TaxTMI 
TaxTMI 
2003 (10) TMI 255
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....91 for the asst. yr. 1986-87 is that the CIT(A) erred in "not directing the learned Dy. CIT to consider the appellant's claim for an amount of Rs. 14,70,40,220 being the amount exempted from payment to the Government of Maharashtra as part of subsidy quantified for setting up a new Industrial Unit in the Specified Backward Area, being Patalganga at Raigad District pursuant to the eligibility certificate issued under the 1979 Scheme. The appellant submits that the said subsidy is of capital nature and is a grant which is not actually repayable by the appellant, but represents the incentives provided by the Government of Maharashtra with relation to the cost of the project." This appeal in which there were various other grounds also was consolidated with the appeal filed by the Department in ITA No. 4045/Bom/1991 and both the appeals were posted for hearing. At this stage, the CIT-3, Mumbai by letter dt. 27th Jan., 2003, addressed to the Hon'ble President, ITAT, made a request for constituting a Special Bench. The relevant portion of the letter is reproduced below: "Sub: Request for constitution of Special Bench-Appeal before the Tribunal in the case of M/s Reliance ....
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....ss: Notional sales-tax liability in respect of sales of finished good and purchase of law material by PFY Unit for 1985 being nature of subsidy, hence capital receipt not liable to tax." While completing the assessment under s. 143(3) of the Act by order dt. 30th March, 1989, the above claim was dealt with by the AO as follows: "(iii) Notional sales-tax liability The assessee-company in its computation of income has claimed deduction on account of notional sales-tax liability of Rs. 14,70,40,220. The notional sales-tax liability is claimed in respect of sales on different goods and purchase of raw-material by PFY unit for 1985 being in the nature of subsidy. It has been claimed by the assessee that the subsidy is a capital receipt and not liable to tax. The Patalganga unit of the assessee is located in notified backward area. The sales-tax liability of the assessee has been exempted by the State Government. Under the Scheme of incentive, the assessee is not required to pay any sales-tax to the Government. The assessee has contended that nonpayment of sales-tax should be considered indirectly as subsidy by the Government, which is of capital na....
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....owed the appellate order for the asst. yr. 1985-86 in the assessee's own case. 5. The assessee is in further appeal to the Tribunal and as already stated, the issue has been placed before the Special Bench for decision. 6. It is now necessary for us to take a look at the position vis-a-vis the issue referred to the Special Bench, in the asst. yrs. 1984-85 and 1985-86. In both the years, the matter had reached the Tribunal in ITA No. 1418/Bom/1988 and ITA No. 7554/Bom/1989 respectively. In the order passed by the Tribunal for the asst. yr. 1984-85 on 27th April, 1994, this issue has been discussed in paras 20 to 34 of the Tribunal's order. In that year, the assessee had claimed deduction of Rs. 4,40,71,858 in respect of notional sales-tax liability as capital receipt. A perusal of these paragraphs shows the following factual position: A. The assessee set up a unit in Patalganga which is a notified backward area and became eligible for the incentives announced by the Government of Maharashtra. The unit commenced commercial production in November, 1982. B. The incentive was in the form of exemption from liability for payment of sales-tax for a period of....
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.... CIT vs. Elys Plastics (P) Ltd. (1990) 87 CTR (Bom) 80 : (1991) 188 ITR 11 (Bom) covers the issue. 7. After coming to the above conclusions, the Tribunal proceeded to consider the question whether any amount was received by the assessee "so as to brand the receipt as either capital or revenue in nature" and the further question as to whether "if the amount is received where does it appear in the books of account". This question was considered in para 27 of the Tribunal's order. One of the objections raised by the tax authorities was that the assessee did not separately charge sales-tax in the invoices, but the Tribunal held that this aspect was not relevant because it is not necessary to show in the sales invoices a separate charge for sales-tax. The Tribunal proceeded to record a finding that even before the exemption was granted to the assessee and the assessee was liable to pay sales-tax, it was not showing sales-tax as a separate charge in the invoices. The same position was noticed to have been continued subsequent to the exemption. In this connection, the Tribunal referred to r. 46A of the Bombay Sales-tax Rules which provided for bifurcation of the gross invoice figur....
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....ny specified class of sales/purchases from payment of whole or any part of any tax payable under the provisions of the Act. This amount as claimed should have been transferred to the separate account of subsidy. But as stated earlier the entries in the books of account are not sacrosanct and if the true nature of the receipt or payment is different then the same has to be evaluated on the basis of substance of the transaction and in accordance with the law applicable to such transaction. This is what the CIT(A) has done in asst. yr. 1989-90 after reviewing earlier appellate orders. From this discussion it will be amply clear that the amount of notional liability determined bears the character of subsidy, the amount which otherwise would have been paid to the Sales-tax Department." 8. Before the Tribunal, the assessee had also raised an alternative contention to the effect that the sales-tax liability, ascertained and determined to be payable but not paid because of the exemption under s. 41 of the Bombay Sales-tax Act, should be treated as having been paid and adjusted against the amount of subsidy receivable from the State Government. This alternative contention was raised pres....
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....xpiry of the exemption period and it found that the position was as follows: "(a) Before the date of notification under s. 41 of the Bombay Sales-tax Act granting exemption qua certain class of goods from the payment of sales-tax, on each unit of turnover valuing Rs. 100 there was embedded on sales receipts amount of Rs. 4 by way of sales-tax liability and, therefore, the assessee was offering Rs. 96 for the purpose of income-tax. (b) During the period of exemption for the same unit of turnover valuing Rs. 100 the assessee has offered Rs. 96 for income-tax, it appropriates Rs. 4 against subsidy. If the Revenue's stand is accepted then the assessee should be offering sum of Rs. 100 as taxable receipt. (c) Even after the exemption period when the circumstances or the manner in which the bills are raised continue the same way, the position is just like that given in (a) i.e., Rs. 96 being offered for taxation. 32.2. From the above it will be seen that before exemption, during exemption and after exemption, the assessee is offering an amount of Rs. 96 by way of taxable receipts." 11. The Tribunal then proceeded to consider the impact of the de....
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....the absence of the certificate, the assessee was liable to pay the amount of tax determined. According to the Tribunal, the effect of the eligibility certificate was to free the assessee from payment and treat it as subsidy from Government. 13. It was pointed out before us on behalf of the assessee that the aforesaid order of the Tribunal has become final since the reference application filed by the Department in R.A. No. 689/Bom/1994 filed under s. 256(1) of, the IT Act was rejected by order dt. 4th March, 1996 and according to instructions, the Department has not preferred an application under s. 256(2) of the Act to the High Court. A copy of the said order has been placed at pp. 200 to 214 of paper book No. 1. The question proposed by the CIT in this reference application was as under: "5. Whether on the facts and in the circumstances of the case the Tribunal was right in allowing assessee's claim for deduction of Rs. 4,40,71,858 in respect of notional sales-tax liability holding it as capital subsidy?" 14. It is now necessary for us to refer to the Tribunal's order for the asst. yr. 1985-86 passed on 25th July, 2002, in ITA No. 7554/Bom/1989. In this orde....
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....tional High Court in the case of Elys Plastics (P) Ltd. which has been approved by the Supreme Court in CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) and therefore there should be no deviation from the earlier decision that the sales-tax incentive was a capital receipt. As in the asst. yr. 1984-85, the assessee also took up the alternative claim that even assuming that the incentive was a revenue receipt, deduction should be allowed to the same extent under s. 43B. On behalf of the Revenue, the arguments put forth were as under: (a) The findings given by the Tribunal for the asst. yr. 1984-85 were erroneous. (b) The assessee did not collect sales-tax separately, but collected it as price of the goods by charging a composite amount. The provisions of s. 37 r/w s. 46 of the Bombay Sales-tax Act provide that a dealer who did not pay sales-tax because of some exemption cannot collect any amount as sales-tax and if the dealer did collect the tax, it was liable to be forfeited. The fact that the assessee did not collect anything as sales-tax was lost sight of by the Tribunal in its order. (c) Since the sales-tax was not to be pai....
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....sidy was the development of backward regions of the State. This is erroneous. Various judgments were cited before the Tribunal on behalf of the Department to prove this point, notably the judgment of the Supreme Court in Sahney Steel and another judgment of the Supreme Court in CIT vs. Rajaram Maize Products (2001) 170 CTR (SC) 393 : (2001) 251 ITR 427 (SC). On the basis of these judgments, it was pointed out to the Tribunal that the earlier order can no longer be considered correct. 16. In reply to the aforesaid arguments of the Department, the assessee strongly relied on the various clauses of the 1979 Scheme announced by the Government of Maharashtra, resolution dt. 5th Jan., 1980 and submitted that the earlier incentive schemes were fine-tuned so as to make them more effective, employment oriented and to encourage employment-oriented units in backward areas. It was then submitted that the incentive schemes right from 1964 were geared to the following four objects: (1) Development of the backward regions of the State of Maharashtra. (2) Dispersal of the industries. (3) Promotion of the industries for employment oriented units. (4) Providing....
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....se for setting up the industry in a backward area. Various other contentions were also raised before the Tribunal explaining the judgments, especially the judgment of the Supreme Court in Sahney Steel. The attention of the Tribunal was drawn to p. 263 of Sahney Steel where it was held as follows: "For example, if the Scheme was that the assessee will be given refund of sales-tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee". The attention of the Tribunal was also drawn to two judgments of the Bombay High Court - (1) CIT vs. Menezes Farmaco (1999) 153 CTR (Bom) 300 : (1999) 236 ITR 780 (Bom) and CIT vs. Govind Poy Oxygen Ltd. (1999) 157 CTR (Bom) 464 : (1999) 239 ITR 543 (Bom) in which both the Supreme Court judgments in the P.J. Chemicals Ltd. and Sahney Steel were considered and reconciled. 17. After noticing and considering the above arguments of both the sides in great detail, the Tribunal proceeded to record their conclusions from para 74 onwar....
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.... the salient features of the Scheme. If it is given as a general assistance to the assessee to carry on his business or trade, it would be a trading receipt, but if the object of the subsidy, irrespective of its source, is to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt and it will not be open to the Revenue to contend that the subsidy paid in the form of refund of sales-tax paid on raw materials or finished products must be treated as revenue receipt. However, if the monies are given to the assessee for assisting him in the carrying out of the business operations and it is given only after and conditional upon the commencement of production, they must be treated as revenue receipt. (4) The Tribunal held that in the judgment in the case of P.J. Chemicals, the Supreme Court had noticed the divergence of views between the various High Courts on the treatment to be given to the "10 per cent Central Outright grant or subsidy" and have also taken into consideration the two Circulars (No 142 and No. 190) issued by the CBDT It was finally held ....
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....e detailed reasoning of the Tribunal is not reproduced here, but we shall refer to the same at the appropriate juncture. Suffice here to notice, briefly, that the Tribunal held that the Maharashtra Scheme unlike the Andhra Pradesh and MP Schemes was completely focussed on the location of the industry and the amount of fixed capital investment and that these twin objectives were sought to be achieved by an elaborate Scheme of incentives with a view to alluring prospective investors to make large scale fixed capital investment in the interior backward areas of the State. It was further observed by the Tribunal that under the Scheme an investor did not have to wait to set up the industry first, commence production and complete a year of accounting thereafter. He could enter into negotiations with the Government at the blue print stage itself. He could gradually increase his level of entitlement, after setting up the industry, as and when further investment in the fixed capital assets is made. Thus the Maharashtra Scheme, according to the Tribunal, should be considered as a fixed capital investment incentive whereas the Andhra Pradesh Scheme can be considered as an "operational subsidy....
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....ut whether the claim of the Revenue is correct. Paras 27 to 48 of the order in the case of Bajaj Auto Ltd. deal with this issue. In that case, the assessee received a sum of Rs. 3,56,48,643 as sales-tax incentive in respect of the Aurangabad unit at Waluj and the question was whether the receipt constituted capital or revenue. The factory started production on 15th May, 1985. It was located in a notified backward area. The sales-tax incentive was granted to the assessee under the package Scheme of incentives announced by the Government, of Maharashtra vide Resolution No. IDL-1082/(4077)-IND-8, dt. 4 May, 1983. The assessee obtained an eligibility certificate under the Scheme for the period effective from 1st Feb., 1986. In the sales-tax assessment order dt. 20th Feb., 1988, notional sales-tax liability was determined at Rs. 3,56,48,643. Before the AO the assessee relied on the judgment of the Madhya Pradesh High Court in CIT vs. Dusad Industries in support of its claim that the aforesaid amount was capital in nature and cannot be assessed. The AO took the view that the incentive was not given for capital investment, that it was not in the form of a subsidy, that it was by way of ad....
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....s Ltd., the Tribunal "considered the incentive as capital receipt in view of the CBDT Circular No. 142". According to the order of the Tribunal in the case of Bajaj Auto Ltd., this Circular pertains to subsidy given for helping the growth of industries and not for supplementing their profits, that it concerns itself only with subsidies which are intended to contribute to capital outlay of the industrial unit and that the Circular "has got no relevance with the facts of the present case". It was further observed that "just going to backward area is not a reason, alliunde to which relief can be claimed". (d) "The Tribunal was not correct in the case of Reliance Industries Ltd. to give a different interpretation to the decision in Sahney Steel and Press Works Ltd.'s case and applying the ratio of P.J. Chemicals Ltd. in which the facts were totally different.". 20. Considering the main reason for constituting the Special Bench, it has become necessary for us now to embark upon the somewhat embarrassing task of answering the question: Do the observations made in Bajaj Auto Ltd. vis-a-vis the order of the Tribunal in the present assessee's case for the asst. yr. 1985-....
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....e the appreciation, in its view, was not quite correct or inequitable or some new facts have come to light justifying reappraisal or reappreciation of the evidence on record, it should have the matter placed before the President of the Tribunal so that the case can be referred to a larger Bench of the Tribunal for adjudication and for which there is a provision in the IT Act." There may also arise a situation, as it has happened in the present case, where a later Bench may have occasion to doubt the correctness of the decision of an earlier Bench of equal strength rendered in a different case. In such a situation, the proper course for the later Bench would be to place the matter before the Hon'ble President of the Tribunal with a request to constitute a Special Bench consisting of three or more Members. As to the course to be followed by the later Bench in such a situation, we may refer to the Supreme Court judgments in Union of India & Ors. vs. Godfrey Philips India Ltd. (1986) 158 ITR 574 (SC) and Union of India & Anr. vs. Raghubir Singh (1990) 87 CTR (SC) 186 : (1989) 178 ITR 548 (SC). In Union of India vs. Godfrey Philips, a Bench of three Hon'ble Judges of the Supr....
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....invoking the defence of executive necessity, and holding that to do so was wholly unacceptable, reference was made to the well accepted and desirable practice of the later Bench referring the case to a larger Bench when the learned judges found that the situation called for such reference." In this light, it would have been in order for the Bench which heard the appeal of Bajaj Auto Ltd., when it entertained doubts about the correctness of the Tribunal's order in Reliance Industries Ltd. for the asst. yr. 1985-86, to have invoked the powers of the Hon'ble President to form a Special Bench. If on the other hand, the facts obtaining in the case of Reliance Industries Ltd. were found to be different from the facts of Bajaj Auto Ltd., there was obviously no need to make the observations vis-a-vis the Tribunal's order in Reliance Industries Ltd. casting doubts upon the correctness of the said order, more so when both the Benches were of co-equal strength. 21. Two aspects of the matter fall for consideration now. The first is whether the order in Bajaj Auto can be said to have "virtually overruled" the order in Reliance Industries Ltd. (RIL) for the asst. yr. 1985-86. I....
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....ailable to industries in the developed areas of the State. The second point of difference related to the quantum of sales-tax incentive which was uniform to all eligible units under the Andhra Pradesh Scheme, but not so under the Maharashtra Scheme under which the quantum depended on the area in which the industry was located. The third point of distinction was that in the Andhra Pradesh Scheme, the incentive was in the form of refund of sales-tax subject to a maximum of the equity capital, whereas in the Mahsrashtra Scheme was either in the form of sales-tax exemption or interest-free unsecured loan. Further, the incentives under the Maharashtra Scheme were subject to monetary ceilings directly related to fixed capital investment. The fourth point of distinction was an elaboration of the third point of distinction. The fifth point of distinction related to the period of eligibility which was fixed at 5 years for all units under the Andhra Scheme, whereas it varied depending on whether the unit was new or existing or a pioneer unit or resource based unit. The period of entitlement was also noticed to be directly connected to the gross fixed capital investment. The period of elig....
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....paragraph 38 of the order is that in RIL, the Tribunal relied on the judgment of the Calcutta High Court in CIT vs. Balarampur Chini Mills Ltd., where the incentive was received for repayment of a loan taken for expansion of plant and machinery which were capital assets, whereas in the case of Bajaj Auto Ltd., the incentive was not given for acquiring any capital asset It was therefore held in Bajaj Auto Ltd. that the ratio laid down in the above judgment cannot be applied to the facts of Bajaj Auto Ltd. Actually, the effect of this observation in Bajaj Auto is merely that the facts in the case before the Calcutta High Court were different from the facts in Bajaj Auto and nothing more. The reference to the fact that the Calcutta High Court judgment was relied on by the Tribunal in the case of RIL is neither here nor there. Surely, it could not have been the intention to convey that the Tribunal erroneously relied on the Calcutta High Court judgment while deciding the case of RIL, because what the Tribunal in Bajaj Auto Ltd. actually said was that the facts of Bajaj Auto Ltd. were different from the facts in Balarampur Chini Mills Ltd. Merely because the facts in Bajaj Auto Ltd. wer....
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....cular but not as constituting the basis of its decision, but only for the purpose of explaining its understanding of the judgments. The Tribunal no doubt took the view that in the case of P.J. Chemicals, though the question was whether the subsidy given by the Government would reduce the actual cost of the assets for purposes of depreciation, it was common ground between the parties in those appeals that the nature of the subsidy in the hands of the recipients was otherwise capital, but it is not correct to say that the Tribunal considered the incentive as capital receipt only because of the circular. In this connection, it is important to refer to para 75 of the Tribunal's order in RIL. Referring to Circular Nos. 142 and 190, the Tribunal even at the outset noticed that these circulars reveal the "general approach of the Department in respect of this kind of incentives, subsidies or concessions granted by the Central Government as well as various State Governments" and further expatiated as under: "We have referred to these Board's Circulars because they indicate Revenue's understanding of the matter before various Court's pronouncements. Further, these Ci....
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....at p. 257 of the report, it was argued on behalf of the Department that the Supreme Court did not accept the contention of the assessee to the effect that any subsidy given for the purpose of stimulating the setting up and expansion of industries in the State was capital in nature, because the Supreme Court found that it was only when the assessee (in the case before the Supreme Court) had set up its industry and commenced production that various incentives were given for a limited period of 5 years. Attention of the Tribunal was drawn to the Supreme Court's observation that the endeavour of the State was to provide the newly set up industries a helping hand for five years to enable them to be viable and competitive. It was submitted by the Department that the subsidy granted to the assessee (RIL) by the Government of Maharashtra was also for production, that it was based on the sales made by the assessee and since the Supreme Court had held in Sahney Steel that any subsidy related to production could only be revenue receipt, the subsidy in the present case is revenue receipt in the hands of RIL. The salient features of the 1979 Scheme of the Government of Maharashtra were poin....
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.... up industries in backward areas and the subsidy given with the object of assisting industries for a limited period after they are set up and to lend ttiem a helping hand. The following observations of the Supreme Court in Sahney Steel at pp. 262-263 were strongly relied upon: "If any subsidy is given, the character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite immaterial. For example, if the Scheme was that the assessee will be given refund of sales-tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales-tax paid on raw materials or finished products must be treated as revenue receipt in the hands of th....
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.... consider the further observations of the Supreme Court at pp. 262-263 of the report, which we have extracted in the preceding paragraph. These observations, in our humble understanding of the judgment, constitute the ratio of the judgment. It is here that the Supreme Court has laid down the following principles: (1) The character of the subsidy (whether revenue or capital) in the hands of the recipient will have to be determined by having regard to the purpose for which the subsidy is given. (2) If the subsidy is given as assistance to the assessee in the carrying on of his trade or business, it is a trading receipt. (3) In determining the character of the subsidy, the source of the fund is immaterial. The Supreme Court itself gave an example to demonstrate how the ratio is to be applied. The Supreme Court supposed that if under the Scheme, the assessee obtained a refund of sales-tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy would be capital receipt. This example demonstrates the applicability ....
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....laim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the Scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales-tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales-tax incentive was not given to the assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area. 29. Thus, the interpretation of the Tribunal, of the ratio laid down in the judgment of the Supreme Court in Sahney Steel cannot be stated to be erroneous. The Tribunal did recognise, as the Supreme Court itself recognised, that the object with which the subsidy was given is decisive. It did recognise, following the distinction pointed out by the Supreme Court that if the subsidy is given for setting up or expansion of the industry in a backward area, it will be capital, irrespective of the modality or the source of funds throu....
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..... The actual disbursement took place after the assessee commenced production, but, according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. In para 115 at the bottom of p. 121 of its order, the Tribunal observed as follows: "On a detailed consideration of various schemes of Government of Maharashtra and 1979 Scheme in particular, we find that the investment in fixed capital assets is not merely a measure of the amount of incentive. The entire Scheme of incentive has been oriented and is subservient to investment in fixed capital assets in the specified districts of the State. The importance of this aspect has been emphasised in the judgment of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. itself at p. 263 in the following words ................." Thus, we find that the Tribunal did notice the crucial observations of the Supreme Court in Sahney Steel which gave primacy to the object of the subsidy over the fact that it was given after the commencement of production. 31. In the same paragraph, in p. 123 of the order, the Tribunal noted as under: "In our vie....
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....ome persons to be kept in employment who would otherwise have lost their jobs. Money was given for the express purpose which was named. It was found by the House of Lords that it had nothing to do with the trading of the company." 33. The above observations of the Tribunal made on the basis of the observations of the Supreme Court in Sahney Steel also show that the Tribunal was alive to the distinction between the character of the subsidy given with the object of promoting industrial growth in a particular area and the subsidy given conditional upon the commencement of production and after actual commencement of production. In our opinion also, it is not correct to understand the judgment as laying clown the broad proposition that wherever the subsidy is given after the commencement of production and conditional upon the same, it should be treated as a revenue receipt in the hands of the assessee, irrespective of the object for which the subsidy was granted. The object for which the subsidy is granted, in our opinion also, takes primacy over the fact that it was given after the commencement of production and conditional upon the same. That the Supreme Court itself recognised thi....
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....er years they have not brought, any new fact, or material on record, liven before us, with respect to counsel who appeared for both the sides, no new arguments were advanced other than the arguments which had been advanced by the assessee and the Department before the Tribunal in the appeal for asst. yr. 1985-86. The preliminary argument of the Department before us that the assessee did not collect any sales-tax and therefore there is no question of any exemption or incentive being given is an argument which has been advanced before the Tribunal both in the asst. yrs. 1984-85 and 1985-86. In fact, in para 74 of its order for the asst. yr. 1985-86, the Tribunal has referred to this aspect of the matter and after noting that the argument has already been found against the Department in the order for the asst. yr. 1984-85, further observed that no fresh material was brought to their notice either in the course of the arguments or in the orders of the Departmental authorities. The position before us, with respect, is the same. Even with regard to the other question as to whether the Tribunal erroneously interpreted the judgment of the Supreme Court in Sahney Steel, the arguments of the....
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....mount of subsidy is equivalent to the quantum of purchase tax, the object behind the grant of the subsidy is not to set up a new sugar factory, bur to run the factory efficiently. In other words, the subsidy is given so that the management may not be in trouble in running the factories in the initial year. In this background of facts, the Madras High Court applied the decision of the Supreme Court in Sahney Steel. In doing so, the High Court noted that in Sahney Steel's case, the payments were made directly or indirectly not for the setting up of the industries, but were made only after the production was commenced. It was therefore held, applying the ruling of the Supreme Court, that the subsidy received by the assessee, which was not for the setting up of the sugar factory, is a revenue receipt. In the other judgment, which is of the Madhya Pradesh High Court in CIT vs. S. Kumar's Tyre Manufacturing Co. (2003) 183 CTR (MP) 590, the subsidy was expressly given to meet expenditure on power. The Madhya Pradesh High Court held, following the judgment of the Supreme Court in Sahney Steel and in CIT vs. Rajaram Maize Products that since the subsidy is given for the purpose of m....
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....s draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the Scheme for discharging such loans, it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive would be a trading receipt in the hands of the recipient. The fact that the time of payment is subsequent to the commencement of production would not in the larger perspective make a difference. As observed by the Supreme Court in the case of K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC), it is not the name given by the assessee or even the Revenue or anyone else that matters, but it is the true character of the receipt that determines its taxability and being regarded as falling with the capital field or out of it. If the true character of the incentive here is to enable the assessee to ....