the start of the financial year for decision by the government (Department of Fertilizers). The IMC recommends a per tonne additional subsidy on fortified subsidized fertilizers carrying secondary (other than 'S') and micro-nutrients. The Committee also recomm....
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....ly dynamics, the fertilizer companies are required to print Retail Price (RP) along with applicable subsidiary on the fertilizer bags clearly. Any sale above the printed MRP is punishable under the EC Act. * Manufacture of customized fertilizers and mixture fertilizers have been permitted to source subsidized fertilizers from the manufactures/importers after their receipt in the districts as inputs for manufacturing customized fertilizers and mixture fertilizers for agricultural purpose. However, no separate subsidy is provided on sale of customized fertilizers and mixture fertilizers. * A separate additional subsidy is also provided to the indigenous manufacturers producing complex fertilizers using Naphtha based captive Ammonia to compensate for the higher cost of production of 'N' for maximum period of two years w.e.f. 1.4.2010 to 31.3.2012 during which the units are required to convert to gas or use imported Ammonia as feedstock. The quantum of additional subsidy is finalized by Department of Fertilizers in consultation with DOE, based on study and recommendations by the Tariff Commission. * The NBS is passed on to the farmers through the fert....
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....the certified cost data as per the requirement and direction of DOF from time to time. The companies shall also report MRPs of F & K fertilizers regularly to DOF. (v) The P & K companies should have the same MRP printed on the bags as applicable for each State in FMS. In other words, there should not be any difference in MRP printed on the fertilizer bags and that reported in the FMS for a particular state. (vi) The fertilizer companies henceforth will certify the correctness of MRPs of their products entered in FMS while claiming 'On Account' claims for a particular month and also ensure that the MRPs are updated in the FMS upto the date of submission of bill. It is most respectfully and humbly submitted that after a careful perusal of the fertilizer policy including NBS policy, it can be safely stated that the ld. CIT(A) erred in appreciating the 'purpose' of the NBS policy. The NBS policy is part of the evolving fertilizer policy. The underlying main purpose, as stated above, is to make the fertilizer available to farmers at reasonable price so that consumption of the same does not come down affecting the food production. It is evident ....
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....s nothing but prelude to the NIBS policy stated at subsequent item No. 6. 'Impact of Concession Scheme' alone cannot conclusively decide the purpose of the NBS policy. Hence, it is requested that the second ground of appeal be allowed in favour of the Revenue and the decision of the ld. CIT(A) on this count may please be cancelled." 14. The learned Counsel for the assessee on the other hand relied upon the order of the first appellate authority and brought to our notice the 'NBS' policy documents and scheme. 15. Considered the rival submissions and perused the material on record in the light of the decisions relied upon by the parties. We notice that the learned Departmental Representative tried to submit before us that the subsidy given to the manufacturers under NBS Scheme was to give concession to the farmers and reduce the MRP in order to bring down the manufacturing cost. Whole scheme was designed to increase the fertilizer production and utilization among the farmers by making available at the affordable price to the farmers. Since it is linked to reduction of price in manufacturing, this subsidy can only be classified under revenue not capital. However,....