TaxTMI 
TaxTMI 
2024 (9) TMI 735
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....tal receipt. 2. On facts and circumstances of the appellants case and in Law the learned Assessing Officer erred in not allowing the cess paid of Rs. 35,02,834 as deduction in the assessment order. 3. The Appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. Any other grounds which shall be prayed at the time of hearing." 3. The issue arising out of Ground no.1, relates to receipt of Sales Tax Subsidy of Rs. 11,99,56,135 by the assessee which was not reduced by the Assessing Officer and the same was computed as book profit under the MAT provisions since the same was credited in Profit & Loss Account considering it as revenue grant as per its accounting policy. 4. Facts in Brief:- The assessee company is in the business of manufacture of Detonators/Filled shells, Aluminium & Copper Tubes, Fuse Head. The industry is set up at Sawange Village in Nagpur, which is a notified by Government of Maharashtra under Mega Project 2007. The assessee electronically filed its return of income under section 139 of the Income Tax Act, 1961 ("the Act") on 29/11/2017, declaring gross total inc....
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.... part of revenue from operations and the said grant is recognized as revenue. In this regard, the learned A.R. invited the attention of the Bench to Note 2.2.j. of the "Significant Accounting Policies" which is placed on record at Page-26 of the Paper Book. 8. In the return of income, the assessee claimed the Sales Tax Subsidy as capital receipt and deducted the same while computing the income under the head 'Profit and Gains of Business or Profession' under the normal provisions of the Act. However, while computing the book profit under the MAT provisions of the Act, the assessee did not correspondingly reduce the book profit. 9. The Assessing Officer while computing the book profit has not made any downward adjustments to the book profit on account of sales tax subsidy relying upon the decision of the Hon'ble Supreme Court in Apollo Tyres Ltd. v/s CIT, [2002] 255 ITR 273 (SC), whereby the Assessing Officer concluded that the adjustment, as claimed by the assessee is outside the scope of the Items (i) to (viii) specified under Explanation 1 to sub-section (2) of section 115JB of the Act. Since the assessee has not made the claim by filing the revised return of income, th....
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....cal monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as 'capital'. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production." (underlined and bold for emphasis) Similar view is taken by the courts in the following decisions: Sassoon v CIT (26 ITR 27 at 49) (SC); CIT v Chunilal (6 ITR 521 at 529) (PC); and CIT v Jaora Oil (129 ITR 423 at 425) (MP). This above definition was followed in Gopal Saran Narain Singh v CIT (3 ITR 237 at 242) by Lord Russell of Killowen, the Privy Council in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT (11 ITR 513). The Allahabad High Court in Rani Amrit Kunwar v. CIT (14 ITR 561 at 570) held that: "An....
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....able under the Act. The receipt which is neither "Profit" nor "Income" and which does not have any element thereof embedded therein, cannot be the part of the profit as per the profit and loss account prepared in terms of Part II of Schedule VI to the Companies Act. In the present case, the Appellant has received the sales tax subsidy which is a pure and simple capital receipt since the incentives has been granted to the Appellant to accelerate industrial development and generate employment opportunities in the specified backward area as held by the Apex Court in various decisions, thus, it does not have any "income" or "profit" element embedded in it. Therefore, it is humbly submitted that the impugned subsidy is not income and as such is outside the scope of the charging section, both, under the normal provisions of the Act, as also under the MAT provisions of the Act. Subsidy when capital receipt not subject to tax: The Supreme Court in CIT Vs. P. J. Chemicals Ltd (210 ITR 830) while considering the question as to whether the character and nature of a subsidy was really intended to subsidies the cost of the capital or was intended as an incentive to encourage entrepreneurs ....
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....entary trade receipts. It was true that the assessee could not use this money for distribution as dividend to shareholders. But the assessee was free to use the money in its business entirely as it like and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, bringing into existence and the new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly." (Underlined and bold for emphasis) Very recently, the Hon'ble Supreme Court in CIT Vs. Ponni Sugars and Chemicals Ltd (306 ITR 392) has once again considered the question about the nature of subsidy received by the assessee and held as under: "The character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidies granted. In other words, one is to apply the purpose test. The point of time at which the subsidies paid is no....
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....d as part of book profit or not held that since the reserve was not created by debiting the profit and loss account, the assessing officer had no power to go behind the accounts and, therefore, the assessing officer erred in adding amount of excise duty refund subsidy while computing book profit under section 115JB. The Gujarat High Court in CIT v. Narmada Clean Tech Ltd. (446 ITR 366) while dealing with a question as to whether sales tax subsidy shall be treated as part of book profit or not held that no error of law is committed by the ITAT as well as the CIT(A), while deleting the addition of an amount of Rs. 3.87 crore by treating the same under the capital subsidy. Moreover, it is submitted that the issue of subsidy received is capital in nature is not under dispute as both the lower authorities have accepted the same. The only dispute raised by lower authorities is whether the capital subsidy can be reduced from book profit u/s 115JB when the same has been credited to P & L account. Submissions as to treatment of subsidy while computing book profit under section 115JB of the Act irrespective of exclusion provision under Explanation 1 to sub-section (2) of section 115JB ....
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.... effect on the law on the subject applicable to the assessment years in question." (underlined, bold and italics for emphasis) The Mumbai Tribunal, being jurisdictional Tribunal in ACIT Vs. JSW Steel Ltd. (180 ITD 505), while dealing with the question as to whether when a particular receipt is exempt from tax under the Act then the same cannot be considered for the purposes of computation of book profit under section 115JB of the Act held that such receipt shall be excluded while computing the book profit. The facts of this case were as under: The brief facts of the issue in question in cross objection filed by the assessee were that the assessee had received a sales tax subsidy of Rs. 36,15,49,828/- from the Government of Karnataka for setting up a new industrial unit in the backward area of the State. The refund of sales tax subsidy was routed through the profit and loss account and hence, the same was considered as part of the book profits u/s 115JB of the Act. Subsequently, the assessee realized that sales tax subsidy being capital receipt as held by the Ld. CIT(A), the same is not taxable under the MAT provisions and accordingly, the issue was raised before the Tribunal.....
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....estion should be excluded for the purpose of determination of book profits under s. 115JB of the Act. We hold accordingly and dismiss ground No. 2 raised by the Revenue." Finally the Tribunal concluded as under: "Conclusion: Incentive received by the assessee-company by way of excise duty exemption on setting up a new unit in the notified area of Sikkim is a capital receipt not chargeable to tax and therefore, it cannot be regarded as income even for the purpose of book profit under s. 115JB though credited in the P & L a/c and has to be excluded for arriving at the book profits." (underlined, bold and italics for emphasis) The Gauhati Tribunal in Sunrise Biscuit Co. (P.) Ltd. v. ITO (92 ITR (T) 599) while dealing with a question as to whether sales tax subsidy shall be treated as part of book profit or not held that the subsidies in question should be excluded for the purpose of computing book profits u/s. 115JB of the Act. Similar view is taken by the Courts in the following decisions: Shivalik Venture (P) Ltd. v. Dy. CIT (70 SOT 92) (Mum - Trib); Duke Offshore Ltd. v. Dy. CIT (45 SOT 399) (9 taxmann.com 214) (Mum.); Dy. CIT v. Garware Polyester Ltd. (IT Appeal No....
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....y the assessee by way of refund of VAT and Excise duty for setting up new industries in States of Assam and West Bengal for development of industries and generation of employment opportunities in these States could not be regarded as income for the purpose of book profit even though the same was credited to the books of account. The Calcutta Special Bench of the Tribunal in Sutlej Cotton Mills Ltd. v/s. ACIT (199 ITR 164), while dealing with the computation of book profit under section 115J of the Act held that a particular receipt, which is admittedly not an income, cannot be brought to tax under the deeming provisions of section 115J of the Act, as it defines the basic intention behind introduction of the provisions of section 115J of the Act. The specific finding of the Tribunal reads as under: "In the case of capital gains, it is a receipt which is not taxable at all but for a deeming provision. Even the deeming provision is subject to exclusion in respect of certain receipts which fulfil certain conditions such as reinvestment. Section 115J has recognised this and has provided in Explanation, clause (f), item (ii), that the amounts falling under Chapter III are to be exclu....
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....profit u/s 115JB would defeat two fundamental principles. Firstly, it would levy tax on receipt which is not in the nature of income at all and, secondly, it would not result in arriving at real working results of the company. The Supreme Court further find merit in the assessee's claim that the subsidies being capital in nature, deserves to be excluded from the computation of book profit u/s 115JB of the Act. The specific finding of the Apex Court reads as under: "Clauses (i) to (vii) of the Explanation to section 115JB(2) of the Income-tax Act, 1961 represent items of reduction from the net profits. Clause (1) mandates reduction for the amounts withdrawn from the reserves earlier-created, provided such amounts are credited to the profit and loss account. Clause (1) contemplates only those reserves which actually affect the net profits as shown in the profit and loss account. The object of clauses (i) to (vii) is to find out the true working result of the assessee company. Only if the reserves created have gone to increase the book profits in any year when the provisions of section 115JB are applicable, would the assessee be entitled to reduce the amount withdrawn from such ....
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....he assessee were capital in nature and therefore not liable to tax. In the circumstances therefore, inclusion of such capital receipt in the computation of book profit u/s 115JB would defeat two fundamental principles. Firstly, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. We thus find merit in the assessee's claim that the said subsidies being capital in nature, deserves to be excluded from the computation of book profit u/s 115JB of the Act." (underlined and bold for emphasis) The Kolkata Tribunal in DCIT v/s. Century Plyboards (India) Ltd. (187 ITD 35), while dealing with the question as to whether the capital subsidies can be excluded from the computation of the book profit and following the decision of the Supreme Court in Indo Rama Synthetics (India) Ltd. (supra) held as under: "As held in the preceding paras, the subsidies received by the assessee were capital in nature and therefore not liable to tax. In the circumstances therefore, inclusion of such capital receipt in the computation of book profit u/s 115JB would defeat two fundamental principles. Firs....
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....' at all and hence falls outside the purview of the computation provisions of IT Act, cannot also be included in book profit under s. 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point." Similar view is taken by Kolkata Tribunal in DCIT v. Emami Biotech Ltd. (ITA No. 1915/KOL/2017 dated 29-3-2019). The Kolkata Tribunal in DCIT v/s. Binani Industries Ltd. (178 TTJ (Kol.) 658), dealt with a question as to whether receipt on account of forfeiture of share warrants, being a capital receipt, would be liable for taxation under section 115JB of the Act, the Tribunal after referring to the following decisions held that: "(i) the object of Minimum Alternate Tax (MAT) provisions incorporated in 115JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. Inclusion of receipts which are not in the nature of income in computation of book profits for MAT would defeat two fundamental Principles, it would levy tax on receipt which was not in nature of income at all and secondly, it would not result in arriving at real working results of company. Real working result could be ar....
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....itive edge to the State's industry. The policy envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced Regional Development and Employment Generation through Greater Private and Public Investment in industrial development. The Package Scheme of Incentives 2007 outlines the eligibility criteria, quantum of incentives and monitoring mechanism for administering the incentives." (underlined and bold for emphasis) Based on the aforesaid object it can be seen that, if the subsidy is granted under the Scheme for setting up the unit in the specified backward area then, in that case, such subsidy would be treated as capital in nature. It is to be noted that both the AO and CIT(A) in the present case has accepted the fact that the impugned subsidy is "capital in nature". This fact can be evident from the para 5.2 of the assessment order and para 4.1.2 of the CIT(A) order. From this paragraph, it can be seen that the AO has not made any disallowance with respect to the sales tax subsidy though claimed as "capital receipt" and deducted from the "total income" offered to tax in the return of income by the Appellant. Needless to ....
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....t and loss account as per the accounting principles. The specific finding of the High Court reads as under: "The intention of the legislature is to charge minimum alternate tax on the real profits and not on artificial profits." Submission as to Amendment to clause (24) of section 2 of the Act: The Finance Act 2015 has amended clause (24) of section 2 of the Income- tax Act, 1961. By virtue of this amendment sub-clause (xviii) has been inserted to clause (24) of section 2 of the Act so as to provide that income shall include assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver or concessions or reimbursements (by whatever name called) by the Central Government or State Government. However, while inserting the said sub-clause the subsidy or grant or reimbursements which are taken into account for determining the actual cost of the asset in accordance with the provisions of the Explanation 10 of section 43(1) of the Act shall be excluded. Subsequent to aforesaid amendment, the Central Board of Direct Taxes ("CBDT") had issued a Circular No. 19 of 2015 dated November 27, 2015. Vide paragraph 5.1 running through paragraph 5.3 whereby it is clari....
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....ct is outside the scope of sub-clause (xviii) of clause (24) of section 2 of the Act. In other words, subsidies which are subject to adjustments against the cost of assets, then, such subsidies cannot be treated as income but, capital receipt. Therefore, impugned subsidy which is adjusted against the cost of assets can be treated as capital in nature. The appellant has duly reduced the subsidy from the cost of the assets. The above reduction has been accepted by the AO as well as CIT(A) in their respective orders and accordingly, the same is not under dispute. Further, it is pertinent to mention here that AO himself has reduced the subsidy from the cost of the assets u/s 43(1) while passing the order for AY 2013-14 u/s 154 dated 23.11.2016 and for AY 2014-15 u/s 143(3) dated 24.11.2016 since the assessee had not suo-moto reduced the same in those years. It is the settled legal position that the orders, instructions, circulars, directions, etc., issued by the Board are binding on the Officers of the Tax Department. The proposition is supported by the following decisions: In the following decisions courts have held that the orders instruction, etc., issued by the Board are bind....
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.... 56. The sales tax demand was raised pending the income- tax assessment for that year. The Income-tax Officer rejected the assessee's claim for deduction of that amount on the ground, (1) that the assessee had contested the sales tax liability in appeals, and (ii) that it had made no provision in its books with regard to the payment of that amount. The appeals to higher authorities or courts taken by the assessee contesting its liability to pay the sales tax ultimately failed. On appeal, the Supreme Court held as under: "Held, that the moment a dealer made either purchases or sales which were subject to sales tax, the obligation to pay the tax arose. Although that liability could not be enforced till quantification was effected by assessment proceedings, the liability for payment of tax was independent of the assessment. The assessee, which followed the mercantile system of accounting, was entitled to deduct from the profits and gains of its business liability to sales tax which arose on sales made by it during the relevant previous year. The assessee was entitled to the deduction of the sum of Rs. 1,49,776 being the amount of sales tax which it was liable under the law to ....
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....essee preferred an appeal before the Com- missioner of Income-tax (Appeals), who agreed with the Assessing Officer and, accordingly, took the view that once the management in its books spread over the amount of Rs. 10,02,23,735 over a period of 60 months then, the Department was right in not giving the full deduction of Rs. 10,02,23,735 during the assessment year in question. Being aggrieved, the assessee carried the matter in appeal to the Tribunal. The Tribunal took the view that the voluntary retirement scheme expenses were not incurred for acquiring any asset. That, it was incurred in order to reduce the cost. That, under the VRS the liability stood ascertained, quantified and paid. That the liability was discharged during the accounting year ending March 31, 1996. The Tribunal also found that the VRS had been approved by the Commissioner of Income- tax. In the circumstances, the appeal was. allowed. Being aggrieved by the decision of the Tribunal, the matter has come before us in appeal under section 260A of the Income-tax Act. On appeal by the Revenue, the High Court held as under: "(i) That the said expenses were incurred by the assessee to save expense. This was not ref....
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....ted in accordance with either cash system of accounting or mercantile system of accounting. As per sub section (1) of section 128 of the 2013 Act a company is compulsorily required to follow mercantile system of accounting. The Appellant being a company is compulsory required to follow mercantile system of accounting with respect to its income and expenses, etc. Sub- section (2) of Section 145 of the Act provides that Central Govemment may notify in the Official Gazette from time to time, ICDS to be followed by any class of assessee. The Central Government pursuant to power given under sub-section (2) of section 145 of the Act has notified ICS which are required to be followed by assessees', other than individual/HUF, who is not required to get accounts of the previous year audited in accordance with provisions of section 44AB of the Act. The Central Government has notified ICDS VII relating to "government grants". Now, the Appellant invites Your Honours kind attention to paragraph 6 of the ICDS VII, which is as under: "1. Where the Government grant relates to a non-depreciable asset or assets of a person requiring fulfilment of certain obligations, the grant shall be recogni....
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....is not under dispute. Further, it is pertinent to mention here that AO himself has reduced the subsidy from the cost of the assets u/s 43(1) while passing the order for AY 2013-14 u/s 154 dated 23.11.2016 and for AY 2014-15 u/s 143(3) dated 24.11.2016 since the assessee had not suo-moto reduced the same in those years. From the aforesaid facts, it can be seen that the impugned subsidy is capital in nature. Since the sales tax subsidy is capital in nature and not income even as per provision of ICDS, the action of the lower authorities of treating the same as part of the book profit for the purpose of MAT provisions of the Act is not justified and ought to be deleted. Based on the facts and circumstances of Appellant's case, submissions given in the preceding part of this submission, the objects and intent of the statutory provision of the Act and settled legal position referred to above, the impugned subsidy be treated as capital in nature and, ought to be reduced from the computation of the book profit. Now coming to the issue related to treatment of these subsidies while computing book profit u/s 115JB, it is to be noted that the Hon'ble Apex Court in Apollo Tyres L....
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....ction of the Tribunal entertaining/ allowing the claim which was made by the assessee before the Assessing Officer by filing a revised computation instead of filing a revised return since the time to file the revised return had lapsed, for claiming to treat the incentive subsidies in question as capital receipts instead of revenue receipts as claimed in original return. The Assessing Officer had denied this claim. The Revenue has attacked the order of the Tribunal by relying on the decision in the case of Goetze (India) Ltd. v. CIT reported in [2006] (284 ITR 323)(SC)." In this regard the High Court held as under: "(iii) That since the time to file the revised return had lapsed, for claiming that the incentive subsidies in question be treated as capital receipts instead of revenue receipts as claimed in the original return, following the decision in CIT v. BRITANNIA INDUSTRIES LTD. [2017] 396 ITR 677 (Cal) as well as the view taken that the subsidies were capital receipts and not income liable to tax, the Tribunal in exercise of its power under section 254 was justified in allowing this claim though no revised return under section 139(5) was filed before the Assessing Officer."....
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....contained code and no adjustments are possible which is not specified in the said section. He particularly averted that from the assessment year 2016-17, subsidies are considered part of the total income and the concept of capital receipt has been given a go bye. He drew our attention to provisions of Explanation-1 to section 115JB of the Act and the items to be reduced from book profit specified in clauses (i) to (viii) and submitted that reduction of subsidy is not envisaged in the provisions. Accordingly, the learned Departmental Representative vehemently stated that there is no scope to interfere in the order passed by the learned CIT(A) wherein the order of the A.O. has been upheld. 13. We have given a thoughtful consideration to the arguments made by the rival parties and perused the material available on record. We have also analysed the issues raised in a punctilious manner. After thread bare analysis, we find that the A.O. did not disturb the adjustment of sales tax subsidy of Rs. 11,99,56,136, against the cost of fixed assets, a copy of which is placed on record at Page-8 of the Paper Book and the same is reproduced below:- Details of reduction of subsidy from cost of a....
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....'ble Calcutta High Court in the case of Ankit Metal and Power Ltd. (supra) held that subsidies received for setting up new industry is not in the nature of income and therefore cannot be deemed as income for the purposes of computing book profit u/s 115JB of the Act. In the decided case the assessee had received interest subsidy under the WB Incentive Scheme, 2000 and power subsidy under the Power Intensive Industries Scheme, 2005 for setting up Sponge Iron Plant in Bankura. Before this Tribunal, the assessee claimed that receipt of such subsidies in form of remission of interest and power/electricity duty payments etc. was capital receipt not liable to tax both under the normal computational provisions as well as book profit u/s 115JB of the Act. The Tribunal answered the issue in favour of the assessee. On appeal by the Revenue, the Hon'ble High Court upheld the order of this Tribunal by observing as under: "26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under s....
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.... has not been specifically provided under explanation below sec.115JB (2) of the Act. 22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of sec. 115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company. the income tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the Ist day of April, 2001, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of sec. 115JB of the Act. were applicable. Every assessee, being a company, shall, for the purposes of section 115JB of the Act, prepare its profit and loss account for the relevant previous year in....
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....CIT [2011] 330 ITB 336/9 taxmann.com 25. Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. v. Dy. CIT [20101 40 SOT 265 (Hyd.) (SB). ITAT Luknow Bench in the case of ACIT v. L.H. Sugar Factory Ltd. and vice versa [ITA Nos. 417, 418 & 339/LKW/2013, dated 9-2-2016) and decision of Mumbai ITAT in the case of Shivalik Venture (P.) Ltd. v. Dy. CIT [2015]70 SOT 92/60 taxmann.com 314, came to the conclusions (1) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec. 115JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12....
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.... that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to sec. 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "t....
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.... in Bankura. Before this Tribunal, the assessee claimed that receipt of such subsidies in form of remission of interest and power/electricity duty payments etc. was capital receipt not liable to tax both under the normal computational provisions as well as book profit u/s 115JB of the Act. The Tribunal answered the issue in favour of the assessee. On appeal by the Revenue, the Hon'ble High Court upheld the order of this Tribunal by observing as under: "26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under section 115JB of the Income-tax Act, 1961 as contended by the revenue by relying on the decision in the case of Appollo Tyres Ltd. (supra). 27. In this case since we have already held that in relevant assessment year 2010-11 the incentives "Interest subsidy' and 'Power subsidy' is a 'capital receipt and does not fall within the definition of Income' under section 2(24) of Income-tax Act, 1961 and when a receipt is not on in the character of incom....
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....d at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee, being a company, the income tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of sec. 115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115JB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its ac....
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....os. 417. 418 & 339/LKW/2013, dated 9-2-2016] and decision of Mumbai ITAT in the case of Shivalik Venture (P.) Ltd. v. Dy. CIT [2015] 70 SOT 92/60 taxmann.com 314, came to the conclusions. (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec. 115JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise. (ii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/-by the Assessee in its notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for year ended 31-3-2009. Profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, included notes on accounts thereon and accordingly....
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.... provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income-tax Act, cannot also be....
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....e case of Ankit Metal and Power Ltd. (supra). In the decided case also, the assessee had raised this plea for the first time before the Tribunal viz., the subsidy received under the State Industrial Scheme is capital in nature and therefore should be excluded from the book profit u's 115JB of the Act. The Tribunal admitted this legal issue raised by the assessee and answered it in their favour. Before the Hon'ble High Court, the Revenue raised the following question for their consideration. "(ii) Whether on the facts and in the circumstances of the case the learned Tribunal erred in law in accepting the claim of deduction by the assessee towards Interest subsidy' and 'Power subsidy under the aforesaid schemes by filing revised computation instead of revised return before the assessing officer for exclusion of the aforesaid receipts from the book profit under section 115 JB on the ground that the said subsidies do not constitute income under section 2(24) of the Income-tax Act, 19617. 14.12 The Hon'ble High Court answered the question in negative and in favour of the assessee by observing as under:- "28. The third issue involve in the instant appeal which r....
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....rovisions as well as book profit u's 115JB of the Act. These grounds of the Revenue are therefore dismissed." 16. Placing full reliance on the settled jurisprudence, we direct that the capital subsidy should be reduced for computation of book profit. Particularly in view of the excruciating fact that reduction of subsidy from written down value was accepted by the Assessing Officer and he did not tinker with the amount of depreciation claimed. 17. The key takeaways in holding the rationale is summarised below:- i) The company is justified in raising additional claim of reduction of subsidy from computation of book profit though not claimed at the time of filing return of income; ii) Upon verification of income tax return, it is clear that the amount of subsidy has been reduced from WDV for the purpose of computation of depreciation and as per Income Tax Act; iii) Once the subsidy has been reduced to compute the actual cost of machineries & building, it can no longer be considered as income, even under section 2(24)(xviii) w.e.f. A.Y. 2016-17; iv) Once it is not income, the same cannot be part of book profit, though it is shown in Profit & Loss Account, because capital....