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2022 (1) TMI 731
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....ase, the lower authorities erred in law in disallowing administrative expenses under rule 8D without recording satisfaction as required under Section 14A of Income Tax act 1961 and rule 8D(1) (a) & (b) of Income tax rules 1962. 3. That on the facts and in the circumstances of the case, the lower authorities erred in disallowing expenses without examining the direct and immediate connection with dividend income. There was no expenditure incurred "in relation to" dividend exempt income. 4. That on the facts and in the circumstances of the case, the lower authorities erred by including such investments under rule 8D(2)(iii) from which no exempt dividend is received or not likely to be exempted. 5. That on the facts and in the circumstances of the case, the lower authorities erred in law in not appreciating the difference between a "simple investment" to earn income from dividend or interest or a "Business investments" made as a promoter with a motive to hold a controlling stake with a view to manage the company. 6. It is contended that on the facts and circumstances of the case and in law, refund of Excise duty (Self Cenvat Credit) amounting to Rs. ....
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....t has not incurred any expenditure at all as dividend warrant were directly credited in the account. On such facts, the appellant stated that while computing the disallowance, if any, u/s 14A (2) of the Act, the disallowance has to be restricted in relation to the other companies from whom the dividend has been received and that too, to the extent of actual expenditure so incurred. For this purpose, the appellant relied upon the judgment of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT in 347 ITR 272. 4.2 However, the ld. Assessing Officer denying the assessee's claim having regard to the nature of expenses claimed and the exempt income earned, proceeded to apply Rule 8D and worked out the disallowance at Rs. 1,95,33,819/-. The ld. CIT (Appeals) gave relief to the extent of Rs. 1,66,07,634/- on the ground that in so far as the interest expenditure is concerned, the assessee had not utilized any borrowed funds for acquisition of investments but were made from assessee's own surplus funds. However, he confirmed the computation of administrative expenses @ 0.5% under Rule 8D(2)(iii) on the total average investments and confirmed the disallowance of Rs. 29,2....
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....nder the incentive scheme framed by the Central Government for the purpose to boost industrialization in order to improve employment opportunities in the State. For such purposes, the Central Government has announced a new Industrial Policy and allowed various concessions for the State of Jammu & Kashmir floated by Office Memorandum dated 14th June 2002 on the request of the Government of Jammu & Kashmir for a special package for development of the industries in the State. 6.1 The Government of India, Ministry of Commerce & Industry (Department of Industrial Policy and Promotion) issued its Office Memo dated 14th June 2002 - copy thereof has been placed at page 281 of the paper book wherein it was provided that keeping in view the fact that the State of Jammu & Kashmir lagged behind in industrial development, there was need for structured interventionist strategies to accelerate the industrial development of the State and boost investors' confidence. These fiscal incentives were to be provided to the new industrial units as well as to the industrial units who have made substantial expansion. The fiscal incentive provided under the scheme is discussed in paragraph 3.1 of the Memo....
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....all new investments by entrepreneurs, which leads to substantial additional employment creation by an existing entrepreneur without insisting on major expansion. However, credit under the Industrial Policy Package should not be merely for paying off old debts or for equipment already in place." 6.3 All these notifications, as issued by the Central Excise for the refund of central excise paid by the new industrial undertakings or who have taken substantial expansion were considered by the Hon'ble J&K High Court in the case of Shree Balaji Alloys vs. CIT in 333 ITR 335 and after considering the aims and objects of the scheme formulated by the Central Government for the refund of central excise (generally called CENVAT), held that the purpose of the scheme was to boost the industrialization of J&K to create employment opportunities in the State. 7. The ld. Assessing Officer however, held that refund of Excise credit in the form of subsidy received by the industrial undertaking though has been decided in favour of the assessee in the group concern by the ld. CIT (Appeals), however, the Revenue is in appeal before the Tribunal therefore, he held that its revenue receipt and hence ....
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....o difference." 11. Before us, the appellant has further, placed on record that even the Coordinate Delhi Bench in the following group concerns of the assessee, after considering the judgment in the case of Shree Balaji Alloys (supra) in exactly similar set of facts and nature of subsidy has treated the incentive by way of central excise refund (generally called CENVAT credits) in relation to the Jammu unit as capital receipts not liable to tax. (i) ITA No. 5124/Del/2011 dated 29th June 2018 Montage Enterprises Pvt. Ltd. vs. DCIT (Paras 9 to 60) (ii) ITA No. 2199/Del/2009 dated 20th March 2019 Ultimate Flexipack Ltd. vs. DCIT. 12. Thus, we hold that the refund of CENVAT credit on the facts of the present case is capital subsidy in view of the principle laid down by the Hon'ble apex court and also the judgement of the Tribunal in the group concern of the assessee as cited above. 13. Consequently, ground No. 2 as raised by the Revenue is dismissed as infructuous as we have already held that it is a capital receipt and not exigible to tax. 14. Regarding issue raised vide Ground No. 7, that the aforesaid subsidy being capital in nature it will also not form....
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....gust 2017 has not admitted any question of law in appeal filed by Revenue. 15. Since we have already held that the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J & K as formulated by the Central Government is a capital receipt not liable to tax, accordingly the same cannot be part of book profit under Section 115JB also. Consequently, ground No. 7 is also allowed. 16. Before us, the assessee has raised additional grounds in respect of Sales Tax subsidy amounting to Rs. 19,22,32,000/- by way of refund of Uttar Pradesh VAT under the Uttar Pradesh Industrial Policy, 1994 as capital receipt and also to be excluded from the computation of book profit under Section 115-JB of the Act. The additional grounds raised by the appellant for the sake of ready reference are reproduced hereunder:- "(1) It is contended that the sum of Rs. 19,13,32,000/- being VAT refund claimed under Uttar Pradesh VAT Act 2008 is a capital receipt being the amount of identical amount paid by the appellant and thus not exigible to tax. (2) It is contended that sum of Rs. 19,12,32,000/- being VAT refund under Uttar Pradesh VAT Act 2008 being the natu....
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....mployment and poverty are the major problems of the state. In the year 1994- 95, the total number of unemployed stands at 26 lacs and that of semi-employed at 78 lacs. U.P. lags behind other states of the country in per-capita income. Infrastructural facilities, industrial activity, human development index etc. However the state has shown remarkable progress in the agricultural sector and it contributes 21 per cent of the total fertilizer produced in the country. Owing to the lack of adequate infrastructure facilities, investment in the industrial sector remains lower than the expected level. However, new industry is undergoing a rapid transformation. " 20.2 The purpose and object of managing the incentive scheme have been described in the heading 'Preface' in following words: "The underlying principal of the new industrial policy is that industrial development is an integral component of agricultural and rural progress. The prime objective of this policy is to ensure creation of maximum employment opportunities and eradication of poverty." 20.3 The objective of the scheme has also been described under the head 'Objectives' and the relevant extract is as under: ....
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....on Road Medical Drainage and Sewerage Commercial Centre Telecommunication Entertainment Transport Community Welfare Other facilities like Bank, Post Office, Police Station etc INFRASTRUCTURE MAPPING Considering the importance of infrastructural facilities, the state Government is undertaking the exercise for the mapping of existing facilities for ascertaining the position regarding their availability in industrial areas. This would also enable identification of infrastructural gaps as well as assessment of requirement for the future. PRIVATE SECTOR PARTICIPATION IN THE DEVELOPMENT OFINFRASTRUCTURAL FACILITIES A policy for encouraging private sector participation in providing top class infrastructural facilities has been adopted. Special emphasis will be laid on providing following infrastructural facilities with the help of private sector. • Development of Model Industrial Area • Power generation and distribution • Development of Telecommunication facilities • Development of Air transport • Express highways , By-pass and bridge construction • S....
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.... under the chairmanship of the Chief Secretary. ESTABLISHMENT OFINFRATRUCTURE FUND The State Government has proposed to set up an infrastructure fund. This fund would be used to develop top class infrastructural facilities. This fund is proposed to be financed by the state level corporations/institutions, national financial institutions and other such organizations apart from State Government. Attempts shall be made to procure contribution from Central Government as well. ARRANGEMENT OF LAND Rationalization of procedure for procuring land above 12.5 acres Procedure for obtaining land for industrial projects has been considerably streamlined. Divisional Commissioners have been authorized in place of State Government to grant permission for obtaining land above 12.5 acres. SETTING UP OF AN AUTHORITY FOR MAINTENANCE OF INDUSTRIAL AREAS Maintenance of industrial areas is also important apart from the development of such area. To fulfil this objective, industrial area maintenance authority will be constituted in each Industrial area. UPSIDC and Industries department shall provide assistance as members of the authority. This authority shall be self-financed and will ....
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....trial authorities and Public sector Authorities. o Analyses and improvements of the existing policies , rules and regulations. o Any other matter pertaining to industrialization of the state. IMPROVEMENT IN THE DECISION MAKING PROCESS Strengthening of 'single window* system The 'Single Window' System is being made operational through the 'Udyog Bandhu' at the district level under the chairmanship of District Magistrate, at the divisional level under the chairmanship of Divisional Commissioner and at the state level under the chairmanship of Chief Minister. Prescribed Committees of the Industrial Development authorities have been authorized to issue most of the sanctions at their own level. Efforts shall be made to make the system of Single window clearance even more effective. High Level Joint Committee A High Level Joint Committee has been constituted under the chairmanship of Principal Secretary (Heavy Industry) which will have representations from various industrial organizations and the Government. This High Level Committee will deliberate upon the issue pertaining to industrial policy and the problems faced by industrialists. It will make re....
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....l incentive to such units. This Incentive shall be in addition to the ones listed in the policy. This attraction would be in the form of concessions/incentive with reference to land or its value, trade tax etc. This facility shall be given on a case to case basis to the units which have an investment of more than Rs. 50 crores. It shall be dependent on the benefit that will accrue to the State as a consequence of setting up of such a unit. Decisions shall be taken on the basis of location of the unit employment potential and the possibilities of down-stream projects apart from the contributed to the general economic development of that area. This facility shall include declaration of functions of such units as essential service in the interest of production. In all such cases, decision shall be taken by the Cabinet on the basis of recommendation of Empowered committee under the chairmanship of the Chief Secretary. 20.6 Therefore, keeping into consideration the purpose for which the Uttar Pradesh Industrial Development Scheme was launched as well the promises made under the Scheme, the provision of Section 4A of the Act was introduced in the Trade Tax Act and the relevant extract....
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....ther case (bb) in respect of those finished goods which are manufactured in a unit which has undertaken backward integration; or (c) in respect of those goods only which are manufactured in a unit which has undertaken expansion, diversification or modernization on or after April 1, 1990, and which in the case of diversification, are different from the goods manufactured before such diversification, and in the case of expansion or modernization are additional production as a result of such expansion or modernization; and (d) only if the manufacturer furnishes to the assessing authority an Eligibility Certificate granted by such officer, in accordance with such procedure, as may be specified; (e) with effect from a date prior to the date of the notification. (2-A) Notwithstanding anything to the contrary contained in subsection (2) or any notification issued in pursuance thereof, the State Government may grant exemption, under this section, to a new unit which has obtained power connection, if it has, after the date of starting production and before the twenty ninth day of January, 1985, consumed at least 25 percent of the total sanctioned....
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....g, plant 8s machinery, modes, dyes and fixtures. 20.9 The entitlement of the incentive under the scheme has been fixed on the basis of location of the unit as mentioned in article 7 of the notification. The assessee's industrial unit was located in district Ghaziabad. For district Ghaziabad, the availability of the incentives was fixed at 150% of the capital investment. 20.10 The eligibility certificate dated 19th August 1997 was issued by the Addl. Director Industries, Noida certifying the eligibility from exemption of trade tax up to 150% of the incentive investment - the copy thereof has been placed at page 391 of the paper book. 20.11 Another eligibility certificate dated 3rd November 2003 was issued by the Addl. Chief Executive Officer, Noida enhancing the trade tax exemption up to Rs. 959,51,76,417.94 on account of additional capital investment made by the assessee since 1st April 1997 to 4th December 1999 - copy placed at page 397 of the paper book. 20.12 Later on, the UP Trade Tax Act was abolished and in place thereof, the UP VAT Act, 2008 has come into force. The UP VAT Act contains provision of Section 42 which states that the benefits accrued to an assess....
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.... issue of the Certificate of Entitlement in the prescribed form and in prescribed manner. (b) The Commissioner after examining the relevant records and report from the assessing authority and if he is satisfied that the information furnished is correct and complete, shall issue within 60 days from the date of receipt of the application, the Certificate of Entitlement in prescribed form and in prescribed manner containing such particulars as may be prescribed including period of validity of certificate and amount of entitlement if any. (c) If the Commissioner is satisfied that particulars furnished by an industrial unit in the application is wrong or incomplete or is not worthy of credence, he shall after giving the applicant the opportunity of being heard, reject the application and inform the industrial unit accordingly. (d) Subject to an appeal to the Tribunal under section 57 the order passed by the Commissioner in this behalf, shall be final. (4) The industrial unit availing or granted benefit of exemption from, or reduction in the rate of, tax on the turnover of sales before the date of commencement of this Act or an industrial unit which is....
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....xemption by way of refund of Earned Input Tax Credit computed on the basis of data declared in the documents submitted along with the return of tax period in prescribed manner and on fulfilling the following conditions that,- (a) the industrial unit shall hold valid Certificate of Entitlement issued by the Commissioner as provided under sub-section (3); (b) the amount of refund shall not be more than an amount equal to input tax credit earned during relevant tax period, (c) the refund shall be subject to the provisions of section 40 except that the amount shall not be adjusted against the admitted tax liability, (d) the facility of refund shall cease on the day when the amount or the period mentioned in the Certificate of Entitlement, whichever is earlier, (e) the facility of exemption from tax by way of refund shall be available only in respect of raw material, processing material, consumable stores, fuel other than petrol and diesel, lubricant, required for use in manufacture of goods or in the packing of manufactured goods mentioned or described in the Certificate of Entitlement (f) the amount of exemption from tax by way of ....
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....g the facility of refund on both sale and purchase, shall be eligible for claiming Input Tax Credit while computing net tax payable on the turnover of sale of goods described in the Certificate of Entitlement." (9) Where the amount or the period for exemption or reduction in the rate of tax changes on account of any valid reason or otherwise, the Commissioner shall suo motu or on an application of the industrial unit, amend the certificate of entitlement accordingly. (10) The facility of refund shall be available under this Act and under the Central Sales Tax Act, 1956. (11) An industrial unit claiming the refund under this section shall not be deemed to have been assessed based on the returns filed by it and any refund made shall be subject to assessment requiring production of accounts in support of the return filed. (12) The provisions of this section shall mutatis mutandis apply to those units which were established before 9th November 2000 (the date of reorganization of Uttar Pradesh) and now situated within the territory of Uttarakhand subject to the following conditions;- (a) the goods are manufactured in a unit established in the State of....
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....y VAT first on their turnover to the State Government and in turn thereafter the State Government will issue the refund. 20.14 The quantification of refund under the scheme has also to be made by the authorities while framing the assessment under UP VAT Act. For the year under consideration, the relevant assessment has been made by the VAT Authorities vide order dated 6th April 2013 - copy thereof has been placed at page 398 of the paper book and the eligibility of the VAT refund has been worked out by the authorities at internal page 14 of the order at Rs. 19,12,31,759/-. 21. The ld. counsel contended that the nature of incentives provided under the UP Industrial Scheme either by way of granting of exemption from payment of trade tax or the refund of VAT has to be examined with reference to the objects and purposes for which the UP Industrial Development Scheme was framed. Having perusal of the various salient features of the Scheme as described above, it is clear that the incentives under the Scheme have been provided for attracting capital investment in the State for the purpose of industrialization and setting up of new industries to generate more employment opportunities....
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.... vs. CIT in 228 ITR 253, the Hon'ble Supreme Court, while examining the incentive received by the said assessee from the Andhra Pradesh Government, which was to be given to all new industrial undertakings, at page 262 of the Report observed as under: "If any subsidy is given, the character 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 funds is quite immaterial." From the aforesaid observation of the Hon'ble Supreme Court in the case of Sahney Steel (supra), it is clear that the nature of the incentive of the subsidy received by an assessee from the Government, has to be examined with reference to the purpose for which the incentive has been granted. On the basis of the principle as enunciated by the Hon'ble Supreme Court in the case of Sahney Steel to determine the nature of subsidies in the hands of the recipient assessee - whether capital or revenue - the courts have examined the various other ince....
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....ng the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for 11 substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee 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 of the mechanism through which the subsidy is given is irrele....