TaxTMI 
TaxTMI 
2023 (1) TMI 817
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....ied as to the purpose for which the subsidy had been utilized. 2. Whether the Ld.CIT (A) was justified against the AO's action of not considering the claim of Education Cess on income tax Rs. 67,83,793/- and Education Cess on Dividend Distribution Tax of Rs. 4,66,570/- by ignoring judgments of the Hon'ble High Courts in which Education deduction." was not allowed as deduction. 3. Whether the words "Income tax in the Finance Act of 1964 in sub-s(2) and sub-s (2)(b) of s.2 would include surcharge and additional surcharge. 4. Whether, the Ld.CIT(A) has erred both in law and on facts in failing to appreciate the findings of the assessing officer." 2. Fact in brief is that return of income declaring total income of Rs.71,21,91,480/- was filed on 27.09.2012. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 06.08.0213. Further remaining facts of the case are discussed while adjudicating the ground of appeal filed by the revenue. 1st Ground: Claim of sale tax subsidy of Rs.1,49,39,458/-: 3. During the financial year relevant to the assessment year under consideration the assessee has raised additional ground of appeal before the ld....
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....e taken a view that such claims can be made by the assessee at any stage of appellate proceedings as well. The Hon'ble Mumbai High Court has decided an identical issue in case of Pruthvi Brokers Pvt. Ltd 253 CTR 0515, where in it has been held that such issues can be raised before CITAY's though it was not claimed at the time of filing of return. 9.5 Before going into the merit of the allowability of Sales Tax Subsidy of Rs. 1,49,39,458/, the admissibility of the additional ground needs to be examined. It is an admitted fact that the claim was neither made in the Rol nor claimed before the A.O. during the assessment proceedings. Section 250(5), which empowers the CIT(A) to admit additional grounds reads as under- "(5) The Commissioner (Appeals)] may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the Commissioner (Appeals)] is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable." The provision clearly specify that before admitting an additional ground, the CTT(A) has to be satisfied with respect to the omission of the ground from the form of appea....
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....29 ITR 383(SC), 2. Jute Corporation of India Vs. CTT 181 ITR 688 (SC). Therefore, considering the overall facts and legal position on the issue, remand report of the AO and the rejoinder of the appellant, the additional ground taken by the assessee is admitted and is adjudicated as under: 9.8 As regards Sales Tax Subsidy, the AO in its remand report has stated that the nature of a subsidy, whether capital or revenue would depend on the purpose for which such subsidy is given and in case the purpose of the subsidy is to support the assessee to set up its business, to complete a project, or to acquire a capital asset, the subsidy would be regarded as capital receipt. However, if the subsidy is given to the assessee for assisting him in carrying out the trade/business operations only after commencement of production, such subsidy would be regarded as a revenue receipt. In cases where subsidies were not granted for production of any new asset and were granted year after year only after setting up of the new industry and commencement of production, such subsidies would be regarded as assistance given for the purpose of carrying on of the business of the assessee thus, would be tax....
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....he appellant during the appellant proceedings in the form of Paper Book placed at Paper book. The said unit was eligible for sales tax incentive as per the Government Resolution, Industries, Energy and Labour, No IDL-1093/(8889)/IND-8 dated 07.05.1993. 9.12 I have considered the facts of the case, submissions of the assessee and material on record and feel that this incentive receipt in the form of sales tax subsidy is in some way connected to capital receipt in the form of technology upgradation and expansion of capacity of the plant. The Hon'ble Supreme Court in the case of CIT vs Ponni Sugars & Chemicals Ltd (2008) 306 ITR 392 (SC) has examined this issue in great detail and held that if the purpose of incentive or subsidy was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was of capital in nature. For clarity the relevant portion of the decision is reproduced as under: "15. In the decision of House of Lords in the case of Seaham Harbour Dock Co. v. Crook (1931) 16 TC 333 the Harbour Dock Co. had applied for grants from the Unemployment Grants Committee from funds appropriated by Parliament. The said grants were....
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....nsion of existing business. 17. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of the incentive subsidy we are satisfied that such payment received by the assessee under the Scheme was not in the course of a trade but was of capital nature. Accordingly the first question is answered in favour of the assessee and against the Department." 9.13 An identical issue has been examined by Hon'ble ITAT Chennai in the case of Eastman Exports Global Clothing Pvt. Ltd. In ITA No. 47/MDS/2016 dated 17.05.2016. The said decision by ITAT considered Market Linked Focus Product Scheme (MLFPS) held as this incentive is capital receipt by observing as under: "9. We have considered the rival submissions on either side and also perused the relevant material available on record. The Market Linked Focus Product Scheme is a scheme promoted by the Director General of Foreign Trade wherein incentive @ 2% on the FOB value of the total export was allowed. As per the Scheme, the incentive was given to export products in a specified market. The export of products which are covered under FPS list would be given incentive of 2% on FOB value of....
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....8 lakhs are also capital receipt. The assessment as well lower authority treated it as revenue receipt. This amount represents interest subsidy @5% separately account for receipt instead of netting the same as against interest paid amount. It emerges from CIT vs Shamlal Bansal that their lordship have held that a TUF receipt is only a capital receipt." 9.17 Similarly, the issue whether the interest subsidy received under the technology up gradation fund scheme (TUF) is capital receipt or revenue receipt was came up for consideration before the Hon'ble ITAT, Kolkata bench in the case of M/s. Gloster Jute Mills Ltd vs Addl. CIT in ITA No. 687/Kol/2010 and the Hon'ble ITAT, vide order dated 02.07.2014 decided the issue in favour of the assessee with the following observation:- "9. We have carefully considered the submissions. We find considerable cogency in the submissions of the Id. Counsel of the assessee. We find that identical issue under the Technology Upgradation Fund Scheme (in short "TUFS) of Ministry of Textiles was considered by the Hon'ble Punjab & Haryana High Court in ITA No. 472 of 2010 vide decision dated 17.01.2011. Hon 'ble High Court has considere....
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....secondly that it was for repayment of loans. Both these factors do not distract from the nature of the subsidy being treated as capital as explained by the Hon'ble Supreme Court in the case of Ponni Sugars Chemicls Ltd. (supra). 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt, as per judgment of the Hon 'ble Supreme Court in Sahney Steel & Press Works Ltd. &Ors. v. CTT (1 997) 228 ITR 253 ITA No. 95/Kol/2011 M/s. Gloster Jute Mills Ltd.A.Yr.2007-08 5. We are unable to accept the submission.6. The purpose of scheme under which the subsidy given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology up....
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....d decide the issue in favour of the assessee." 9.18 In view of the principals laid down by the Hon'ble Apex Court in the case of CIT vs Ponni Sugars & chemicals Ltd (supra), decision of Hon'ble Punjab & Haryana High Court in the case of Sham Lal Bansal and various other decisions as given above, it is held that the Sales Tax Subsidy received by the appellant is capital receipt, which is not chargeable to tax. However, the AO will ascertain the actual amount of subsidy eligible for this purpose whether Rs. 1,54,15,244/- as claimed in the submission or Rs. 1,49,39,458/- as stated filing the additional ground of appeal." 4. Heard both the sides and perused the material on record. During the year under consideration the assessee has received the sale tax subsidy and raised additional ground before the ld. CIT(A) for considering the sale tax subsidy as capital receipt. The ld. CIT(A) has elaborated in his finding as supra that assessee has set up a manufacturing unit at Lote and Mahad in the state of Maharashtra. The said unit was eligible for sale tax as per the Government Resolution, Industries, Energy and labour, No. IDL -1093/[8889]/IND-8 dated 07.05.1993. The ld. CIT(A) ....
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....u/s 40(a)(ii) w.e.f 01.04.2005 as per Finance Act 2022. Therefore, we consider that assessee is not eligible for claiming deduction of education cess while computing total income. Therefore, this ground of appeal of the revenue is allowed. 8. The appeal of the revenue is partly allowed. ITA No. 402/Mum/2022 1st Ground: Disallowance u/s 40(a)(i) of the Act: 9. During the course of assessment the A.O noticed that assessee has made payment to non-resident of Rs.55,160/- to ICIC prising U.K. and Rs.2,12,603/- to Platts USA. After considering the detailed submission filed by the assessee the A.O observed that the payment made were in the nature of royalty payment since the aforesaid payments were made for the right to use the process or information concerning industrial commercial or scientific experience which was liable to be taxed as royalty as per the provisions of Sec. 9(i)(vi) of the Act. The assessee company has not deduct tax as per the provision of Sec. 195 of the Act, therefore, the A.O disallowed the amount of Rs.2,67,763/- u/s 40(a)(i) of the Act. 10. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.....