TaxTMI 
TaxTMI 
2022 (4) TMI 1460
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.... 29/10/2013, 12/03/2014, 23/10/2013,14/03/2014 & 29/10/2013 respectively by the ld. Dy. Commissioner of Income Tax, Circle-6(3), Mumbai (hereinafter referred to as ld. AO). 1.1. As identical issue is involved in all these appeals, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, the appeal for the Asst Year 1996-97 is taken as the lead case considering the figures of sales tax subsidy thereon and the decision rendered thereon would apply with equal force for other assessment years also, except with variance in figures. 2. The only effective to be decided in all these appeals is as to whether the sales tax/entry tax exemption i.e subsidy, incentive, etc, by whatever name called, received by the assessee could be construed as capital receipt not chargeable to tax in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee has received sales tax/entry tax/purchase tax/VAT, etc exemptions/incentives under respective schemes from the State Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana as the Assessee had set up units in notified areas of t....
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....p;- - 84.61 84.93 192.63 3 Rajasthan State - Sales Tax New Incentive Scheme for Industries 1989, Rajasthan (S.No.764 : F-4(35)FD Gr.IV/87-39 dated 6.7.1989) 3.1 Aditya Cement - Sales Tax 41.86 169.39 898.15 842.08 698.54 4 Madhya Pradesh State 4A Sales Tax Incentives 4.1 1991 Scheme for units with Capital Investment in fixed assets of Rs.100 Crores or more 4.1.1 Grasim Cement 683.27 1,045.09 1,187.93 1,022.03 1,346.04 4.2 New Industries Notification No.A-3-11-86 (74)-ST-V dated 16.10.1986 under Madhya Pradesh General Sales Tax Act, 1958 4.2.1 Poly Aluminium Chloride 15.66 - - - - ....
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....liability ("NSTL"). This is enclosed in Page 375 of the Paper Book 2 filed before us. It is pertinent to note that the Notional Sales Tax Liability (NSTL) is quantified by the Sales Tax Officer. Evidences in this regard are enclosed in Page 553 of the Paper Book 2 filed before us. 3.5. The assessee is eligible for sales tax exemption upto a fixed percentage of capital investment which could be availed over a period of several years. For example - In the Maharashtra Scheme, the assessee falls under the category of "Pioneer unit", it is eligible for sales tax exemption upto 95% of fixed capital investment and can avail the same for a period of 10 years. The total amount of subsidy/incentive is thus capped at a particular % of total capital invested and thus over the specified period, the assessee subject to fulfilment of respective conditions under relevant schemes, gets this benefit. The subsidy figure is either determined based on the sales tax returns filed by the assessee or based on the sales tax/entry tax / purchase tax assessment orders passed in respect of various schemes of various state governments, as the case may be. The total subsidy received for each year is summaris....
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....as not been settled by the Hon'ble Apex court till date. b) Sales tax incentive is determined based on the sales tax assessment order or the sales tax returns, as the case may be, which happens after the commencement of business. c) Alternatively, the incentives/ subsidies are to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act. d) Claim of exemption from tax was not made in the return of income and cannot be allowed following the decision of Hon'ble Supreme Court in the case of Goetze India Ltd reported in 284 ITR 323 (SC). 3.7. Proceedings before the ld. CIT(A) in the second round of proceedings: The ld. CIT(A) also again verified all the documentary evidences filed by the assessee regarding various incentive /subsidy schemes as detailed supra. The ld. CIT(A) at Para 3.3 of his order, negated the observation of the ld. AO that claim cannot be made raised following the decision of Hon'ble Apex Court in the case of Goetze India Ltd on the ground that the proceedings are in course of second round, post tribunal admitting the additional ground and thus, reliance placed by the ld. AO on Goetze India Ltd in thes....
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....e ld. AO to decide the issue in the light of Special Bench decision of this Tribunal in the case of Reliance Industries Ltd., The ld. Special Counsel for the Revenue also submitted that this Tribunal in the first round of proceedings had directed the ld. AO to make thorough examination of the entire subsidy schemes of various State Governments. The ld. Special Counsel for the Revenue took us to the Special Bench decision of Reliance Industries Ltd., reported in 88 ITD 273 and stated that the said decision dealt only with the Maharashtra Subsidy Scheme, whereas in the case of assessee before us, the subsidy schemes notified by four different states are involved including Maharashtra Subsidy Scheme. Hence, he stated that the ld. CIT(A) grossly erred in merely following the Special Bench decision of Tribunal in the case of Reliance Industries Ltd., which dealt only with Maharashtra Subsidy Scheme, while granting relief to the assessee. He also stated that the ld. CIT(A) had merely relied on the statements made by the assessee that all the incentive schemes were submitted before the ld. AO. In the opinion of the ld. Special Counsel for the Revenue, the lower authorities had not examine....
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.... State Governments becomes unworkable. He also vehemently argued that the Income Tax department need not wait for the final quantification of the subsidies in the sales tax assessment orders. Moreover, the sales tax assessment orders would not be final and would be subjected to regular appeal and thereafter, the Income Tax Officer had to correspondingly change the subsidy figures in the Income Tax assessment of the assessee company, which makes the entire gamut of quantification of subsidy unworkable. This itself goes to prove that assessee is not entitled for treating the said subsidy as capital in nature. Moreover, the basis of determination of sales tax subsidy is depending on sales tax assessment order. Hence, the ld. AO has to wait till the sales tax assessment order is finally passed in the hands of the assessee. This could be possible if the return of the assessee is selected for scrutiny. What if the income tax return is not at all selected for scrutiny? In such cases how the final quantification of sales tax subsidy could be determined by the Income Tax Officer? This makes the entire scheme of subsidy completely unworkable. Hence, he vehemently denied the basic concept of ....
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....e. He also placed reliance on the decision of this Tribunal in the case of Bajaj Auto Ltd., reported in 90 ITD 153 which held that the liability for sales tax was not reflected in the accounts and no such claim was made by the assessee in the return of income, and in the return of income there was no mention regarding notional sales tax liability, the assessee would not be entitled for treating the said sales tax subsidy as a revenue receipt. He also relied on the same judgement for driving home the point that the eligibility certificate for granting the subsidy was issued by the implementing agency after the commencement of commercial production and accordingly, it cannot be said that the subsidy so received would be in the capital field. He vehemently relied on the decision of the Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 wherein it was held that subsidy received after the commencement of business would be revenue receipt chargeable to tax. 4.6. The ld. Special Counsel for the Revenue submitted that the cut-off date should be reckoned as the date of commencement of business and any subsidy or incentive received after that d....
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....The ld. Special Counsel for the Revenue relied on para 23 of his written submissions dated 03/09/2020 from pages 57-61 wherein he had sought comments from the ld. AO regarding each of the schemes. For the sake of convenience the comments given by the ld. AO are reproduced hereunder:- "1) Vikram Ispat, Division of Grasim Industries Limited - Sales Tax Exemption In case of this Unit, the Assessee has shown and claimed Sales Tax subsidy of Rs.9,94,22,648/- by way of Purchase Tax, Sales Tax, Central Sales Tax and Turnover Tax. The said scheme availed by the Assessee is covered under the Package Scheme of Incentive 1988 dated 01.10.1988 by the State of Maharashtra. The noteworthy and salient features of this Scheme outlined in the Notification is summarised as under - Page No. Remarks 3 As per Preamble, the New Scheme is launched to intensify and accelerate the process of dispersal of industries outside the Bombay-Thane-Pune Belt and to attract them to the underdeveloped and developing areas of the State. From the above summarised features, it can be seen that the primary and cardinal motive of the Package Scheme of Incentive 1988, is to d....
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.....1988, are revenue in character and not ‗Capital' as claimed by the Assessee and accepted by the Ld.CIT(A), Mumbai. (2) Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption A) As per Assessee's submission for Assessment Year 1996-97, vide page nos.87, the Designated Authority has issued Exemption letter dated 24.9.1996 under the Entry Tax Notification No.422-6596 dated 09.02.1977 of the Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investmentonly for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. B) As per Assessee's submission for Assessment Year 1996-97, vide page nos.101, the Designated Authority has issued Certificate of Eligibility for Exemption of Entry Tax dated 23.02.1998 under the New Industry Notification No.A-3-24-94-ST-V(112) dated 06.10.1994 Madhya Pradesh SthaniyaKshetra Me Mal K Pravesh Par Kar Adhiniyam, 1976. The certificates and other ....
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....strial Policy & Action Plan, 1994) citing investment of Rs.280,33,11,056/. The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. (6) Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) As per Assessee's submission for Assessment Year 1996-97, vide page nos.193-194, the Designated Authority has issued Certificate of Eligibility for Exemption of Sales Tax under Sales Tax Exemption Scheme (Haryana General Sales Tax Rules, 1975). As per the Assessee's submission for Assessment Year 1996-97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in respect of newly established industrial undertakings or expansion of existing industrial undertakings subject to fulfilment of capital investment and increase in annual production criteria mentioned therein. However, neither the scheme, nor the Eligibility Certificate provide the methodology for quantification of sales ta....
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.... for the Revenue relied on various other decisions of the Hon'ble High Courts in support of the aforesaid contentions. 4.11. The ld. Special Counsel for the Revenue on yet another occasion devoted maximum time in criticising the Special Bench decision of Reliance Industries Ltd., reported in 88 ITD 273 by observing as under:- a. Special Bench decision is perverse. b. Special Bench did not follow the mandate given to them by the Hon'ble President of Tribunal. c. Special Bench did not go into facts as to what is notional subsidy, utilisation of subsidy etc., d. Special Bench decision has been very poorly drafted. e. Though Bajaj Auto Ltd., decision of Mumbai Tribunal was distinguished by the Special Bench, the Special Bench did not overrule Bajaj Auto Ltd., f. Special Bench heavily relied on the Sales tax assessment for the purpose of quantification of notional subsidy and reliance placed on the said sales tax assessment is irrelevant. g. Directions of Special Bench would be unimplementable. h. Special Bench twisted the interpretation of the decisions of the Hon'ble Supreme Court in the case of Sahney Steel an....
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.... Years 1996-97 and 1997-98. For the Asst Year 1998-99, the revenue filed an appeal to the Hon'ble High Court against various other issues but did not raise the issue of admission of additional ground on the aspect of taxability of subsidy. For the Asst Years 1999-00 and 2000-01, the revenue challenged the tribunal order on the admission of additional ground on the aspect of taxability of subsidy and the same was dismissed by the Hon'ble High Court. The Revenue did not further challenge this before the Hon'ble Supreme Court. These facts are evident from Page 1168 of the Paper Book 5 filed by the assessee. The ld. AR before us met all the arguments of the ld. Special Counsel for the Revenue. The ld. AR even filed para wise rebuttal for each of the arguments of the ld. Special Counsel for the Revenue , which are reproduced herein for the sake of convenience:- Page No / Para No of Submission filed by Department Counsel vide letter dated 01.09.2020 Gist of Department Submission Rejoinder by Assessee 1 to 3/Para 1 Brief Background stating that in the ROI of respective Assessment Years, no claim for exemption of sales tax incentive/subsidy as capital receipt was claimed. On....
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.... • Relies on decision of Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT (228 ITR 253). At Para 4 of AO's order u/s.143(3) r.w.s. 254 (AY 1996-97), the AO notes that during the assessment proceedings, relevant details have been called for. Assessee submitted the details and explained the same. It may also be noted that during the course of proceedings u/s 143(3) r.w.s. 254, the AO had called for documentary evidences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to which the Assessee had duly complied with (See for eg:- PB 1, Pg 31-33 for AY 96-97). The AO has discussed this issue at Para 7 and observed as under: Para 7.1: Records Assessee's submissions that scheme were framed for necessary infrastructure in backward/notified area and hence incentive is capital in nature. Reliance is placed on the decision of Hon'ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB 1, Pg No. 217-232). Holds that decision of Hon'ble Bombay High Court against Special Bench decision has been set aside by Hon'ble Supreme Court in the case of CIT vs Reliance Industries ....
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....er is not in control of the Assessee and merely because there is no discussion in order, it cannot be inferred that AO has not passed a speaking order. See following decisions: Marico Ltd. v. ACIT (111 taxmann.com 253) (Bom HC) ACIT v. Marico Ltd. (117 taxmann.com 244) (SLP Dismissed) Idea Cellular Ltd. v. DCIT (301 ITR 407) (Bom HC) (PB 7, Page 1396) GKN Sinter Metals Ltd. v. ACIT (371 ITR 225) (Bom HC) (PB 7, 1393) Aroni Commercials Ltd. v. ACIT (367 ITR 405) (Bom HC) CIT v. Prima Paper And Engineering Industry (364 ITR 222) (Bom) 10. The Appellant had relied on decisions like Special Bench in Reliance Industries (supra), Bombay High Court decision in case of Reliance Industries (which now has been set aside back to Bombay High Court by Apex Court), decision of Hon'ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392 (SC) (PB1, Pg. no. 233-238) 11. The AO only states that decision of Bombay High Court is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law. 12. Once ITAT has restored the issue to AO, question of Goetz (Supra) does....
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....al No. 450 with 451 to 453 of 2012) (PB 4, Pg. No. 825-836) SLP Dismissed in DCIT v. Munjal Auto Industries Ltd and others (Civil Appeal No. 6226/2013) (PB 4, Pg. No. 822-824), all have consistently considered both the decisions and yet held that if subsidy is for industrialization or for backward development or employment and not to augment profits, then such incentive is a capital receipt. Assessee relies on all decisions cited in all Paper Books filed. Pages 10 to 16/Para 3 Summarizes CIT(A) order for five years and submits that order of CIT(A) is non speaking. DR further comments as under: Does not discuss the facts at all. Does not discuss how subsidy arose and how it was computed. Does not obey the direction of ITAT to examine the facts. Does not explain how decision in Ponni Sugar (supra) case applies. Does not explain how the order of the ITAT(SB) in the case of Reliance Industries Ltd. (supra) still holds good after the Supreme Court's judgment setting aside the High Courts order. It is a totally non-speaking, superficial and perverse order. When there are no facts in the order, how Hon'ble ITAT would decide the matter? Bereft of facts the order cannot be subje....
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.... The ITAT in its wisdom admitted the additional ground and restored issue to AO to verify facts and allow the claim. While the Assessee had filed additional ground for all five years in present appeals. In so far as it relates to AY 96-97 and 97-98, no appeal was filed before Bombay High Court against the ITAT Order; In so far as It relates to AY 1998-99, the Department filed appeal before the High Court against various other issues but did not raise the issue of admission of additional ground before the High Court; In so far as it relates to AY 1999-00 & 2000-01, the Department raised issue of admission of additional ground by the ITAT, however, the High Court dismissed the said plea of the Revenue. Department did not file/urge the same before Supreme Court; For AY 2001-02, which is not presently fixed before ITAT in this bunch, the Department went to Supreme Court against the Bombay High Court order but did not challenge this issue before Supreme Court; It is thus submitted that in present proceedings, Department cannot be permitted to argue on correctness or otherwise of the ITAT order in first round on admitting additional ground. Thus, there matter stands conclu....
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.... various judgements of different High Courts. The said judgements are not applicable to the assessee's case..." This shows that AO has examined the issue in detail and it is not a case that AO did not examine the case further in view of Hon'ble Supreme Court decision in the case of Reliance Industries. Para 5(vi)/Page 21 The CIT(A) did not deal with the stand taken by the Assessing Officer consequent upon the crucial judgment of the Hon'ble Supreme Court. It made a passing reference to the judgment of the Supreme Court and allowed the appeal purportedly following the judgment of the Hon'ble Supreme Court in the case of Ponni Sugars (supra) The CIT(A) has correctly relied on the decision of SC in Ponni Sugars (Supra) and also decision of Special bench in Reliance Industries SB (supra). He correctly held that validity of Reliance Special Bench continues notwithstanding the remittance of the matter by Supreme Court to Bombay High Court. The Hon'ble Ahmedabad ITAT in case of Genus Electrotech (supra) held as under "Mere admission of appeal against a decision, as is elementary, does not affect the binding nature of a judicial precedent. The Special Bench decision....
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....s decision of the Hon'ble Supreme Court will relate back and the decision of the Hon'ble ITAT setting aside the assessments on the basis of this controversial decision of ITAT Special Bench becomes non-est. The decision of Hon'ble Supreme Court in Chowringhee (supra) and Sinclair (supra) both are in different context. It is not disputed the generally the sales tax collected by an Assessee from its customer is a trading receipt. However, the question in present appeals is whether the exemption from sales tax due to Schemes/Notification of the respective State Government due to setting up industries in notified area is exempt or not. The Supreme Court in case of Ponni Sugars (supra), Balaji Alloys (supra) and Chaplakar Brothers (supra) have consistently held that subsidy/incentive in whichever form, if received for setting up industries or industrialization or employment then it is a capital receipt. The decision of Special bench in Reliance has not been set-aside by the Supreme Court and thus presently the said decision is subsisting and binding. The Tribunals even post set-aside of Bombay High Court order in Reliance Industries by Hon'ble Supreme Court, follows Relia....
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.... proper examination and verification of the nature of the benefit and the scheme of the Government under which the benefit has been availed by the Assessee. Accordingly the Hon'ble ITAT has restored this issue back to the file of the Assessing Officer and directed the Assessing Officer to decide the issue afresh after considering the decision of the Special Bench in the case of Reliance Industries Ltd. (88 ITD 273 and after giving reasonable opportunity of being heard to the assessee Para 6 is entire repetition to the effect that neither AO not CIT(A) has discussed any facts. The Assessee relies on submissions made on this aspect against Para 2 and 3 above. Para 6(ii), 6(iii), 6(iv) & 6 (v)/Page 24 and 25 The AO did not follow direction of ITAT. He simply noted that decision of Special Bench has been set aside by the Supreme Court. He has not examined the facts of any scheme to come to any conclusion as to whether they are revenue or capital receipt. So, for whatever reason, the purpose for which the asessments have been set aside have not been achieved. The CIT(A) also has not discussed any facts but has given complete relief. He has passed five identical appellate ....
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....t proceedings is whether sales tax/purchase tax/ entry tax subsidy/incentive, by whatever name called, by State Governments for development of specific areas/under-developed or backward areas is a capital receipt and hence not chargeable to tax. The question whether Assessee was eligible sales tax/entry tax subsidy, whether it complied with the conditions under respective schemes or notifications etc were to be decided by respective State Government and their monitoring or implementing agency. It has to be noted that as on date there is no dispute by such authorities on eligibility of Assessee to claim exemptions. Once the subsidy or benefit under the Scheme is not disputed by respective State Government, the question under the Income Tax Act is whether such benefits are on capital account or not. The Supreme Court has repeatedly in Ponni Sugars (supra), Balaji Alloys (supra) and Chaphalkar (supra) have held the same to be on capital receipt. Also, unlike deductions or exemption like section 10 or Chapter VI, which may or may be conditional or subject to compliance of specific requirement, in present case, there are no conditions to be complied with under Income Tax Act. ....
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....tate Government for all five years; Following Chowringhee Sales Bureau v. CIT (WB) [1973]87 ITR 542 (SC) and Sinclair Murray and Co. Pvt. Ltd. V. CIT, Calcutta,[1974]97 ITR 615), sales tax collected was part of turnover and since nothing was paid, it became profits. The auditors accepted the same, returns were filed and taxes were paid; No appeal was filed before CIT(A), only after ten years this additional ground was raised for the first time before ITAT; The ITAT should have asked searching questions as this ground would reduce assessed income below returned income; It is unfair to the Department to give refund of amount of tax suo motto paid by the Assessee and this would be burden on the non exempt tax payers; The only basis for filing additional ground before ITAT was decision of Reliance Industries Special Bench. There the so -called subsidy related to only one state where here the subsidy concerned several states under different schemes. On this ground alone, the additional ground should have been thrown out as vexatious. The ITAT admitted the additional ground and set aside for examination and verification of nature of schemes and benefits. Additional grou....
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....isions tabulated to substantiate that in all cases, it was actual subsidy received and not notional List of judgements of Hon'ble SC relied upon by the Assessee wherein tax incentive/exemption was held to be a subsidy capital in nature: • Sahney Steel (supra): apart from other incentives received, there was exemption from payment of water rate; • Ponni Sugars and Chemicals (supra): The incentives conferred under that scheme were two-fold. First, in the nature of a higher free sale sugar quota and second, in allowing the manufacturer to collect the excise duty on the sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the excise duty payable on the price of levy sugar; • Munjal Auto Industries Ltd. (SLP Dismissed) (supra): • Chaphalkar Brothers Pune (supra) Further Hon'ble Mum T in the case of Reliance Industries Ltd (subsequent assessment years viz. AY 2010-11 to 2012-13) vide order dated 28.09.2018 followed the decision of Special Bench and held that "7. We heard the parties on this issue and perused the record. The assessee has been given Sales tax exemption by Govern....
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....stomers, that is an issue to be addressed by the Sales-tax Department. The Income-tax Department is concerned with the quantum of the exemption claimed. It is for the assessee to establish with proper sales bills showing sales- tax amount separately and maintaining the so-called subsidy register meticulously for verification. Hence, it is impossible to find out what is the exact amount of the so-called notional subsidy unless the assessee maintains proper sale bills and registers on the basis of which the exact amount of sales-tax collected and not paid during the year can be found out. Thus, relying on decision of the Hon'ble Supreme Court in the case of Novopan India Ltd. Hyderabad v. Collector of Central Excise and Customs, Hyderabad dated 14th September 1994 (Case : Appeal (Civil) 3556 of 1984) (1994 Supp(3) Supreme Court Cases 606 (supra), the assessee has failed this test and the claim of exemption should be rejected outright The incentives on account of exemption of sales tax, purchase tax or entry tax, etc is given by respective State Governments; The respective State Government would have a monitoring or an implementing agency who would govern and monitor the gran....
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....ed the claim of the Assessee and directed the AO to verify the claim in terms of quantification thereof. The AO gave effect to the order of CIT(A) vide order dated 25.04.2016. Copy of order giving effect to the order of CIT(A) is enclosed at Page No. 78 to 89 of Paper Book - 4. 2. Basis of calculating subsidy and supporting documents such as scheme related papers, eligibility certificate etc. were already filed before the AO during proceedings u/s. 143(3) r.w.s. 254 of the Act. The same can be checked at page 26 to 58 of the paper book -1. 3. The amount of sales tax subsidy is based on the amount as per final assessment order in each of the years except in few cases the amount is as per return where the case was not selected for assessment. Please see PB 4/Page 1167. 4. The AO while giving effect to ITAT direction has right adopted the exact figures supported by documents like Scheme/Notification/Returns or Assessment orders under respective state laws. Post CIT(A) order also, once again he has reconfirmed the figures of exemption claimed. Thus, in present proceedings, the Department cannot improve its case where both AO and CIT(A) have not disputed the amount. In any even....
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....ssee has no answer to queries. All the details filed before AO and CIT(A) in second round (post set aside after admission of additional ground by the ITAT) are in Paper Books. Detailed submission to counter this allegation made above Para 17/Pages 46 to 48 Reliance is placed on decision of Mumbai Tribunal in Bajaj Auto (90 ITD 153) for definition of "Notional Sales Tax Subsidy". Thus, definition is not simple. The definition does not deal with the situations discussed in paragraph 12(ii) where no sales -tax has been collected or less sales tax has been collected. In such cases the assessee will get relief from income-tax in respect of part of its non-exempt profit. Second - the time lag. If the concept of notional subsidy and its determination by the Sales Tax authorities is adopted into income-tax, no income-tax returns can be filed in time. -The notional sales subsidy cannot be subjected to audit. The observations made in case of Bajaj Auto (supra) in respect of ITAT order in Reliance for AY 1985-86 have been considered and dealt with by Special Bench decision in case of Reliance Industries (supra). Para 18/Page 49 Reliance is placed on decision of Supreme....
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....T [1991] 191 ITR 518 (Cal.) What was the matter between the assessee and the Sales- Tax Department is no concern to the income-tax Department. The matter would have been different if it had received a fixed sum from the government. In that case the taxability of that receipt - whether revenue or capital - could have been issues before the Income -tax Department. Exemption from sales tax is not an issue. However, if the assessee is of the view that it is entitled to exemption, it has to establish its case for exemption independently with supporting primary books and documents, under the doctrine of strict construction of exemption provisions as propounded by the Hon'ble Supreme Court in the case of Novopan India Ltd. (supra). It cannot wake up after 10 years, cite an inapplicable judgment of a Tribunal, which in any case not relevant now in view of the Supreme Court setting it aside. Subsequent to the decision of Kesoram Ind (supra), the Hon'ble SC in the case of Ponni Sugars and subsequently in its recent decisions of Chaphalkar (supra), Balaji Alloys (supra) and Munjal (supra) has consistently held that the only test to hold whether a subsidy is a capital receipt or....
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....e, the incentive is continuously received for years and the assessee received incremental indirect benefits, not any direct lump sum receipt. Then the strong presumption according to the normal conduct of business, is that the incentive supplemented the profit of the business and was of revenue nature. The most important point is that assessee in its original return of income treated the transaction, and rightly so, as revenue in character and paid the taxes. But, as narrated earlier, after more than a decade the assessee has raked up the issue of capital receipt. If the assessee claims it to be capital receipt, the burden is for the assessee to establish with evidence that it is a capital receipt.[ Vide Supreme Court decision in the case of Novopan India Ltd. (supra) laying down the doctrine of strict interpretation of exemption provisions against the assessee]. The DR is wrong in his conclusion that object of scheme generally is dispersal of industries from Bombay-Thane-Pune belt (Assessee would specifically address this point); The Department is correct that some objectives are for industrial development in the State and also to accelerate development. The judicial pronoun....
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....herefore, accrue after commercial production, this by itself would not be sole or concluding factor. Applying purpose test, the subsidy was held to be on capital account. Thus, in each of above cases, the Courts have been mindful of the fact that subsidy was to be received after commencement and to be availed within 9, 10 or 12 years, yet applying purpose test, it was held that subsidy was on capital account. The Department is consistently repeating that in the original return the Assessee did not claim exemption paid taxes and now after decades assessee has raked up the issue of capital receipt. The Assessee submits that post its filing its return of income, if subsequent judicial pronouncement hold that subsidy received is a capital receipt, and such view is also rendered by the Supreme Court then there should be no bar on the Assessee in making additional claim and seeking refund of taxes paid inadvertently. In any event, the order of Tribunal in admitting additional ground has become final. Para 23/Page 57 to 61 At the instance of Department Counsel, the AO gave comments on submissions of the assessee on the Schemes as under: While as demonstrated above that the ....
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.... Unit has been defined at Page 376. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. The Assessee is a Pioneer Unit (PB 2 Page 399 is the eligibility certificate issued by SICOM which recognises Vikram Ispat unit as a Pioneer Unit). Thus, under the Maharashtra 1988 Scheme, even new units are entitled to notional sales tax subsidy. Judgments relied upon by the Assessee wherein the subsidy received under the PSI Sales tax exemption scheme of Maharashtra has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. 7) Chloro Sulphuric Acid Division and Caustic Soda Membrance Cell Division of Grasim Industries Limited - Entry Tax exemption The certificates and other documents filed during the course of set-aside proceedings speak of the capital investment only for the purpose of computation/working of subsidy and not indicate the same as the sole criteria for eligibility for the benefit of scheme. The Department itself refers to certificates and other documents filed in course of Set-Aside proceedings. Thus, all documents are in possession of AO. Entry Tax Notification No.422-6596 ....
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....promoting industrial development in the State of Rajasthan. Objective at Pg 489 (this does not appear to be scheme document but some commentary on the same) :- To boost up industrial development in the State the Government have enacted provisions for giving relief to the industries in some form or the other so as to assist them in their development, particularly during the initial period required by the industries to come to full maturity. (para 1.1 refers to industrial policy 1990, whereas, above scheme is of 1989) Judgments relied upon by the Assessee wherein the subsidy received under the Sales tax exemption scheme of Rajasthan has been held to be capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test,....
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.... capital in nature is tabulated in a Chart attached herewith as Annexure A. The highlighted portion in Department submissions clearly prove that subsidy was capped based on % of capital investment. Further, the Department has not pointed out any clause of the Scheme which suggests that Subsidy was to augment profits of the Company. In fact, the Scheme clearly provides for industrialisation (by granting benefits to new units or expansion of existing units) and in some cases, generation of employment and thus, applying purpose test, it be held that subsidy is a capital receipt. Elegant Spinners, Unit of Grasim Industries Limited, Sales Tax Exemption (AY 1997-98) As per the Assessee's submission for Assessment Year 1996-97, on perusal of the Scheme (Page nos.178-179) of the Assessee, it is seen that the exemption is provided in respect of newly established industrial undertakings or expansion of existing industrial undertakings subject to fulfilment of capital investment and increase in annual production criteria mentioned therein. However, neither the scheme, nor the Eligibility Certificate provide the methodology for quantification of sales tax exemption vis-&agra....
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....ncentive is linked to amount invested in capital asset, the incentive is capital receipt. The Assessee has always emphasized upon the purpose test. The Assessee has given all Scheme documents to AO. The CIT(A) has allowed the appeals and it is Department appeal to the Tribunal. It is for the Department to show from the Schemes that purpose of subsidy is to augment profits of the Company. The Assessee has never contended that all the Schemes are alike. The Assessee has submitted all the Schemes which have been considered by the AO and CIT(A). For brevity, the Assessee is attaching herewith Annexure A which lists down decisions of Tribunal where similar schemes of State Government (in the present case, Maharashtra, Haryana, Rajasthan and Madhya Pradesh) have been considered and Tribunal has held the subsidy/incentive/grant to be a capital receipt. In any event, neither the AO nor the DR while arguing his appeals have referred to specific scheme and pointed out that they are for augmenting the profits. Para 25/Page 63 and 64 The assessee is diverting attention from facts by focussing on case laws. For example for each year it is relying on the decision of the Special Bench....
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....uced part of decision of Supreme Court in Sahney (supra) where it was hled that the subsidies were given to encourage setting up of industries in State of Andhra Pradesh by making the business of production and sale of goods in the state more profitable". Thus, it appears that object of the Scheme in case before Sahney was to make industries more profitable. The Department has stressed on the fact that in Ponni Sugars, the Madras High Court held that subsidy linked to purchase tax was of revenue nature and same has not been challenged before the Supreme Court. It is submitted that firstly, the Madras High Court observed that terms of concession shows that concession was given to meet the cost of running the business after it has gone to production (In the present case, the Department has not pointed out any Scheme which proves that subsidy was for meeting cost of running the business). Secondly, the mere fact that in Ponni, the said question was not challenged before Supreme Court cannot lead to conclusion that any incentives after commencement are of revenue nature. The Supreme Court in Ponni Sugars (supra) after considering the decision of Sahney held that the only relevant....
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....€¢ Munjal Auto (Guj), SLP Dismissed(supra) • PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4, Pg. No. 1012-1017) • PCIT v. Capgemini India P. Ltd. (90 taxmann.com 409) (Bom HC) (PB 4, Pg No. 1018-1020) • CIT v. Indian Petrochemicals Corpn. Ltd. (102 taxmann.com 181) (Bom HC) (PB 4, Pg No. 1164-1166) • CIT v. Nirma Ltd. (88 taxmann.com 481) (Guj) (PB 4, Pg. No. 837-840) • CIT v. Rasoi Ltd. (245 CTR 667) (Calcutta HC) Lastly, the DR relied on the fact that decision in case of Dusad Industries (MP) (supra) was relied before AO and which has been overruled by decision in case of Sahney Steel (supra). The Assessee submits as evident from 143(3) order of AY 98-99, the AO at Para 5.4 held that facts of Dusad (supra) and in the present case is different. If facts are different then the question of commenting on Dusad does not asrise. In any event, post Chaphalkar (supra) various Tribunals have in context of incentive under 1994 and recent schemes of MP, decided in favour and held subsidy to be capital receipt. Moreover, before the Hon'ble Tribunal, presently the Assessee has neither cited nor reli....
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....and (ii): Sr. No. DR's Arguments Assessee's Submissions 1. The Assessee had filed its original return for above years and included the sales as trading receipt following decision of Chowringhee Sales Bureau v. CIT (87 ITR 542) (SC) and Sinclair Murray and Co. Pvt. Ltd. v. CIT (97 ITR 615) (SC). . The AO completed assessment by making certain other additions/disallowances. Only after 10 years, the Assessee choose to file additional ground before the Tribunal to claim that subsidy/incentive/grants/etc received under various Schemes/Notifications of State Governments are capital receipt not chargeable to tax and thereby sought to seek refund of taxes suo moto paid by the Assessee The Assessee does not dispute that the claim of subsidies/incentives being capital receipt was first time raised before the Tribunal. The claim was based on the decision of Hon'ble Special Bench Mumbai Tribunal in the case of DCIT v. Reliance Industries Ltd. (88 ITD 273) (PB 1, Pg No. 217-232). However, post the said decisions, consistently, the Supreme Court, High Court and ITAT have been holding that subsidy received as a result of setting up of units or industrialisation o....
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....) r.w.s. 254, the AO had called for documentary evidences to substantiate the claim of sales tax subsidies/incentives (PB 3, Pg. No. 786) to which the Assessee had duly complied with (See for eg:- PB 1, Pg 31-33 for AY 96-97). The AO has discussed this issue at Para 7 and observed as under: Para 7.1: Records Assessee's submissions that scheme were framed for necessary infrastructure in backward/notified area and hence incentive is capital in nature. Reliance is placed on the decision of Reliance Industries SB (supra). Holds that decision of Hon'ble Bombay High Court against Special Bench decision has been set aside by Hon'ble Supreme Court in the case of CIT vs Reliance Industries Limited (Civil Appeal No 7769 of 2011) (PB 1, Pg. No. 243-244) back to Hon'ble Bombay High Court for fresh adjudication and hence it is clear that issue has not been settled by Apex Court till date. Para 7.2: Holds sales tax incentive is nothing but revenue received. Alternatively, since incentive received is on basis of investments made in Fixed Assets, it is to be reduced from WDV of assets. Thus, this clearly shows that he has examined the Schemes/Notifications/other documents and only then co....
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....Engineering Industry (364 ITR 222) (Bom HC) 26. The Appellant had relied on decisions like Special Bench in Reliance Industries (supra), Bombay High Court decision in case of Reliance Industries (which now has only been set aside to Bombay High Court by Apex Court for framing a question of law), decision of Hon'ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392 (SC) (PB1, Pg. no. 233-238) 27. The AO only states that decision of Bombay High Court is set aside by SC and thus issue not settled by Supreme Court. Thus, he does not dispute that decision of Special Bench is still a good law. 28. Once ITAT has restored the issue to AO, question of Goetz (India) Ltd. vs. CIT (284 ITR 323) (SC) does not arise. In any event, even as per Goetz (supra), appellate authorities can always admit a new claim, which ITAT admitted and hence in present proceedings the AO cannot have any grievance on the same. In any event as stated in rebuttal above, those ITAT orders have become final. 29. The CIT(A) has passed a detailed order. The discussion on this issue starts from Page 4 to 12/Para 3. 30. The CIT(A) at bottom of Page 9 notes that the Appellant has fi....
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....on actual documents now quantified the amount of subsidy. The AO firstly determined the amount while passing order u/s.143(3) r.w.s. 254. Again, post CIT(A) order also, he passed OGE to CIT(A) and reconfirmed the amount of exemption. Page 1167 of Paper Book 4 summarise total subsidy for each year and also give reference to relevant schemes and pages of Paper Book. For specimen basis, for AY 1996-97, chart is separately given during the course of hearing on April 7, 2022 where the aggregate amount of subsidy in each state and relevant returns/assessment orders are matched with document in Paper Book. Also, if AO and CIT(A) have examined and analysed the factual documents, the matter cannot be remitted to AO for re verification. Reliance is placed on Hon'ble Jurisdictional Tribunal decision of Prism Cement Ltd. v. DCIT (ITA No. 804 & 805/Mum/2018) (PB 7 Para 42 at Page 1305/06) The Assessee submits that the sales tax/purchase tax/entry tax department or the State Government or its implementing agencies/monitoring agencies have to determine the incentive/subsidy based on Schemes and Notification of the State Government. The returns filed/assessment orders have already been pl....
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....levant. If subsidy is received with reference to sales tax/purchase tax/etc, clearly it is post commencement of business, hence revenue in nature •  Reliance was placed on Hon'ble Supreme Court in case of Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253) (SC) [DR PB Pg. No. 158-173] anything before commencement is capital, after commencement is revenue. It has been settled by Hon'ble Supreme Court in case of Ponni Sugars (supra) that the form/mechanism of computing subsidy is irrelevant and merely because subsidy is granted post commencement of production, does not mean it is to augment profits. Further reliance is placed on the following judicial precedents wherein the subsidy received was held to be capital in nature even when received post commencement of production: • CIT v. Ponni Sugars & Chemicals Ltd. (Supra) • Shree Balaji Alloys v. CIT (J&K HC) (333 ITR 335) [PB 1 Pg. no. 276-284] Affirmed by SC (80 taxmann.com 239) [PB 1 Pg. no. 239-240] • DCIT v. Munjal Auto Industries Ltd (Guj) (Tax Appeal No. 450 with 451 to 453 of 2012) (PB 4 Pg. no. 825-836) {SLP dismissed by SC (Civil Appeal No. 6226/2013) (PB 4 Pg. n....
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....k to point out any clauses of the scheme which prove that scheme was for supplementing profits. The Schemes provide that the subsidy is for encouraging growth, industrialisation, employment and in some cases, dispersal of industries. The decision of Hon'ble High Court in case of Kesoram (supra) was relied upon by DR, but despite the same the Hon'ble Tribunal in the case of DCIT v. Indo Rama Textiles Ltd (25 taxmann.com 161) (Del. Trib.) (PB 4 Pg no. 1116-1120) held that sales tax subsidy is a capital receipt as Kesoram (supra) was prior to recent SC decision. The Assessee submits that the total subsidy receivable is based on % of capital/fixed asset investments made. Thus, the outer limit is quantified. Thus, under the sales tax/purchase tax laws etc, the total amount of subsidy would not change. Based on assessments, etc only amounts in some years may change but the outer limit fixed based on capital investment would always remain the same. The Paper books contain all factual details including schemes/notifications/returns/assessment order under sales tax etc. The Assessee submits the same are relevant. 5. Since Assessee is claiming exemption from direct tax, strict....
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....sting; ACIT v. Genus Electrotech Ltd (71 taxmann.com 101) (Ahm. T) (PB 4 Pg. no. 801-808) Welspun India Ltd. v. DCIT (104 taxmann.com 267) (Mum T) affirmed by Hon'ble Bombay High Court in the case of PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (PB 4, Pg. No. 1012-1017). Further it has been held by Hon'ble Bom HC in the case of ITO v. Universal Ferro & Allied Chemicals Ltd (172 ITR 30) (PB 7 Pg. no. 1378-1383, specifically Para 7) that once the Special Bench of the Tribunal records the decision after considering the judgement given by the High Court, then the decision of the Special Bench is binding on all other authorities subordinate to the Tribunal. In any event, to best of our knowledge, the decision of Reliance (SB) (supra) itself has not been challenged before Bombay High Court. It is for Department to demonstrate that very same decision of SB is challenged and pending before Bombay High Court. In our view, the Reliance Special Bench has passed a detailed order after considering the preamble of the scheme as also various decisions including those of Supreme Court and hence, same cannot be ignored. Lastly, the ITAT in Appellant's own case (as successor to....
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....uced from cost of capital asset in view of explanation 10 to section 43(1) The sales tax exemption received by the Assessee has not been granted for any specific asset but to encourage industrial development. Reliance is placed on the following judicial pronouncements wherein after considering the provisions of explanation 10 to section 43(1) as well as the decision of Hon'ble SC in the case of P.J. Chemicals (210 ITR 830), it was held that sales tax incentive cannot be reduced from the cost of capital investment as the percentage of capital investment is only a mode of quantification of subsidy and not a payment to meet any portion of the "actual cost":  PCIT v. Welspun Steel Ltd. (103 taxmann.com 436) (Bom HC) (PB 4 pg. 1012-1017)  Nestle India Ltd v. DCIT (1954/Del/2014) (PB 4 pg. 1089-1115)  CIT v. Rasoi Ltd. (46 taxmann.com 214) (Kol T)  Sasisri Extractions Ltd. v. ACIT (122 ITD 428) (Vizac T) (PB 1 Pg. No. 364-367) Additional grounds Additional Grounds 1 to 8 filed by the Revenue are argumentative in nature and pure facets of Department's various arguments to support its original grounds. Assessee has already r....
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....further states that an existing or a new unit would also be eligible for the benefit. New Unit has been defined at Page 376 of the Paper Book. Pioneer Unit has been defined at Pg. 378 as a large scale New unit set up after October 1, 1988. We find that all these facts are mentioned in the Subsidy Schemes itself. We find that the assessee before us falls in the category of "Pioneer Unit" which is also evident from the eligibility certificate issued by SICOM enclosed in Page 399 of the Paper Book 2, which recognizes Vikram Ispat unit as a Pioneer Unit. Thus, under the Maharashtra 1988 Scheme, even new units as well as existing units are entitled to notional sales tax subsidy. We find that the assessee furnished the Package Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra before the lower authorities. These documents are enclosed in pages 368 to 398 of the factual paper book which are part of judicial records. We find that the assessee furnished the eligibility certificate for Sales Tax Incentive issued by SICOM in favour of Vikram Ispat before the lower authorities. These documents are enclosed in pages 399 to 422 of the factual paper book which are part of judic....
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.... 06/10/1994 under Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 before the lower authorities. These documents are enclosed in pages 472 to 478 of the factual paper book which are part of judicial records. We find that assessee furnished the Certificate of Eligibility for exemption of Entry Tax in favour of Caustic Soda Membrance Cell Division before the lower authorities. These documents are enclosed in pages 479 to 480 of the factual paper book which are part of judicial records. We find that assessee furnished the Eligibility Certificate of Entry Tax in favour of Poly Aluminium Chloride Division before the lower authorities. These documents are enclosed in pages 468 to 469 of the factual paper book which are part of judicial records. We find that assessee furnished the New Industries Notification No. A-3-11-86(74)-ST-V dated 16/10/1986 under Madhya Pradesh General Sales Tax Act, 1958 before the lower authorities in respect of Poly Aluminium Chloride Division. These documents are enclosed in pages 437 to 455 of the factual paper book which are part of judicial records. We find that assessee furnished the provisions of Section 12 of the Madhya Prad....
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....d limit with the object of promoting industrial development in the State by setting up of new industrial units within the State of Madhya Pradesh. This fact is evident from Pages 492 to 494 of the Paper Book filed which are part of judicial records. We find that assessee furnished Sales Tax Exemption Scheme (M.P. Vanijyikar Adhiniyam, 1994) before lower authorities. These documents are enclosed in pages 492 to 501 of the factual paper book which are part of judicial records. We find that the assessee furnished Exemption Certificate in favour of Vikram Woollens before lower authorities vide page no. 502 of the paper book which is part of judicial record. Grasim Cement, Unit of Grasim Industries Limited, Sales Tax Exemption 1991 Scheme for units with Capital Investment in fixed assets of Rs. 100 crore or more [Notification no. A-3-27-89-ST-V-(15) dated 19.02.1991 (Madhya Pradesh)] Exemption granted to eligible industrial unit established in any district in Madhya Pradesh with a capital investment in fixed assets of Rs. 100 crore or more (Pg. 517 to 518 of PB) with the object of accelerating pace of industrialisation in the State of Madhya Pradesh. This fact is evident fro....
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.... Poly Aluminium Chloride - State Sales Tax 560 - 562 iii Central Sales Tax Assessment Order for FY 1995 -96 of Poly Aluminium Chloride - Central Sales Tax 563-564 iv Entry Tax Assessment Order for FY 1995 -96 of Poly Aluminium Chloride 565-567 v Entry Tax Assessment Order for FY 1995 -96 of Chloro Sulphuric Acid Division 568-571 Vi Entry Tax Assessment Order for FY 1995 -96 of Caustic Soda Memrance Cell 572-573 Vii RST Return Form for FY 1995-96 of Aditya Cement 574 - 592 viii Sales Tax Assessment Order for FY 1995-96 of Vikram Woollens 593 - 595 ix Sales Tax Assessment Order for FY 1995 -96 of Grasim Cement 596 - 597 Sales tax Orders / Entry Tax Orders - AY 1997-98 AY 1997-98 I Sales Tax Assessment Order for F.Y. 1996-97 of Vikram Ispat. 598 - 604 ii Entry Tax Assessment Order for FY 1996 -97 of Chloro Sulphuric Acid Division 605 - 607 iii Entry Tax Assessment Order for FY 1996 -97 of Caustic Soda Memrance Cell 608 - 610 iv Sales Tax Assess....
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....rashtra Scheme as detailed hereinabove, the said scheme itself defines and explains what is "Notional Sales Tax Liability". The said scheme also contemplates that the "Notional Sales Tax Liability" is required to be quantified by the Sales Tax Officer while framing the Sales Tax assessment for each of the years. Hence, the concept of "Notional Sales Tax Liability" is part and parcel of the Subsidy / Incentive Scheme brought out by the Maharashtra State Government. While this is so, we are unable to comprehend ourselves to accede to the arguments of Ld. Special Counsel for the Revenue that there cannot be any concept of "Notional Sales Tax Liability" and the quantification thereon becomes unworkable. We further strongly condemn the expressions used by the Ld. Special Counsel for the Revenue with regard to the said "Notional Sales Tax Liability" as a "Monster". The aforesaid entire scheme papers were indeed fully furnished by the assessee before the lower authorities, which were categorised by the ld. Special Counsel for the Revenue as "Junk", "Trash" and "Rubbish". We strongly condemn this expression made by ld. Special Counsel for the Revenue for giving scant respect for the extens....
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....the said receipt of subsidy would constitute capital or revenue receipt in the hands of assessee - nothing more nothing less. In any case, the lower authorities below had not even disputed this fact, which is vehemently argued by the ld. Special Counsel for the Revenue. This tantamounts to ld. Special Counsel for the Revenue making out a new case before the Tribunal and trying to travel beyond the brief, which is not permissible as per Law. Hence, we have no hesitation in summarily dismissing these arguments of ld. Special Counsel for the Revenue, as devoid of merits. 5.3.4. We further find that all the aforesaid schemes were subject matter of adjudication and consideration by various Tribunals across the country wherein, it was held that the subsidy / incentive received pursuant to the aforesaid schemes were capital receipts. The details of the various cases are tabulated hereunder:- Sr. No. Judgement Paper Book Pg. No. Objective of Subsidy Scheme in the case law relied upon A Maharashtra Scheme 1 DCIT v. Reliance Industries Ltd. (88 ITD 273) (Mum T SB) 217-232 (PB 1) Sales Tax exemption Scheme of Government of Maharashtra, 1979 for dispe....
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....Scheme 9 CIT v. Shri Cement (ITA No. 204 / 2010) (Raj HC) 248-275 (PB 1) Rajasthan Sales Tax/Central Sales Tax Exemption Scheme for Industries, 1998 for promoting industrial development of the State and encourage new capital investment in industry and thereby promote employment 10 Birla Corporation Ltd. v. DCIT (55 taxmann.com 33) (Kol.) 1128-1145 (PB 4) Sales Tax Incentive under Rajasthan Sales Tax Exemption Scheme of 1998 for encouragement of setting up of industrial project or expansion of existing industrial projects C Haryana Scheme 11 DCIT v. Munjal Auto Industries Ltd and others, SLP dismissed in Civil Appeal No. 6226/2013 against Gujarat HC order in Tax Appeal No. 450 with 451 to 453 of 2012 (Munjal Auto) &Nirma Ltd in Appeal No. 226 of 2010 which is also covered by this SC order 822-824 (PB 4) Scheme framed by the Government of Haryana Haryana General Sales Tax Rules, 1975 for capital outlay expended by the Assessee for setting up of the unit in case of a new industrial unit and diversification of existing unit. D Madhya Pradesh Scheme 12 Universal Cables Ltd Vs. DCIT [2015] 57 taxmann.com 95 (Kolkata - Trib.) 1146-1....
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....strial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be ....
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....nd proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received." 15. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Co. 5 case (supra). 16. There is a Canadian case St. John Dry Dock & Ship Building Co. Ltd. v. Minister of National Revenue 4 DLR 1, which has close similarity to the case of Seaham Harbour Dock Co. 's case (supra). In that case it was held that where subsidies were given under statutory authority, the statutory purpose for which they are authorised is relevant and may even be decisive in determining whether it is taxable income in the hands of the recipient. In that case, it was pointed out after discussing the Seaham Harb....
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....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 irrelevant." 19. Sahney Steel was distinguished, in para 16 by then stating that this Court found that the assessee was free to use the money in its business entirely as it liked. 20. Finally, it 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....
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....he assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. 24. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court 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 w....
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....on of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of the trade. 9. Such decision was considered in case of Ponni Sugars and Chemicals Ltd.(supra) and the Apex Court held and observed as under : "13. The main controversy arises in these cases because of the reason that the incentives were given through the mechanism of price differential and the duty differential. According to the Department, price and costs are essential items that are basic to the profit making process and that any price related mechanism would normally be presumed to be revenue in nature. In other words, according to the Department, since incentives were given through price and duty differentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that ca....
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....d 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 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 irrelevant." 10. In a recent judgement dated 8.1.2013 in case of DCIT-Circle1(2)-Baroda v. Inox Leisure Ltd.,we had an occasion to consider somewhat similar question in the backdrop of entertainment tax waiver scheme of State of Gujarat as well as State of Maharashtra. Even in such a case, the entertainment tax waiver which was granted in terms of sale of tickets was treated as capital in nature when it was found that same was relatable to the ca....
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....not advance the case of the Revenue. 5.3.9. It is pertinent to note that in each of the aforesaid decisions of Hon'ble Supreme Court, the Courts have been mindful of the fact that the subsidy has to be received after commencement of business and to be availed within 9,10 & 12 years, as the case may be, and yet by applying purpose test, it was held that subsidy was on capital account. 5.4. Applicability of Special Bench decision of Mumbai Tribunal in the case of Reliance Industries reported in 88 ITD 273. The ld. Special Counsel for the Revenue vehemently submitted that the decision of the Hon'ble Special Bench has been reversed by the Hon'ble Supreme Court by remitting the matter back to the Hon'ble Bombay High Court. First of all, it would be relevant to bring on record the crux of the decision of the Special Bench in the case of Reliance Industries Ltd. In case of Special Bench decision of Reliance Industries Ltd, the scheme dealt with sales tax exemption under the scheme of Government of Maharashtra, 1979. Further the said scheme was implemented by SICOM. The following question was referred by the Hon'ble President, Tribunal to the Special Bench: "Whether, on t....
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....nal in Asst Year 1985-86 is correct and observed the following: 37....The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of Reliance Industries Ltd. ( supra) had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra). 38. In this view of the matter, we answer the question referred to us in the affirmative. 5.4.2. The ld. AR vehemently submitted that the department did not challenge the decision of the Special Bench before the Hon'ble Bombay High Court. However, he fairly stated that there was a subsequent decision of the Division Bench of this Tribunal which followed the Special Bench and that Division Bench order was challenged by the Revenue before the Hon'ble Bombay High Court. The Hon'ble Bombay High Court while disposing of the said appeal did not reverse the decision of the Special Bench....
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.... therefore, not taxable. However, before the Tribunal such a contention was raised. The Tribunal by the impugned judgment relied upon its earlier judgment for the Assessment Year 1999-2000 in case of this very assessee and restored the issue back to the Assessing Officer. In the earlier order, the Tribunal had remanded the issue to the file of the Assessing Officer "to decide the issue afresh after considering the decision of Special Bench of the Tribunal in the case of Reliance Industries Ltd. (supra)". Thus, the Tribunal remanded the issue back to the Assessing Officer to be decided in the light of the Special Bench judgment in the case of Reliance Industries Ltd. The Revenue's grievance in this respect is two fold. It was contended that the issue was raised for the first time before the Tribunal and the same should not have been permitted. Secondly, the view of the Tribunal in case of Reliance Industries Ltd. was challenged before the High Court. The High Court in a judgment dated 15.04.2009 in Income Tax Appeal No. 1299 of 2008 had held that no question of law in this respect arises and thereby confirmed the judgment of the Tribunal. It was pointed out that against this jud....
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.... 5.4.4. Against this judgement on other issues, the Revenue preferred an SLP before the Hon'ble Supreme Court and the same was dismissed vide order dated 23/08/2019 in SLP (Civil) Diary No.22929/2019. In other words, the Revenue while preferring SLP before the Hon'ble Supreme Court did not even challenge this ground of subsidy and the decision of Special Bench of Tribunal in the case of Reliance Industries Ltd., Hence, the order of the Hon'ble Jurisdictional High Court in assessee's own case for A.Y.2001-02 had become final on the very same issue. Though the said decision has been rendered for subsequent assessment year as compared to the years under consideration before us, in view of identical facts and the same legal issue, and more especially, in order to address the fact of binding precedent of Special Bench decision in the case of Reliance Industries Ltd., this Bench deems it fit to place reliance on the said decision also of the Hon'ble Jurisdictional High Court. Accordingly, we categorically hold that the decision of the Special Bench still holds the field and is a good law. The entire contentions raised by the ld. Special Counsel for the Revenue in this regard are hereby ....
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....ng our limitations. The wisdom of a division bench, even if superior- as strenuously argued by the learned Commissioner, has to make way for the higher wisdom of a larger bench. It is this faith of judicial hierarchical system that is the strength of our functioning, and we must follow the same. We, therefore, regret our inability to follow the division bench in the case of Jindal Power, no matter how deeply we respect and admire the work of all our colleagues, and we would rather be guided by the special bench decision - which is exactly what another division bench, on the same set of facts as before us, did in the case of Ajanta Manufacturing Ltd. (supra). As for learned Commissioner (DR)'s suggestion that we should follow the jurisdictional High Court decision in the case off Colourman Dyechem Ltd. (supra), we find that Their Lordships, in this case, were dealing with an entirely different type of subsidy which was clearly dealing with an expansion situation. However, we would rather refrain from making any further detailed observations on this issue, as we are alive to the fact that Hon'ble jurisdictional High Court, in Tax Appeal No 358 of 2012, has admitted appeal aga....
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....sel for the Revenue is misplaced and does not come to the rescue of the revenue. 5.4.8. We further find that the ld. Special Counsel for the Revenue repeatedly reiterated that the decision of the Hon'ble Supreme Court in the case of U.P. Rashtriya Chinni vs. State of Uttar Pradesh and Others dated 02/07/1995 reported in 1995 SCC(4) 738 was not cited before the Special Bench of Mumbai Tribunal while rendering the decision in the case of Reliance Industries Ltd., and therefore, the Special Bench decision is non-est and loses its binding precedent. At the outset, we would like to state that UP Rashtraiya Chinni decision was not rendered in the context of Income Tax Act and the taxability of subsidy was not an issue there before the Hon'ble Supreme Court. We have already stated hereinabove that the decision of the Special Bench of Reliance Industries was never stayed or reversed by any higher judicial forum. Infact even the decision of Hon'ble Supreme Court in the case of U.P.Rashtriya Chinni supra states that the judgement holds good till it is set aside or its correctness is doubted by the Higher Court. Once the correctness of a judgement is doubted by the Higher Court, the judgem....
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....st question, in which, the Revenue argues that, if the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition. 10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such back-ground, question - arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v. Grace Paper Industries (P.) Ltd. [1990] 183 ITR 591/52 Taxman 18. The Court noted that, the subsidy was granted by the Government for development of industries in back-ward areas. It was not part of the actual cost of plant or machinery. The Court, th....
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....ication of subsidy on the basis of investment was a measure adopted by the Government for convenience to work out the subsidy. If subsidy could be utilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while computing the value of fixed assets for the purposes of subsidy. In other words, it was the value of the fixed assets which formed th....