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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
pertaining to Assessment Year 2015-16 is directed against the order of Commissioner of Income Tax (Appeals)-I (in short ‘Ld.CIT’], Indore dated 08/03/2018 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 22.12.2017 framed by ITO-1(1), Indore.
2. Revenue has raised following grounds of appeal :-
"On the facts and in the circumstances of the case the Ld .. CIT(A) :- (1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Indore was justified in deleting the addition on account of Revenue subsidy claimed as capital subsidy of Rs.2,57,07,188/- by ignoring various factual & categorical findings given by the AO. (2) Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Indore was justified in deleting the aforesaid addition without appreciating the fact that the capital subsidy is altogether a separate subsidy given by MP Govt; and hence, the subsidy under question cannot be claimed as capital in nature. (3) Whether on the facts and in the circumstances of the case, the Ld. CIT(A, Indore was justified in deleting the aforesaid addition while ignoring the fact that VAT and ST assistance are reimbursement after adjusting input tax rebate on the amount of value added tax and central sales tax and they have no nexus or proximity with cost of investment or the cost of expansion of plant. (4) The appellant reserves the right to add, amend or alter the ground of appeal on or before the date the appeal is finally heard for disposal. (5) The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal.
The brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in business of manufacturing of leaf spring & assemblies and also engaged in the business of Bras Rods and Flats and all types of Rolling product at Pithampur. Original return of income was filed on 30.09.2015 declaring Rs.2,46,56,110/- which was subsequently revised on 21.3.2016 declaring total income of Rs. NIL along with current year loss of Rs.10,51,074/- after treating the VAT subsidy received from Madhya Pradesh Government under Industrial Promotion Policy 2004 and 2010 at Rs. 2,57,07,188/- as capital receipt which was inadvertently included as revenue receipt in the return filed u/s 139(1) of the Act. The case was selected for scrutiny through CASS and notices u/s 143(2) dated 28.07.2016 was served. Assessment u/s 143(3) of the Act was completed on 22.12.2017 at Rs.2,46,56,114/- adding Rs.2,57,07,188/- treating the subsidy as revenue subsidy which was claimed as capital subsidy in revised return of income.
4. Against the addition assessee preferred appeal before Ld. CIT(A) and succeeded. Now aggrieved Revenue is in appeal before this Tribunal.
Ld. DR vehemently argued relying on the order of the assessing officer and also referred to the following observations of the assessing officer: 4.6 On perusal of the facts of the case of the assessee it is found that: (i) The subsidy was not given to the assessee for acquiring the capital asset. (ii) It was also not given to meet part of the cost. (iii) It was also not granted for production of or bringing into existence any new asset. (iv)The subsidies in the case of assessee has been granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could
only be treated as assistance given for the purpose of carrying on the business of the assessee (v) The assessee is free to use VAT subsidy as per his sweet will. (vi) It is also noted that, no part of subsidy has been used for the purpose of repayment of loan borrowed for acquiring capital assets. (vii) Subsidy has been granted after the units of the assessee had commenced production and the subsidy is unconditional and can be used for any purpose. (viii) The subsidy in the case of assessee is linked to production as was the case with Sahney Steel & Press Works Ltd. The subsidy in Sahney Steel & Press Works Ltd. case (supra) was an incentive subsidy linked to production. In Sahney Steel & Press works Ltd. Case (supra) the Court had categorically stated that the scheme in hand was an incentive scheme and it was not a scheme for setting up the industries. In- the said case, the salient features of the scheme were examined and it was noticed that the scheme formulated by the Government of Andhra Pradesh was admissible only after the commencement of production. The subsidy in the case of the assessee is also an incentive subsidy as the credit of V A T subsidy is directly linked with the sale of manufacturing goods. (ix) The Govt. of MP has also been granting capital/investment subsidy & the V A T subsidy is different from that. (explained in subsequent paras) (x) The assessee also placed reliance on the judgment of jurisdictional High Court in the case of (1986) Taxman 4 (Madhya Pradesh), High court of Madhya Pradesh, Commissioner of Income tax Vs Dusad Industries, Misc Civil Case No 98 of 1984, November 4, 1985. On perusal of decision in that case it is observed that in that case of refund of sales tax was subject to certain terms and conditions. However, in the case of assessee the sales tax or VAT subsidy is not conditional. (Xi) The supreme Court is its judgement in the case of Mapco Industries Ltd. v. CIT (2009) reported in 185 Taxman 409 has expressed that “in the income tax matter one has to examine the nature of the item in question, which would depend on the facts of each case. Therefore, in each case one has to examine the nature of subsidy”. In view of aforesaid facts the reliance placed by the assessee on various judgments including the decision of special bench of I.T.A.T. in the case of DCIT vs. Reliance Industries Ltd. reported (2010) in 8 Taxman.com 218 (Bombay) is also not found to be appropriate.
Per contra Ld. Counsel for the assessee, at the outset, submitted that the issue raised in the instant appeal is squarely covered in favour of the assessee by following decisions of the Coordinate Benches wherein it has been held that sales tax subsidy under Industrial Investment Promotion scheme of Madhya Pradesh are capital receipt in nature:
Name Citation Court Subsidy Date of decision Universal cables 57 taxmann.com 95 ITAT Kol MP 27.02.2015 Ltd. Scheme Vindhya Telelinks ITA87/Jab/2013 ITAT Jab MP 27.02.2015 Ltd. Scheme Vardhman Textiles ITANo.787/Chd/2015 ITAT Chd MP 14.03.2019 Limited Scheme Gadia Wires 178 ITR 596 MP HC Old MP 02.03.1989 scheme
7. Further, Ld. Counsel for the assessee also referred to the following written submissions which were filed in response to the direction of this Tribunal on 19.10.2020 seeking certain clarification:
5. Details of Utilisation of subsidy received
In the industrial investment Promotion Assistance (IPA) Scheme 2010 of Madhya Pradesh Government, there is no stipulation regarding utilisation of subsidy as it is granted after commencement of Commercial production by the Industrial Unit. The assessee is free to use the subsidy for any of its business purposes.
At the outset it is a settled law now that the purpose of giving subsidy is relevant and not the form and nature or method of computation. If the same is for development of backward areas, generating employment then the same would be capital in nature irrespective of the time and manner of payment.
1. Chaphalkar Brothers (2013) 33 taxmann.com 431 (Bombay High Court) 2. CIT vs. Chaphalkar Brothers (2018) 400 ITR 279 (SC).
3. CIT vs. Rasoi Limited (2011) 335 ITR 438 (Cal) 4. Senairam Doongarmall v. CIT AIR 1961 SC 1579 (SC).
5. Shree Balaji Alloys v. ITO (2010) 127 TTJ 129 (ASR).
6. Pr. CIT vs. Shyam Steel Industries Ltd. (2018) 93 Taxmann.com 495
Further Ld. Counsel for the assessee placed reliance on the finding of Ld. CIT(A) who was decided the issue in favour of the assessee, placing reliance on the various decisions and judgments referred in the impugned order.
We have heard rival contentions and perused the records placed before us and carefully gone through the judgments referred and relied by the Ld. counsel for the assessee. Though, the revenue has raised 5 grounds of appeal but the sole grievance is with regard to the finding of Ld. CIT(A) deleting the addition of Rs.2,57,07,188/- made by the assessing officer treating the Sales Tax Subsidy as revenue in nature.This case was first heard on 06.10.2020.
Thereafter case was re-fixed for certain clarifications and for filing supportive documents in order to adjudicate the issue in hand.
1. Copy of Industrial Policy mentioned in the order of the Ld. CIT(A).
Order/Letter issued by the prescribed authority to the assessee for taking the benefit of subsidy. 3. Audited financial accounts/audit report for the assessment year 2015-16. 4. Applications made to the Sales Tax Department for claiming subsidy and the order thereof issued by the Sales Tax Authority. 5. Details of utilization of subsidy received.
10. In reply to the information called through order sheet dated 19.10.2020, the relevant information was supplied on 10.11.2020 which is placed on record. We observe that on 30.12.2014 the State level Industrial Investment Promotion Assistance Committee of M.P.
Trade & Investment Facilitation Corporation Limited provided industrial investment promotion assistance to the assessee under the Industrial Investment Promotion Assistance Scheme-2010. The date of commencement of commercial production is stated to be 24.07.2011 and the eligible period of assistance is for 10 years running from 24.07.2011 to 23.07.2021. The maximum amount of assistance is Rs.10.43 crores and the subsidy/assistance is provided to the extent of 75% of the MPCT/VAT & CST deposited by the assessee. In lieu of the sanctioned order, assessee needs to apply to the prescribed authority for taking benefit of the subsidy for which application is to be made to the Sales Tax Department and 7 District Level Industrial Centre. After conducted necessary verification and calculation of the tax deposited and the eligibility of the assessee, the subsidy is granted to the extent of 75% of tax deposited by the eligible unit.
It was also submitted before us that the unit for which subsidy is received by the assessee is situated in a backward area. The instant appeals relates A.Y. 2015-16 and in the year under appeal as well as in the preceding years the subsidies granted, were disclosed in the Audited Financial Statement as revenue receipt and offered to tax. However, during the year under appeal when it came to the knowledge of the assessee that similar type of subsidies are held to be capital subsidies by the Co-ordinate Bench as well as Hon’ble Courts then a revised claim was made by filing a revised return, claiming alleged amount as capital subsidy given in lieu of investment made in the backward area for establishing business.
10. Ld. Assessing officer on the basis of his observation which were relied by Ld. DR mentioned in the preceding paras was not convinced with this claim and treated it as a revenue receipts however, when the order came up before First Appellate Authority, he in view of settled judicial precedence and in the light of facts of the instant case deleted the addition observing as follows:
4.1 Ground No.1: Through this ground of appeal the appellant has challenged the addition of Rs.2,57,07,188/- on account of Revenue Subsidy claimed as Capital Subsidy. The appellant in the revised return treated the subsidy received from the Madhya Pradesh Government under Industrial Promotion Policy-2004 of Rs.2,57 ,07,188/- as capital receipt which was inadvertently included as revenue receipt in the return filed u/s.139( 1) of the Income Tax Act 1961. The Government granted the subsidy to achieve the objects of acceleration of Industrial Development and Generation of Employment.
4.1.2 The object of the scheme was not to supplement the profits made by industries. The subsidies given under the said scheme by the Government to newly set up industries were capital receipts in the hands of the industries and could not be taxed as revenue receipts. The subsidy was given by way of an incentive for capital investment and not by way of addition to the profits or the assessee as was clear from the facts and circumstances of the case.
4.1.3 It was observed that Character of a receipt in the hands of appellant has to be determined with respect to the purpose for which the subsidy is given. The purpose for which the subsidy has been given is to be verified. The point of time subsidy is given is not relevant. The source is immaterial. The form of subsidy is immaterial. The main condition and with which the court should be concerned is the incentive must be utilized by the appellant to set up a new unit or for substantial expansion of the existing unit. If the object of the subsidy scheme is to enable the appellant to run the business more profitably the receipt is on revenue account. On the other hand. if the object of the assistance under the subsidy scheme is to enable the appellant to set up a new unit the receipt .of subsidy would be on capital account.
Reliance is placed on the following case laws:- 1. The Special Bench of Mumbai Tribunal 111 DC!'I vs. Reliance Industries Limited (88 ITD 273) has held that if a subsidy is received for the development of industries in backward areas, it constitutes capital receipt regardless of the fact that it has been received only after the commencement of production as it is the "purpose' of the scheme which is of fundamental importance in determining the nature of the subsidy as revenue or capital. 2. The Al1ahabad High Court in Kalpana Palace V. CIT (275 ITR 365) where it was held that grant-in-aid received from State Government for setting up cinema theatres in backward areas, though such receipt was after the business had set -up, would constitute' capital receipt' .
3. Universal Cables Ltd. v. DCIT [2015) 57 taxmann.com 95 in context of same scheme i.e. Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004 held the incentive received as capital receipt after following the decision of Supreme Court in case of CIT v. PJ. Chemicals Ltd. 210 ITR 830 (SC).
Delhi Tribunal in case of Dy. CIT v. Cosmo Films Ltd. (2012) 139 ITD 628 (Delhi)(Trib.) wherein it is held that sales tax subsidy given under dispersal of Industries scheme as incentive to set up industries in areas other than Mumbai, Pune and Thane is capital receipt.
5. Delhi Tribunal in case of Dy. CIT v. Indo Rama Textiles Ltd. (2012) 53 SOT 515 (Delhi)(Trib.) Sale tax subsidy from Government of Maharashtra under Sales Tax Subsidy Scheme of 1993 was held to be capital receipt not liable to tax.
6. Dy. CIT v Bhushan Ltd (2015) 155 ITD 750 (Chand.)(Trib.) it is held that Sales tax subsidy Industrial unit covered under West Bengal Incentive Scheme, 1999, sales tax subsidy received from Government was capital receipt and not liable to tax.
The Bombay High Court in case of CIT vs. Kirloskar Oil Engines Ltd. (2014) 364 ITR 88.(Bom.)(HC) wherein subsidy received to set up a new unit was held to be capital in nature.
In the present case, it can be observed from the Scheme that the objectives for granting incentives to increase employment to establish new industrial units and enhance new capital in the Stale and not with a view to assist the companies in carrying out their business operation.
4.1.4 The fact of the above cases squarely applies to the appellant’s case and the jurisdictional bench of the High Court was of the view that the subsidy is of capital in nature. Therefore, the addition made by the AO amounting to Rs.2.S7,07,188/- is Deleted. Therefore the appeal on this ground is Allowed.
12. We observe that the assessee company started Unit-II in Pithampur, Dist.-Dhar, MP on 24.07.2011 with a capital investment of Rs.10,00,53,000/-. This unit is covered under second point of para 4.2.15 of investment Promotion Scheme and Pithampur fell under ‘C’ category of backward area. This unit was thus eligible for subsidy of 75% of the Commercial Tax and Central Sales Tax deposited into Government account. In various decisions referred by Ld. CIT(A) in the impugned order the catch word is ‘purpose of subsidy’. It is immaterial that at what point of time the subsidy is given. It can be before the start of production or after the commencement of production or after effecting the sales. What is important is that for what purpose the subsidy is given. Special Bench of the Tribunal in the case of DCIT v. Reliance Industries Limited (88 ITD 273) has held that ‘after incentive is given for setting up or expansion of industry in a backward area, it will be capital, irrespective of modality or source of funds through or from which it is given.
In the case of assessee maximum amount of assistances permissible is the total eligible investment stated in the sanctioned letter which is Rs.1042.94 lakhs (10.43 cr.). Being attracted by the provision of this scheme of subsidy the assessee decided to take a tough path of setting up a unit in a backward area and for this made capital investment of Rs.10.43 cr. (approx.). The scheme of subsidy is devised to give the benefit to the assessee by way of refund of the sales tax/MPCT/VAT & CST deposited by the assessee on the sales effected by it in the Unit-II located in backward area. So the nexus of subsidy is linked to the capital investment made by the assessee for setting up a unit in backward area. In these given facts, the subsidy received during the year by the assessee, in our view is capital in nature. Our view is further supported by following various decisions:
Name of Decision
CIT vs. Chaphalkar Brothers [2017] 88 taxmann.com 178 (SC) 2. PepsiCo India Holdings (P.) Ltd. vs. Addl CIT [2018] 100 taxmann.com 159 (Delhi - Trib.) 3. BhushaISteelvs.CIT(SC) 4. PCIT vs. Welspun Steel Ltd. [2019] 103 taxmann.com 436 (Bombay) 5. Johnson Matthey India (P.) Ltd. vs. DCIT [2018] 91 taxmann.com 200 (Delhi - Trib.) 6. Universal Cables Ltd. vs. DCIT 12
[2015] 57 taxmann.com 95 (Kolkata - Trib.)
It will be worthwhile to reproduce the finding of ITAT, Kolkata Bench in the case of Universal Cables Ltd. vs. DCIT [2015] 57 taxmann.com 95 (Kolkata - Trib.) wherein also similar type of subsidy given by the State Government of M.P. for the promotion of industry in the state was held to be capital in nature observing as follows:
We have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the assessee. The subsidy was received in terms of Madhya Pradesh Industrial Investment Promotion Assistance Scheme, 2004 in respect of Technological up-gradation - cum - Expansion project for manufacture of XLPE underground power cables using Vertical Continuous Vulcanization Technology in India. The scheme has been framed with an objective to increase employment and establishing new industrial unit by enhancing new capital investment in the state of Madhya Pradesh. Some of the features of the scheme are as follows: "25.The Scheme was applicable in respect of new industrial units having capital investment in fixed assets of more than Rs.1 core. In respect of expansion / diversification / technological upgradation / modernisation, minimum capital investment of Rs.5 crore in fixed assets was mandatory. Capital investment in fixed assets was defined to mean investment made in factory premises on land, building, plant and machinery, electrical establishments and pollution control devices and apparatus. Industries having fixed capital investment of Rs.25 crore and above were treated as mega projects. The assessee's fixed capital investment was in excess of Rs.60 crore and as such its project qualified as a mega project. The industrial investment promotion assistance to be granted under the said Scheme was not to exceed the investment made in fixed capital assets and for the period specified Such assistance was to be quantified on an annual basis as the amount equivalent to 75% of the amount deposited as commercial or central sales tax. The assistance amount was to be released in the next year in the commercial tax account of the unit by banker's cheque/demand draft.
The Assessee was required to enter into an agreement with the State Government in terms of which it was to undertake to make the requisite investment in fixed assets within the agreed Universal Cables Ltd. AY 2008-09 & 2009-10 time span. The said Scheme was to be operative from 01.04.2004 to 31.03.2009 and commercial production had to commence on or after 01.04.2004 but before 01.04.2009."
Since the assessee's project involved fixed capital investment of more than Rs.60 crores and use of new technology for the first time in India, it was accorded the status of a mega project of special importance by the Apex Level Empowered Committee for Industrial Investment Promotion constituted under the chairmanship of the Chief Minister of the State of Madhya Pradesh and the package sanctioned for it, inter alia, included Industrial investment promotion assistance equivalent to ....5% of the State and Central Sales Tax paid for every year for a period of seven years from March 29, 2007 to March 28, 2014 with a maximum cap of Rs. 60.25 crore. Industrial Investment Promotion Assistance:- -, . An Industrial Investment Promotion Assistance, equivalent to 50% amount of Commercial Tax and Central Sales Tax (excluding Commercial Tax on the purchase of raw material) deposited by the unit in the preceding year would be given to the industry; having fixed capital investment between Rs.1.00 crore to Rs 10 crores. Provision for this purpose would be made in the departmental budget. This would be available for 3 years in advanced districts and for 5 years in the backward districts. Assistance will not be more than fixed capital investment. An industrial Investment Promotion Assistance equivalent to 75% amount of Commercial Tax and Central Sales Tax (excluding Commercial Tax on the purchase of raw material) deposited by the unit in the preceding year would be given to the industry having fixed capital investment more than Rs 10.00 crores. Provision for this purpose would be made in the departmental 14
budget. The assistance would be available as per the following chart :- S. No. Category of District Minimum eligible fixed Duration of Assistance capital investment 1. Advanced district Rs. 25 crore 3 Years 2. Backward District A Rs. 20 crore 5 Years 3. Backward District B Rs. 15 crore 7 Years 4. Backward District C Rs. 10 crore 10 Years Amount of assistance will not be more than fixed capital investment." The Industrial Promotion Policy 2004 was formulated by the State Government of Madhya Pradesh for the promotion of industry in the State. The scheme does not mention explicitly regarding the subsidy as sales tax subsidy but says it to be Industrial Investment Promotion Assistance. It provides that IPA will be calculated @ 75% of the sales tax, deposited. It was applicable in respect of units to be set up and also to expansion projects of existing units having investment in fixed assets. The sales tax payable is adjusted up to 75% by way of incentive under IPA. The appellant has to pay only 25% of sales tax collected by it and the balance 75% is adjusted with the subsidy as a claim which will be reimbursed in the course of time after the claim is entertained by the State Government. The amount of industrial promotion assistance to which the assessee was entitled was quantified at 75% of the sales tax paid in the preceding year and the amount of assistance was to be adjusted against the sales tax liability of the year of claim. The subsidy amount is calculated @ 75% of the sales tax. The subsidy is given for 5 years from starting of commercial production. All these features of this scheme show that the subsidy is not given for meeting a part of the capital expenditure Universal Cables Ltd. AY 2008-09 & 2009-10 incurred by the assessee but as incentive for establishing or expansion of a unit and not for the specific purpose of meeting a portion of the cost of the assets. The subsidy is not directly relatable to any capital assets and not for the specific purpose of meeting a portion of the cost of the assets but it is the overall investment to make it eligible for availing the benefit. In the present case before us, the total capital investment cost for this project was 61 Crores. The State Government after evaluation of the proposed project of the company, granted certain fiscal incentives including Industrial Investment Promotion Assistance (UP A) for a period of 7 years from the date of Commencement of Commercial Production subject to fulfilment of condition as regarding infusion of capital investment as committed by the Company. Since the Project of the Company was of special importance and located in a backward district of category 'A', the government accorded the assistance for a period of 7 years instead of normal eligibility period of 5 years. However the maximum ceiling of the assistance was equivalent to fixed capital investment only. As per the Scheme, the amount of assistance which is to be claimed on yearly basis is determined @ 75% of total Commercial tax (MP VAT + CST) deposited (net of Input Tax rebate) in respect of sale of products produced using VCV technology on an yearly basis during the eligibility period. In view of these facts assessee claimed a sum of Rs.2,61,93,863/- being 75% of the tax deposited (Net of Input tax Rebate) for the year under consideration in respect of sale of XLPE Underground Power Cables using VCV technology as capital receipt for the reason that the overall limit of exemption is linked to the fixed capital investment and is in the nature of subsidy for setting up a new unit / expansion of existing unit. The subsidy received as above, is in the nature of capital receipt and CIT(A) has rightly held so. On this issue we confirm the order of CIT(A).
The above decision of Kolkata Tribunal in the case of Universal Cables Ltd. vs. DCIT(supra) was subsequently followed by the Coordinate Bench Jabalpur in the case of ACIT vs. M/s. Vindhya Telelinks Ltd. ITANo.87/Jab/2013 for A.Y.2007-08 & ITANo.127/Jab/2016 for A.Y.2009-10. The relevant portion is being reproduced for ready reference:
"9. Having given a thoughtful consideration to the rival submissions and from a careful perused of the documents placed on record) we find ,that there is no dispute with regard to ale entitlement of the assessee for sales tax exemption subsidy. The only dispute raised before us is with regard to the nature of subsidy received by the assessee. In the case of Sahney Steel and Press Works Limited and Others us. Commissioner of Income Tax (supra), their Lordships of the Han'ble Apex Court have held 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. If the purpose is to help the assessee to set up its business or complete a project, the monies must be (related as to have been received for a capital purpose. Bill if monies are given to the assessee for assisting him in Carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. In the case of Sahney Steel and Press Works Limited and others vs. Commissioner of Income Tax (supra) though it was a sales tax subsidy but it was treated to be a revenue receipt as subsidy was given from the public funds granted by the Government by way of refund of sales tax, etc. on purchase of machinery etc. after commencement of production of enable the assessee to run its business more profitably, and not for selling up of the industry.
In the case of Commissioner of the Income Tax us. Perini Sugars and Chemicals Ltd. (supra), their lordships of the Han 'ble Apex court have reiterated, the test for determining the nature of subsidy. In that case, their Lordships again reiterated that character of receipt of subsidy in the hands of the assessee has to be detem1ined with respect to the purpose 10r which the subsidy is given. In. other word s, in such. cases, 011e has to apply the purpose test. If the object of the subsidy scheme was to enable the assessee to run business more profitably, then the receipt is of 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/ assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given is irrelevant,. In that case, the receipt of subsidy was capital in nature as the assessee was obliged to utilize subsidy only for payment of [elm loan undertaken by the assessee for setting up of new unit/expansion of existing unit.
Keeping in mind the object behind the payment of incentive subsidy, the payment received by the assessee under the scheme was not in the course of trade but was of capital nature. 11.Therefore, in order to determine the nature/ character of subsidy, one has to examine the object or the purpose for which Subsidy is given. In the instant case, subsidy Was notified by the Government of Madhya Pradesh vide its notification No. A-3- 24-94-ST_ V(J 08) dated 6.10.1994. Similar type of subsidy Was granted by the Maharashtra Government and the issue Whether Subsidy received in the hands Of the assessee is capital in nature Or revenue receipt came up for adjudication before the Special Bench Of the Tribunal in the case of DCIT us. Reliance Industries Ltd. (Supra) in which the 1hbunal has catego1ically held that sales tax: incentive given by the Government of Maharashtra to the assessee for setting up industries in notified area in the form of exemption from liability of payment of sales tax for a period of five years With a view to bring around necessity infrastructure in backward area, is capital receipt not chargeable to tax.
The sales tax exemption subsidy scheme in Madhya Pradesh was also examined by the Kolkata Bench of the Tribunal in the case ACIT vs. Universal Cables Ltd. (supra) (copy of the order of the Tribunal dated 22.5.2009 is placed on record) and the Tribunal has held that Maharashtra package scheme and Madhya Pradesh exemption scheme are similar on all aspects. Following the order of the Special Bench in the case of DCIT us. Reliance Industries Ltd. (supra)) the Tribunal has held that nature of sales tax exemption subsidy received by the assessee is a capital receipt. xxx xxx. From the totality of the above facts, it is abundantly clear that the subsidy by way of sales tax exemption is provided to the assessee to set up a new unit and it is not being given to - the assessee to run the business more profitably. Therefore, on the above facts: in our opinion, the decision of Hon 'ble Apex Court in the case of Panni Sugars & Chemicals Ltd. (supra) as well as Sahney Steel & Press works Ltd. & Ors (supra) would support the case of the assessee rather than revenue. We also find that the Special Bench off TAT, Mumbai has 18 considered the similar issue in the case of Reliance Industries Ltd. (supra), The-Special Bench held as under: The question for consideration is whether the Tribunal in the case of RIL had correctly appreciated and interpreted and interpreted the ratio of the decision of the Supreme Court in Sahney Steel. On a careful reading of the order of the Tribunal in the case of RIL, it appears to us that the ratio of the judgment in Sahney Steel (SC) has been correctly interpreted and appreciated by the Bench.(Para 28) The Scheme framed by the Govt. of Maharashtra in 1979 and formulated by its Resolution dated 5.1.1980 has been analysed in detail by the Tribunal in its order in RIL for the A.Y. 1985-86 which we have already referred to in extenso. On an analysis of the Scheme, the Tribunal has come to eh conclusion that the thrust of the Scheme is that the assessee would become entitled for the sales tax incentive even before the commencement of the production, which implies that the object of the notified backward area. The Tribunal has, at more than one place stated that the thrust of the Maharashtra Scheme was the industrial development of the backward district as well as generation of employment thus establishing a direct nexus with the investment in fixed capital assets. It has been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even whole 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 this very nature was to be available only after production commence. 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.
13. Nothing has been brought on record by the Ld. CIT(DR) in support of his contention that the subsidy received by the assessee has not been given to expand existing unit or to set up a new unit. No contrary view taken by any Bench of the Tribunal with regard to sales tax subsidy has been placed on record. Once the impugned issue i.e. sales tax exemption subsidy was examined by the Tribunal in the case of ACIT vs. Universal Cables Ltd. (supra) and the Tribunal has given a categorical finding with regard to its nature or character, we find no reason to take a contrary view in this case in the absence of any material contrary to the facts illustrated by the Tribunal in its order. We, therefore, following the order of the Tribunal in the case of ACIT vs. Universal Cables Ltd. (supra) and the order of the Special Bench of the Tribunal in the case of DCIT vs. Reliance Industries Ltd. (supra) hold that the nature of subsidy received by the assessee is of capital in nature and not a revenue receipt. Accordingly the order of the ld. CIT(A) is set aside and the additions made on this account are hereby deleted.”
16. We, therefore, respectfully following the decisions of the coordinate Benches referred hereinabove and the settled judicial proposition and having examined the facts of the instant case, are of the considered view that the purpose of subsidy received by the assessee during the year is towards meeting out the capital investment made to set up the Unit-II project in a backward area and the subsidy so received at Rs.2,57,07,188/- during the year is capital subsidy. Thus, no interference is called for in the finding of the Ld. CIT(A). All grounds raised by the Revenue are dismissed.
In the result Revenue’s appeal is dismissed.
The order pronounced in the open Court on 09.02.2021.